The Financial Conduct Authority (FCA) missed crucial signs that something was amiss at Lendy before the platform collapsed, investors have claimed.
Members of the Lendy Action Group (LAG) have shared their anger at the regulator, after they learned that the FCA was aware of alleged selfdealing and mis-selling at the peer-to-peer property lending platform.
“Throughout Lendy’s life cycle, they consistently changed their terms and conditions,” Lisa Taylor, a spokesperson for the LAG, told Peer2Peer Finance News. “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 the platform went into administration, Lendy made a “dramatic change to the terms and conditions” regarding the way that people 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.
The LAG also believes that Lendy was self-dealing and hid details of the notes which allowed it to collect double-digit interest rates on late payments from borrowers. These payments were collected as interest, but classified as ‘third party fees’ which were not passed on to the investors who had initially funded the loans, Taylor said. “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 had 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.”
The LAG believes that when the FCA was made aware of this fact, it mandated Lendy to make restitution to investors that were impacted. However, Lendy was allowed to select those investors who would be eligible for repayment. “The first failing was that the FCA allowed Lendy to selectively decide who they can pay,” said Taylor. “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.” The allegations of misselling and self-dealing at Lendy are the subject of an ongoing legal action which has been 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 – to account. Earlier this year, Damian Webb, lead administrator at RSM, told Peer2Peer Finance News that he supports the LAG’s attempts to gain legal clarity on the position of investors, but warned that the legal costs could become prohibitively high.