template letter to FCA - replace Liam Brooke as Director

Dear fellow Lendy lenders,  if you are concerned about your Lendy loans please read this letter I have written to FCA. FCA have the power to do what I ask.

It's quite long by necessity. If you share my view please copy the letter and send it to FCA.

If you do please drop me a PM so I have some idea how many go, if enough I will form a group to hold FCA to account. FCA like groups.

Regards, W.

FCA
12 Endeavour Square
London
E20 1JN                                 consumer.queries@fca.org.uk


Dear Sirs,

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

I am a lender of the Lendy P2P Platform FCA Reg No: 743416. I am aware from recent press reports (eg FT 10 March 2019) that FCA has Lendy on a ‘watch list’ 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.

This letter is to put FCA on notice that serious consumer detriment is underway at Lendy, with impending losses to lenders c.£100m and little adherence to FCA regulations. I urgently request decisive FCA intervention beyond enhanced ‘watching’. I would like to see FCA implementing one of these options:
1. Replacement of the existing Director, Liam Brooke and the compliance officer, Paul Coles with a new Board of independent persons (ie not obliged to Liam Brooke) of proven competence with a remit of maximizing recovery of funds to lenders, ie competently discharging Agency and Trusteeship and examining past payments.    OR
2. Replacement of Lendy as lenders Agent in managing and recovery of the loan portfolio with the same remit.

I have no confidence that Liam Brooke and Paul Coles are competent or act in the interests of lenders. The state of the loan portfolio and the errors in the back story of each loan confirm. The last years have seen high levels of cash taken from Lendy by Liam Brooke despite the appalling performance of Lendy for lenders. This letter explains how Lendy has lost several times more capital for lenders than interest paid, in other words there has been no genuine enterprise value created for Liam Brooke to sustainably reward himself. My concern is in the coming months, as losses crystallize and partial recoveries come in, Liam Brooke will accelerate the extraction of large amounts of cash through various undisclosed and undeserved fees. Please fulfil your statutory duty to protect Consumers and market confidence as the end game for Lendy approaches.


Background.
Lendy has c. 5 years trading as a P2P platform. Lendy finds borrowers requiring short term funding typically for bridging or development purposes. Lendy assess the projects / borrowers and arranges RICS valuations of property offered as security such that proposed loans would not exceed 70% of the security valuation. Projects that pass Lendy due diligence are offered to lending members of the Lendy platform. Lendy also acts as Agent for lenders to facilitate interest / capital payments and to enforce security for loans which fail to conform to the loan conditions, in particular to meet interest obligations and repay the capital at term.

Lendy rapidly expanded from 2016/17 with increasing number and size of loans offered on the platform. The Lendy website claims in excess of 22,500 lending members who Lendy claim have received £45m in interest.

State of Loan portfolio – Lenders Losses.
Unfortunately many of the loans Lendy promoted have not conformed to the loan conditions, do not pay interest and are overdue by years in many cases. Lendy do not use the word ‘default’, but these are certainly defaulted loans. The total value of capital owed to lenders is now c.£144m from c. 58 loans, not including unpaid interest estimated at a further £20m.

£144m is a very large level of default, while the back story for each loan varies these general themes appear:
• poor loan underwriting
• apparent misrepresentations in the promotional description of the loans / omission of vital impairments of the security that should have been disclosed to lenders
• extremely inaccurate valuations of security such that real LTV far in excess of 100% routinely offered rather than 70% limit.
• poor drafting of the loan agreements, such that they have dubious enforceability
• failure to properly manage the release of loans, especially for staged development projects, resulting in all loan money being extended against partly complete projects
• little effective enforcement of security following default

Of course security does exist for most of the £144m default loan book, but where the security has been enforced or has an IP administrator involved who has reported an expected return for lenders, it appears lenders can expect recovery to be 20-60% of capital lent. E.g. a couple of defaulted loans have recently returned capital to lenders (a hotel in Dereham and a farm near Newmarket) after selling 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.

Lendy have been asked to account for their Agency fees deducted but have not done so despite complaints being raised. This is in breach of many FCA regulations.

Extending the typical recovery rates so far, it seems very likely that lenders losses could approach or exceed £100m from the current £144m defaulted loan portfolio.

To place into context - for the average diversified lender who has been with Lendy since the start of the platform, for every £1 interest paid by Lendy, they will now have over £3 stuck in defaulted loans with a likely eventual loss of £2. The average lender has an IRR of over -15% (that is they lose 15% p.a.).

This starkly illustrates the consumer detriment that has occurred and is occurring from the Lendy business model the way the Liam Brooke has chosen to run it.
The Lendy business model does not benefit lenders at all, on average lenders are certain to lose substantial sums of money. But the Liam Brooke has done very well indeed:

Lendy owners remuneration – source Companies House
Lendy accounts for y/e Dec 2016 - Lendy owners received overall benefits of £718,400 including salary, dividends, pensions and contribution to a ‘wealth protection trust’. Additional loans of £749,588 were outstanding to the owners own property development company.

Lendy accounts for y/e Dec 2017* - Lendy owners received overall benefits of £734,000 including salary, dividends, pensions and contribution to a ‘wealth protection trust’. Additional loans of £819,588 were made to the owners own property development company. It is unclear if that loan was repaid or written off.

* On 1 March 2017 Lendy Group Ltd became the controlling entity of Lendy Ltd. In future years it will not be possible to easily understand the benefits taken by the Liam Brooke from Lendy Ltd as he is also the ultimate beneficiary and controlling party of Lendy Group Ltd. The accounts for Lendy Group Ltd are long overdue at Companies House.

Against a backdrop of spiralling losses for lenders I see a very high and increasing level of benefits for Liam Brooke and an increasingly complex and opaque corporate structure surrounding that going forward.

I do not feel that the level of remuneration taken by Liam Brooke is warranted or sustainable, particularly in the face of the investment in underwriting, monitoring and enforcement operations the Lendy loan book so obviously needs.

The security for loans on the Lendy platform is held by Savingstream Security Holding Limited (another Lendy Group Ltd subsidiary) which acts as Trustee for the lenders. However Lendy has taken the amount of the loans extended to borrowers onto its own balance sheet as an asset and the amount owed to lenders as a liability. Since Lendy’s stated role is as lenders agent I do not believe this accounting convention is appropriate and it fails to give a fair presentation of Lendy’s financial position. The company is not the beneficiary of the loans - lenders are and Lendy would presumably not feel obliged to the lenders in the face of defaults by borrowers. This practice is particularly inappropriate where the Director is making loans between Lendy and other companies controlled by him for his own investment purposes unconnected with Lendy business.

Changing terms / unfair terms.
Lendy provides two distinct roles to lenders. - Operator of the platform / promoter of loans and also as Agent for lenders, monitoring and enforcing repayment of delinquent loans.

Lendy’s Terms with lenders for both their roles appear in the same document in the particulars for each loan and are deemed to have been accepted by lenders when a loan part is invested on the platform. Lendy have repeatedly revised the Terms documents in a unilateral and retrospective way with the effect of diminishing Lendy’s obligations to lenders in Lendy’s role as Agent for lenders. I do not think it is fair or legal that Lendy should attempt to unilaterally revise their obligations as Agent to lenders on any particular loan once a lender has invested funds into that loan. Such practice flies in the face of many legal and regulatory requirements Lendy has as FCA regulated firm. I have no confidence in Liam Brooke having the appropriate character to properly discharge his obligations to lenders. Likewise Paul Coles, the compliance officer, who is clearly failing to hold Liam Brooke to account and is failing to comply with many FCA Principles of Business. While complaints have been made to FOS, FOS is not the agency with the power to prevent the ongoing consumer detriment.

Request for Action from FCA
This letter serves to put FCA on notice of my serious concerns about Lendy and the certain large losses that will be crystallized shortly. FCA still has the opportunity to make a significant difference to the outcome for lenders and to preserve confidence in the wider P2P market, which is inevitable tarnished by the Lendy debacle.

Liam Brooke has run Lendy from the start and is responsible for the state it is in now. This letter is not intended to detail all or any, specific actionable failing. The state of the loan portfolio tells the story. The management failure at Lendy is systemic and pervasive and stem from the decisions of Liam Brooke who seems to run this business with an eye to quick personal enrichment rather than delivering the service promised to lenders as our Agent and Trustee. FCA has the opportunity to limit ongoing consumer detriment by taking one of the options I have described, or an alternative with equivalent effect. It is not enough for FCA to watch and try to clean up the mess later.

I am copying this letter to my MP to be more certain the matter gets the attention it deserves from FCA.

Yours truly,