The Association of Short Term Lenders (astl) has today confirmed that it will be taking up the matter of retained interest calculations on regulated bridging loans – which the FSA has suggested could be in breach of MCOB rules – in due course.

In a statement issued by the astl, the Association said: “The FSA has written to lenders suggesting that the use of retained interest may breach MCOB rules depending upon how they have set out their illustrations and asked them to provide information.

“The use of retained interest has never been hidden from the FSA, and no objections have been raised about using retained interest, only how it is explained to the borrower.   

“In any case, the headline rate is only one of the elements that make up the cost of any loan; and that is precisely why the Key Facts Illustration was designed to show the total cost of borrowing, detail all charges and highlight the APR as a rate which would take both the amount and the timing of charges into account.

“Members of the astl are committed to provide transparent pricing, and we do not believe that any attempt has been made to mislead customers. It is up to each member to decide how to charge for their loans. In any case, the primary consideration of the customer has always been (a) how much net funds are received for the loan and (b) how much is to be paid back. 

“Charges are determined by the market and by the risk-reward ratio that each lender considers to be reasonable. Rates and lending criteria differ from lender to lender, and the retained interest product provided a useful funding method for customers who do not have the cash flow to afford a short term loan; but are able to afford a long term loan or are selling the property being secured.”