2nd Template letter to FCA - unfair terms

Andrew **y
FCA
12 Endeavour Square
London
E20 1JN



Dear Mr **y,

Re: Lendy Ltd             PLEASE PASS TO THE FCA TEAM SUPERVISING LENDY LTD.

I am a lender of the Lendy P2P Platform FCA Reg No: 743416. I am aware from recent press reports (eg Telegraph 26 April 2019) that FCA is monitoring Lendy due to concerns over the stability of the business, the level of default of the loan book and the way the company has been run.

I have written FCA 3rd April 2019 to express my concerns with Lendy and in particular the Director, Liam Brooke, who is solely responsible. That letter asked that FCA act to facilitate replacement of Liam Brooke with an independent board at Lendy / Saving Stream Security Holding Ltd, as I do not think he has the appropriate character to discharge the fiduciary duty owed to lenders. I attach a copy of the letter.

One particular concern I listed was ‘Unfair Terms / Changing Terms’ and that is coming into focus now.

1. Evolution of Lendy Terms for lenders.

2014 – 2016 Lendy offered lending opportunities on its platform to lenders, but these ‘Model 1’ terms explained that lenders lent their funds to Lendy (then called Saving Stream). Lendy then in turn lent funds from that money to borrowers. This arrangement has no contractual nexus between lending members and borrowers. This is a UCIS not P2P. I believe there are four loans with these terms still on the platform, all defaulted – DFL001 & DFL002 (the Exeter loans), PBL027 and PBL056.

2016 – 5/03/2018 Lendy changed to a P2P model. The loans offered on the Lendy platform resulted in a Loan Contract that was directly made between lenders and borrower. The terms appoint Lendy as agent and Saving Stream Security Holding (SSSH) as Trustee. The terms attached to each P2P loan as presented on the Lendy website appear to have been regularly amended with approximately 10 revisions, without notice to lenders. While I cannot be sure the terms over this period seem broadly similar.

5/03/18 and 11 July 2018 Lendy posted new terms on these days to the platform which substantially disadvantage lenders. The 11/7/18 terms are now attached to all existing loans including all that originated prior to 11/7/18, apart from the four ‘Model 1 loans’. A few of the changes include:

a. Creating many new instances where Lendy can raise fees and charges as they like.

b. In the event of defaulted loans Lendy’s fees of whatever nature and ‘interest’ will be recovered first before lenders capital.

c. Lendy remove from themselves any obligation to manage loans or any obligation under the Loan Contracts and Lendy deny any liability for any information they present to lenders.

d. Lendy and Savingstream Security Holding Ltd irrevocably appoint themselves as agent / trustee over lenders and the loan contracts, meaning they cannot be removed.

e. Clause 24.1 of these terms states: ‘For the avoidance of doubt, any changes to the Terms shall be deemed to apply to pre-existing loans where you continue using the Lendy Platform after the effective date of such changes, unless you expressly notify us otherwise in writing.’


2. Analysis of Lendy Terms.

All lending members of Lendy are retail consumers and I have never been informed by Lendy that I am anything other than that. There is great assymetry in knowledge and power between Lendy and its lenders. A remit of FCA is to protect consumers like us when this is abused.

The legal obligations between Lendy, SSSH and lenders spring from the laws of agency and Trust and the FCA regulatory regime. Lendy and SSSH have a fiduciary duty to lenders in law and a regulatory obligation to treat lenders fairly and be transparent in communication and fees.

The changes in Lendy terms 11/7/18 were never announced to lenders. The changes materially disadvantage lenders and amount to a huge and unquantified increase in Lendy fees while seeking to relieve Lendy of the responsibility to manage the loan portfolio or the consequences of their previous statements and actions when promoting the loans.

• I believe the changes are not legal and would not comply with FCA UNFOG regulations and I ask that FCA rule on that.


3. Lendy’s lack of acknowledgement of my refusal of 11/7/18 Terms.

I wrote to Lendy to refuse the 11/7/18 terms as soon as I become aware of them. I have not invested on any loan parts since 2017 and so none of the loan parts I have can be said to fall under the 11/7/18 terms. I have told Lendy the terms that do apply (as far as those terms are legal) are the those in force when each loan part I have in my portfolio was promoted on the Lendy platform.

My refusal of the 11/07/18 terms and request for acknowledgement of that by Lendy, led to a promise that the Head of Compliance would contact me.
This hasn’t happened despite reminders over many months.


4. Lendy’s refusal to account for recoveries and fees.

A related concern is the large difference between gross recoveries from defaulted loans and the net proceeds returned to lenders by Lendy since late 2018. As I have refused the 11/7/18 terms I expect Lendy to deduct reasonable direct costs of recovery from the gross recovery and no more, until my capital is restored. That is correct in equity, in-line with Lendy’s fiduciary duty and is how Lendy treated partial recoveries until late 2018. This is how Lendy should treat all lenders who have refused the 11/7/18 terms.

In that case I asked Lendy, in their agency, for a statement of account detailing fees and deductions for defaulted loans where a partial recovery has been made. I also asked for copies of the Loan Contracts for my loan part portfolio so I can understand if Lendy has operated within the bounds of its agency. Even from the information I do have I believe serious breaches of trust and negligence have occurred.

These are all reasonable requests a principal may make of their agent. However my request for a clear statement of account and copies of the Loan Contracts led to flat refusal. Formal complaints raised on the matter are similarly ignored. I believe this experience is typical of all lenders who have made such requests of Lendy.

While FOS will consider complaints from lenders, FOS is a cumbersome process to obtain statements of account and fees that should be readily available. Lendy have become a ‘disloyal agent’ and operate without regard for their legal and regulatory obligations to lenders. Lendy has a systemic problem that needs FCA attention. I feel this is a direct reflection of Liam Brooke’s suitability as Director for lenders agent and Trustee.


5. Impact of the 11/7/18 terms and refusal to account for recoveries.

My previous letter mentioned recoveries from two defaulted loans, secured on a hotel in Dereham and a farm near Newmarket. Both properties sold at auction for far less than the loan value. Lendy then applied further unspecified deductions taking the majority of the sale proceeds. Lenders received 17% of Dereham loan and 32% of Newmarket loan.

As I mentioned, Lendy have refused to account for those deductions. When Lendy ‘interest fees’ run at 5% or 6% pa plus a variety of other huge charges, (but only under 11/7/18 terms) Lendy’s fees become substantial compared with the outstanding loans that are long overdue.

No wonder Lendy are shy of accounting to lenders for the deductions. However Lendy have a legal and regulatory obligation to produce exactly this statement of account.

An example of the serious detriment Lendy’s agency is inflicting on lenders is illustrated with the large DFL012 loan secured on Herc*****m Q**y, Liverpool:

6. DFL012 – loan secured by first charge on Her******m Q**y, Liverpool.

• The £11m loan DFL012 became due in May 18 and defaulted.
• Administrators were appointed 26/6/18 over the borrower SPV a subsidiary of P****site. At that time lenders were owed c. £12m as secured creditors.
• The other large class of creditor were the buyers of apartments whose deposits were unsecured*. Their combined debt was also noted by the Administrator at c. £12m.
* There were some UN1’s registered on the title deeds prior to Lendy ‘first charge’, so not actually a first charge.
• The Administrator’s progress report on C.H. 1/2/19 notes an offer from HQ I*****rs Ltd for the security, which Lendy as the secured creditor was considering. That offer was subsequently accepted for, I understand, c.£7.5m.
• HQ In*****rs largest shareholder is P****site (50-75% according to C.H.), the minor shareholder being the buyers of apartments. I assume FCA are aware of the details.
• The net result of the sale is a transfer of the security from secured Lendy lenders to the borrower / unsecured creditors for an amount far less than the DFL012 loan.

The Administrators report progress states Lendy Ltd as the secured creditor. That is not correct. Lendy lenders are the secured creditors and the security is held in trust for them by SSSH Ltd. However Liam Brooke is the only Director and ultimate beneficiary of both those entities, so has executive approval over any deal to dispose of the security in the course of the administration.

Liam Brooke is also the only Director and shareholder of Lendy Properties Ltd.
Strangely, that company is the freeholder of the H********* Q**** development as of 26/6/2018. Lendy Properties Ltd has no contractual nexus with Lendy lenders.

The administrator issued a statement in the press about the deal describing how they sought to “draw together the interests of the landlord, secured creditors and over 100 investors” <Lancashire Telegraph, 18th May 2019.>

Clearly the administrators should only have been concerned with the interests of secured creditors, since they had identified there would be insufficient recovery to consider any unsecured claims. Liam Brooke’s primary duty as Director of SSSH Ltd is to single-mindedly press the administrator on that goal. While it is not unlawful in itself for Lendy Properties Ltd to have bought the freehold after DFL012 defaulted, it is nonetheless an unacceptable intermingling of Liam Brooke’s personal business affairs with the fiduciary duties Lendy and SSSH owe lenders.

For example I understand the deal will result in a net recovery to lenders at c.30% of what they are owed (the return from the administration to Lendy, less Lendy’s likely deduction). Lenders are secured creditors with first charge on the security. However press reports that unsecured creditors – the apartment buyers – represented by HQ I*****rs Ltd have emerged with a 92% net recovery (they get their apartment with an 8% extra charge). The missing information is the position of the freeholder, Lendy Properties Ltd. Since 2 out of 3 stakeholders are represented by Liam Brooke there are questions to be answered about how lenders come out of this with such an appalling deal, where unsecured creditors trump secured creditors by getting a far superior outcome.

I am aware of a liability Lendy owe lenders that springs from a condition in the borrower’s lease for Her*****m Q**y. - The development had to be complete by March 2018 or the lease would be forfeit to the freeholder. Maybe the purchase of the freehold was a way of preventing that eventuality and thus extinguishing Lendy’s liability to lenders. In that case the freehold should have been acquired by Lendy or SSSH and the reasons made transparent to lenders. Given Liam Brookes obligation as lenders fiduciary it is not acceptable for a company wholly owned by him, but without obligation to lenders, to acquire the freehold and I ask FCA to investigate.

7. Difference in recovery to lenders between 14/11/16 and 11/07/18 terms.

• The 11/07/18 terms give Lendy scope to levy almost any deduction they like from the proceeds of the administration. It is my concern that Lendy will make a very large deduction and refuse to account to lenders for that, as is their apparent policy to date.

• The terms that apply for lenders who have refused Lendy’s 11/07/18 terms are those extant when the DFL012 loan was promoted on the Lendy platform. Those terms are dated 14/11/16 and only allow Lendy to deduct reasonable direct costs of enforcement from the proceeds of the administration. I expect such costs to be minimal since the administrator will have already deducted the costs of the administration before returning the net realization of the administration to SSSH Ltd.

My concern is that lenders who have refused Lendy’s 11/07/18 terms and rely on the 14/11/16 terms, will find going forward Lendy simply disregard their notice of refusal of the 11/07/18 terms. These lenders will then be treated unfairly by Lendy intent on taking fees and interest to which they are not entitled, out of the recovery from DFL012 and subsequent recoveries. The amounts in question will be considerable and could amount to the majority of recovery from the current £140m defaulted loan book.

Having put FCA on notice of this serious abuse of agency and trust that is on-going in the Lendy debacle I expect that FCA will examine this issue of the terms and also Lendy’s lack of adherence to the Principles of Business that I describe.

* Please make sure that Lendy understands it must respect lenders right to refuse the 11/07/18 terms and to treat these lenders fairly in accordance with the terms that do apply on a loan by loan basis.

* Please review the way Lendy has slipped the 11/07/18 terms on to lenders with no announcement. I expect most lenders remain unaware that Lendy have retrospectively imposed highly disadvantageous terms on them. This is not fair treatment of retail clients.

* Please consider again my request that Liam Brooke be required by FCA to step aside as Director of Lendy Ltd and SSSH Ltd, in favour of an independent board and his own conduct be investigated. This letter provides more material suggesting he does not have the appropriate character to act as lenders fiduciary and he will certainly not be able to review his own conduct and liability regarding the losses of Lendy lenders.

In summary Lendy needs to be run down by a competent board independent of Liam Brooke.
The defaulted loans need efficient and diligent enforcement and borrowers pursued for repayment to the fullest lawful extent.
Please investigate Liam Brookes conduct as Director and in particular the remuneration he has taken from the business, including dealings of Lendy and SSSH with the many other companies owned by him. I would like to see the funds he has extracted from Lendy repaid. This because ‘profits’ at Lendy appear to have come from multiple breaches of trust owed by Lendy to lenders, rather than the creation of a sustainable business adding value for lenders.

Yours truly,