The firms reported drops in sales inquiries of 30%-80% between mid-February and late-April, but an increase in calls from customers who were confused by the coverage of the warning in the media.

James Wyse, managing director of Residential Reversions (RRL), said the warning . . . which appeared in the headline and first paragraph of a press release announcing the publication of a guide to equity release products . . . was "totally inappropriate and 100% incorrect".

Apart from including the standard admonition that consumers should seek independent advice, O'Dea's statement also cautioned that over-60s who take out equity release loans "may not have enough money in the future to meet your long-term health or care needs".

"Ifsra [the regulator] was talking through its arse and scaring the bejaysus out of people, " he said. "They made a thundering balls of this. . . why send out an advisory booklet with a two-page warning?"

Wyse said business was down 30% since the warning was publicised on RTE's Nine O'Clock News on 5 February by Eamon Timmins of Age Action Ireland. A spokeswoman for Seniors Money Ireland said sales calls plummeted from 500 to 100 per month starting in February. The lender decided to pull its radio and television ads for two months to protect its brand from being associated with the warning.

Finance Ireland chief executive Billy Kane said the use of the word "warning" in the statement had adversely affected business at the small lender during March and April, too.

"The statement caused a lot of concern to our customers and intermediaries, " he said. "It was wrong to use the word 'warning' in that context."

Last Monday, Finance Ireland reported a loss of 1m for the six months ending 31 December 2006, which Kane said was in line with expectations for a startup firm in a new product area.

The regulator's own financial services industry consultative panel discussed the warning at its 8 February meeting, where it was resolved that one of its members, Eimer O'Rourke of the Irish Banking Federation, would write to O'Dea to express concern at her use of "inappropriate language".

An official warning notice from the regulator typically names firms which operate irregularly, illegally or without appropriate authorisation, although there are several instances of the word "warning" appearing in the regulator's press releases.

A spokeswoman for the regulator said the warning did not refer to specific firms or products, but addressed "longterm consequences for the customers" of equity release products, a position rejected as "legalistic" by Wyse and as a sign "they've not taken on the message" by Seniors Money.

The regulator said 6,000 copies of the information guide had been distributed in February and March. The firms all said they include it with their sales and promotion literature.

Equity release mortgages and home reversion schemes are aimed at homeowners over 60 who want the option of getting a lump sum or regular income out of their home equity without having to move out.