Investors in failed peer-to-peer platform Lendy believe the FCA was negligent and should have known what was going on – and could have known.
Members of the Lendy Action Group (LAG) have expressed their dissatisfaction at the UK watchdog after discovering that the FCA was aware of alleged self-dealing and mis-selling at the peer-to-peer platform Lendy. Lisa Taylor, a spokesperson for the LAG said:
“Throughout Lendy’s life cycle, they consistently changed their terms and conditions. People were making investments based on one set of rules and then Lendy would go back and change the rules and apply them retrospectively.”
Before Lendy entered into administration in May 2019, the platform made a “dramatic change to the terms and conditions” regarding the way that investors would get paid in the event of a wind-down, according to Taylor.
“Aside from the fact that Lendy should not have been able to change the rules retrospectively – the net effect was that Lendy’s closure put into effect a waterfall that would strip as much as half of all the anticipated cash recovered before it got to investors,” she said.
How the FCA could have helped Lendy’s investors
The LAG also believes that Lendy was self-dealing and concealed information of the notes which allowed it to collect double-digit interest rates on late payments from borrowers. According to Taylor, Lendy collected these payments as interest but classified as ‘third party fees’ which were not passed on to the investors who had initially funded the loans. “We think that we can show that what they’ve done is not legal,” said Taylor.
“They did not share this information with any investors and they applied it against investors retrospectively so we couldn’t have known that they were going to defraud us. The truth is that the regulator should have known that the charging of interest by a P2P firm was not permitted under their regulations, especially since the FCA had previously ordered Lendy to pay restitution for mis-selling and incorrectly structuring several loans outside of guidance.”
According to the LAG, when the FCA’s attention was drawn to the matter, the regulator authorized Lendy to make restitution to affected investors. However, Lendy was allowed to select eligible investors for repayment. Expressing her dissatisfaction, Taylor said the FCA failed by allowing Lendy to decide who they can pay.
“The next issue was that any lenders who accepted the restitution had to sign a confidentiality agreement, so new investors would have had no knowledge of this fraud. The FCA should have known that Lendy had proposed terms within their notes that said Lendy was going to collect penalty interest payments in violation of the regulations. We believe the FCA was negligent and should have known what was going on – and could have known. The regulator should have known that people were being defrauded. The regulator should have stepped in.”
LAG members fund legal action against Lendy
Lendy’s alleged misselling and self-dealing are the subject of an ongoing legal action funded by LAG members and a crowdfunding campaign.
The LAG hopes that a successful outcome will allow investors to recoup more of their capital from the administration process while holding Lendy’s directors and the regulator accountable. Earlier this year, Damian Webb, lead administrator at RSM, said that he supports the LAG’s attempts to gain legal clarity on the position of investors, but warned that the legal costs could become very high.
It is worthy of note that Lendy’s investors owed more than £150million after the platform collapsed. RSM, the administrators of the failed company, discovered a large amount of loans that were believed to be safely locked in to be paid back to investors can instead go to insolvency practitioners and creditors.
Lendy, which put investors’ money into property development, left around 9,000 people with £152million of investments outstanding when it collapsed last year, the highest-profile collapse yet in Britain’s peer-to-peer sector.
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