FSA has levied its first fine on a lender in relation to its mortgage lending processes, for breaches of Principles 2 and 3. A retention clause in a mortgage contract that applied to some of the firm’s customers meant the firm retained an amount averaging around £3,000 of a regulated mortgage advance for six months, during which period the borrower would pay interest on the full mortgage loan including the retention moneys. FSA considered the firm did not make the interest position obvious to all customers, although the terms and conditions clearly stated it. Also, there were no systems to ensure the retention was repaid after the six months, so customers often did not get the money until later. The firm did not always deduct the retention moneys when customers repaid their mortgages early. These failings resulted in nearly 700 borrowers losing over £2.3m before the firm paid them redress. Although the firm identified, investigated and remedied the problem itself, FSA imposed a large fine because of the large number of borrowers that suffered and because the firm did not take corrective action for more than two years after it identified the problem. The firm no longer imposes retentions on its mortgages.