The regulator warned using retained interest calculations is “unclear, unfair and misleading” and demanded firms fill out a detailed survey on their charging structure within 20 working days, or by 24 August.
A retained charging structure involves quoting one interest rate upfront then charging more by calculating interest again on the whole amount plus the interest, potentially misleading borrowers, said the FSA.
An estimated 25 firms are regulated to lend in the bridging market, including Dragonfly Property Finance, Lancashire Mortgage Corporation (part of Blemain Group), United Trust Bank, Cheval, Masthaven, Bridgebank, Affirmative, Precise Mortgages and Mayfair.
The majority of the regulated bridging firms contacted charge this way with many reportedly urgently reviewing their processes.
Bridging trade body, the Association of Short Term Lenders said: “This is an important issue and our members asre obviously studying it with their compliance contacts, but certainly we will co-operate with the FSA in due course.”
The regulator said bridging firms must “make redress” to customers who have been hit by overcharging in this way in direct contravention of the Mortgages and Home Finance Conduct of Business (MCOB) Rules.
An FSA spokesperson, said: “We want the firms involved to take steps to identify where they are in breach and implement changes where necessary. Furthermore, if appropriate, they should pay redress to customers. We will be closely monitoring how bridging firms respond to this letter.”
The survey asks firms charging in this manner how long this has been going on, the number of customers involved, how long it will take to charge another way and how it plans to compensate customers.
