Last month the payday loan company Wonga were forced to pay £2.6m in compensation by the Financial Conduct Authority, for sending customers misleading letters from fabricated law firms, in an attempt to pressure borrowers into paying outstanding debts. The issue led to FCA director of supervision, Clive Adamson, to state that, “The FCA expects firms to pay particular attention to fair treatment of those who have difficulty in meeting their loan repayments.”

Lenders were likely beginning to look over the shoulder to see who would next face admonishment from the regulator, and it has now come to light that the Government backed Lloyds Banking Group have been pulled into the spotlight by the Treasury Select Committees chair, Andrew Tyrie. Earlier this month it was reported that the Lloyds Group, along with Natwest and RBS, had been guilty of similar practices to Wonga, and it now appears that after research into the processes incorporated by the lender, the Treasury have requested an explanation from one of the largest UK lenders.

It is apparent that Lloyds had, in a very similar manner to Wonga, been issuing letters to their customers from a law firm created by the bank, to persuade borrowers that the claim for a debt repayment was serious enough to warrant court proceedings. In a letter issued to the Treasury by Lloyds Chief Executive Antonio Horta-Osorio, the bank confirmed that solicitors working within the banking group had, in the 1980’s, formed the firm Sechiari Clark & Mitchell to write to customers demanding debt repayments be made. The group re-branded the fictional firm to SCM Solicitors in 2009.

The letter confirmed that: “Until 2011, it was registered as a law firm with the Solicitors’ Regulation Authority. In July 2011 the partnership was resolved. The name SCM Solicitors was kept and its status as part of the in-house litigation team was disclosed on the correspondence.”

Horta-Osorio explained the practice further in the letter, stating that the decision to appear to be using a party outside of the bank for proceedings was, “to address those customers in financial difficulty who have not responded to our previous attempts to engage with them because they do not read or respond to bank letterhead correspondence, exacerbating the problems they face.” Around March of this year, he also confirmed that as rulings on transparency had changed, the Lloyds Group decided that they would no longer utilise the process.

While it would seem that SCM Solicitors have now closed their doors for good, the Treasury’s view of the practice has been dim to say the least. Andrew Tyrie was noted to say during a session called to discuss small business lending with both Barclays and Lloyds, that: “This is very concerning. The sample letter seems calculated to mislead. Lloyds failed to convince us that this was not the case, or to provide any satisfactory explanation as to why it issued letters in this form, but at least this practice has been brought to an end.”

In addition, he also stated that: “Banks have repeatedly assured Parliament that they are raising standards and now have robust procedures in place to bring consumer detriment to an end. But examples of bad practice like this keep on surfacing.” As the FCA has now issued the much-mooted Mortgage Market Review, it is widely expected that a wholesale review of banking practises is likely to be next on the agenda.  

Article By: Simon Butler, Senior Mortgage Consultant at Contractor Mortgages Made Easy

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