The final final response from LW if it helps with anyone's FO claim. As responses go, it's a good one, although it should have ended with "so there! "
For the sake of clarity, I will be answering this in the form of a timeline/themes and will throughout highlight the sections where your individual questions are answered.
28 November 2019
We emailed our customer on 28 November 2019 highlighting the changes to the Terms and Conditions, opened by you on 28 November 2019 at 04:21PM. In this, we stated that the interest rate would reduce from 5.2% p.a. to 4.8% p.a. and that we would publish ‘‘quarterly performance updates and annual 'outcomes statements' so you can track the performance of your investment over time’’.
You have suggested that following the forum update by Matthew Powell on 29 January 2020 that Lending Works ‘’knew of the issues that investors had understanding the Ts and Cs changes on the Nov 19 email”. Matthew’s comments were directed at one investor in particular and as we mentioned before the overall response to that communication did not show that the wider customer base were confused by the communication. Of course, we are always available to answer any questions our customers have. I note from your file that you have asked questions in relation to your account generally but have not queried the 28 November 2019 communication until now. We certainly would have been happy to answer any questions that were raised at the time.
Moreover, we waived any fee payable to Lending Works if you decided to sell your loans between 28 November 2019 to 29 January 2020 but were clear that any interest rate shortfall discount payable to investors purchasing your loans would still apply.
You also highlighted that ‘’there was no opt-out period for the interest shortfall discount’’. Despite the changes announced on 28th November 2019 being made to protect the retail investor base as a whole, we appreciated that they were a change nonetheless. Therefore, we allowed a period of more than 30 days before the new terms and conditions to allow any investors who did not wish to continue investing to use the secondary market in order to sell any outstanding loans to other investors. We confirmed that we would waive any fees which would have otherwise been payable to Lending Works during this window. In line with all of our terms and conditions from the launch of the business in 2014 to now, there are two fees charged when a secondary market transaction occurs - a fixed transaction fee payable to Lending Works and a variable fee payable to the new retail investor(s) purchasing your loans (this fee is only charged if the interest rate on your loans is lower than the Target Annualised Return at the time you sell the loans).
In the following statement “any interest rate shortfall discount, payable to investors purchasing your loans if the loan rate is lower than the current rates, will still apply”, the interest rate shortfall discount referred to arises between the original interest rate and the interest rate in December 2019. In many cases, no fee will have applied, as there was no differential in the rates, and where there was a differential, it was typically minimal as this was prior to the reduced interest rates being applied. In any case, this fee is payable by the selling investor to the buying investor(s) and Lending Works does not benefit in any way from this fee. This fee cannot be waived by Lending Works since to do so would disadvantage the buyer of those loans.
In addition, you said that there was ‘’no mention of what the percentage would be for the interest penalty on sale of loans’’, however, we would have provided you with a quote at the time of the sale. This would have been automatically generated and would have given you the opportunity to make an informed decision.
You also queried why there ‘’was no 30-day period to opt-out of this change to T&C’s’’. As the interest rate shortfall was always a feature of the product, partly because it was required by FCA rules in the COBS section of their Handbook, there was no change and therefore no opt-out required.
You asked why there was no numerical example given at this time. Unfortunately, each and every investor loan book is complex and different dependant on the origination date of the loan chunks. Therefore, a numerical example would not have been appropriate in this scenario.
You also stated that there was no mention of a retrospective adjustment on previously paid interest made in the email dated 28 November 2019. We believe the announcement on 28th November 2019 and the Adjustable Interest Rate mechanism resulted in significantly better customer outcomes than would have arisen had we not taken these actions. Furthermore, we believe we communicated clearly and transparently and gave customers the opportunity to use the secondary market if they did not agree to the new terms and conditions. On this basis, we believe these actions were fair.
Moreover, you asked why there has been no mention that interest could go into negative. I want to first highlight that when signing up to Lending Works you signed a set of terms and conditions that make clear that this is an investment and that your capital is at risk.
Unfortunately, due to the unpredictable impact of COVID-19, we were unable to forecast that the interest could go into negative. COVID-19 has placed an unprecedented level of stress on most investment classes, and unfortunately, this has affected both the value and liquidity of your investment, as was outlined in our terms and conditions and Key Lender Information.
In addition to the terms and conditions which you confirmed you had read and understood upon signing up to Lending Works, the website and all marketing materials have and always have had many risk warnings and disclosures which also highlight the key risks of this type of investment.
3 January 2020
You explained that based on the forum post by Matthew Powell ‘’there was no data available, tailored the specifics of each Investor’s Loan portfolio to show the effects of the new T&C’s either before or immediately after the changes to T&C’s’’. We are unable to provide the specific details of exactly how things would have played out for these individual Customers if we had not taken the action we did as this would require us to manually reconstitute all payments received for all customers over the last two years. This is because the exact payments that they would or would not have received would depend on the timing of each individual failed payment across the entire loan portfolio and whether the Shield Fund had been depleted at each point.
In addition, you said that there was ‘’no type identifier’’ as this would have provided you with an indication that ‘’the interest rate change had not just been a reduction in interest rates going forward’’. We provided monthly statements confirming the difference in interest returns. We believe that this was an appropriate communication method to confirm the interest received. This is also typical of other investment platforms.
Moreover, you asked why ‘‘there was no data available to investors about which cohorts they were in’’. This was information that was accessible to all customers at the time through your individual dashboard. To access this, you would have to follow these steps:
Log in to your Dashboard using your email address and password you set up.
Click on ‘Statements’ on the left-hand side
Click on ‘Loan Book’ tab and then ‘Request Loan Book’ download button
Due to it being a large file it can take a few minutes to download, and it will then prompt you to visit the ‘Notifications’ tab. Here it will present you with the Loan Book Request being completed and provide you with a link to access the Excel File. Once you have requested to download this, in the Excel File it will present you with multiple tabs. If you scroll to Column T; Loan Start Date, it will allow you to filter what portions were invested into which yearly cohorts.
In addition, we would have also been able to provide you with this information over the phone at the time, had you contacted us.
You also stated that ‘’Lending Works allowed investors to invest and reinvest even when discussions were ongoing regarding these November 19 email changes’’. Unfortunately, we were not in a position to provide real-time updates and it would not have been reasonable to notify customers of this until everything had been finalised.
Pooling Arrangement and Introduction of Negative Interest
You asked, “why wasn’t it made clear that there was a 19% difference in the average reduction in interest rates between 2018 & 2019 cohorts”. We believe the key measure of your investment in loans via the Lending Works platform is the Annualised Return over the life of the investment. This is the measure we have used consistently used since we launched the product. On this basis, we have always used this measure in any communications and portfolio performance updates. As can be seen on our statistics page (https://www.lendingworks.co.uk/about-us/statistics) the performance of the 2018 cohort is slightly higher than 2019 cohort when considered over the life of the investment.
I understand that you mentioned that we stated that ‘’we can confirm that our data benchmarking shows that our loan portfolio is performing slightly better than average’’ in our August 2020? update. You stated that this provided you with a positive expectation on return. While our portfolio was performing slight better than average, the average performance in the personal loans industry was that significant losses were realised for lenders, as customers suffered significant financial distress during COVID. Reviewing the email further we also state that the ‘portfolio performance has continued to deteriorate in line with macroeconomic conditions’. Therefore, we did try to provide transparency to our customers without setting expectations.
Moreover, our communication of November 2019 confirms that there had been changes to the shield. Full details of the way the shield works are contained in the following documents:
www.lendingworks.co.uk/about-us/the-shieldwww.lendingworks.co.uk/about-us/risk-management In addition, I note that we wrote to you on 4 February 2022 providing a final complaint response explaining why the pooling arrangement was removed. We have since provided a further copy of this document.
We have communicated to you on a quarterly basis confirming the performance of the loan book and the reduction of interest rates.
We believe we communicated clearly and transparently and gave customers the opportunity to use the secondary market if they did not agree to the new terms and conditions. On this basis, we believe these actions were fair.
Conclusion
While we are extremely sorry that you feel unhappy with the service you received from Lending Works, we do firmly believe that every decision we have made that relates to retail investors over the past 12 months was in their best interests. Furthermore, decisions were made fairly, in line with regulations and our terms and conditions, and we believe communicated clearly and transparently.
