January 29, 2010 12:17 pm

FSA crackdown on sale-and-rent back firms

The Financial Services Authority is cracking down on controversial sale-and-rent back schemes, with plans to ban exploitative advertising and high-pressure sales techniques.

Sale-and-rent back companies often target homeowners facing repossession. The schemes involve individuals selling their home - usually at a discount - and obtaining an agreement to remain in the property for a set period.

The City regulator said on Friday that from 30 June 2010, sale-and-rent back companies will be banned from cold calling and from dropping promotional leaflets through letter boxes.

It has also prohibited the use of emotive terms like ‘fast sale’, ‘mortgage rescue’ and ‘cash quickly’ in promotional literature.

The FSA has confirmed rules to ensure consumers have a security of tenure for a minimum of five years.

The latest rules are the second part of the FSA’s two-stage approach to regulating the sale-and-rent back market. It previously implemented an interim regime from 1 July 2009.

“For some people in financial difficulty, staying in their home remains very important. Selling their home and renting it back in this way can be right for them. But we are aware of some firms exploiting vulnerable consumers at a difficult time,” said Ed Harley, head of mortgage policy at the FSA.

All sale-and-rent back firms must be authorised by the FSA otherwise they face potential fines or imprisonment.

But according to the Financial Services Consumer Panel, only 80 firms have applied for FSA authorisation so far in spite of the Office of Fair Trading judging there to be over 1000 firms undertaking sale-and-rent back.

“FSA regulation of this area promises to provide better explanation and protection for consumers. However, the FSA must police this area thoroughly. We still have worries that firms will try to exploit consumers both within the rules, and by trying to operate outside the rules,” said Adam Phillips, chairman of the FSCP.

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