pensate those who have really been mis sold, because they should only amount to a manageable and small proportion of the lending book of any well-run lender. What can’t be tolerated is having to deal with tens of thousands of claims that have no chance of going any- where, but which are made because there is no cost to failure and every chance that the lender may settle. Concern about just what the regulator is up to is understandable, given that many fear the claims chasing industry, grown fat on PPI, is now looking for new targets. Over the past 10 years such compa- nies have perfected a cynical business model that plays the system. They know lenders will often not have all the historical documentation necessary to prove categorically a product was cor- rectly sold, and that this is going to be the case with small value loans. They also know that each claim for- warded to the Financial Ombudsman Service costs the lender a standard £550 fee, plus the considerable man- power cost involved in processing. And that because lenders are set time- frames by the regulator to clear cases they are often willing to settle, just to get claims off their radar. Basically, there has been no downside
for either the claims chasers or the claimants because there has been no cost for making a spurious or false claim. As Barclays finance director Tushar Morzaria admitted last year, claims companies had been ‘swamping the bank with vexatious claims’. Unless the regulator acknowledges this and does something soon in the area of defining the general outlines of what constitutes a valid claim, there are going to be an awful lot of lenders out there wondering whether it is worth remaining in the market. They all know about the seemingly endless PPI compensation payments that have been made by UK banks - £39 billion so far, and counting. And they fear the same carpet bombing of daytime TV adverts suggesting to consumers that they’d be mad not to make a claim against the provider of their consumer loan, credit card, etc. Companies whose lending book con- sists substantially of smaller loans of under £1,000 know that this scenario would be disastrous. I know one such lender who told me that claims were already costing them £30,000 per month. They were getting cases in batches of 200-or-so fromone claims company that was acting in the same manner as packagers used to in
the mortgage market. They suggest that much of the claims process is automated and that complaint leads are bought from data platforms. Tellingly, they point to the number of cases against his company that have gone to the Ombudsman, of which only 6% have been upheld. They are certain - as I am - that if there is no regulatory or Government action on this, we are looking at the departure of more lenders from the market eager to avoid being the victim of a tsunami of claims that really do not have any merit. What is needed swiftly is a change to the ‘heads-you-win, tails-I-lose’ claims environment that in essence encour- ages fraud. Is this too much to expect this from the regulator?
Above: LendingMetrics Commercial Director and co-founder David Wylie
+44 (0) 2394 211010 | www.lendingmetrics.com
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