Lendy is taking action against valuers and solicitors in a bid to reclaim capital paid out on some of its overdue loans.
The peer-to-peer lender’s CEO Liam Brooke announced the move in an update which also revealed it expects defaults to worsen over the coming months.
In the email to investors, Brooke detailed how recoveries were progressing after the lender apologised in December and admitted that some loans would not be repaid in full.
Lendy has been under the spotlight since October after it was revealed 68% of loans on its book had gone passed their due date.
No guarantee of recovery
While some progress in recovering investors’ cash has been made, the lender warned defaults were growing and explained it was taking legal action in a bid to recover more.
“There are individual loans that we are pursuing claims under valuers’ and in some cases solicitors’ professional indemnity insurance,” Brooke wrote.
“While there isn’t a guarantee of a full capital repayment, we are expecting some recovery, but this process can take 12 or 24 months.”
Brooke noted that “individual loan recoveries have progressed positively”, with around £16m repaid to lenders since December.
“In addition, projected recoveries should be significant during the next three to four months,” he said.
“Some of these will include interest as well as capital, while others will be interim repayments as we seek to recover further monies through legal claims.”
‘Significant rise in borrower defaults’
Brooke warned that defaults had been growing and would continue to do so as the economic environment took effect.
“Lendy, like much of the peer to peer sector, has experienced a significant rise in borrower defaults as challenging market conditions continue to affect us all,” Brooke continued.
“The next quarter will not be without these issues, but I want to assure you that the business is in a more robust position than it has been, and we continue to focus on achieving recoveries on your outstanding loans.”
He added: “Lendy is not alone in facing a challenging period of recoveries as borrowers find themselves under increasing pressure which has led to their failure to repay on time and in full.
“The slowing UK economy and wider Brexit uncertainty has highlighted just how difficult it is for SMEs to secure funding or refinancing of any sort.”
Brooke also revealed that three board members who joined in December as part of an overhaul have now left.
He said chief financial officer Paul Thompson, chief operating officer David Gammond and general counsel Gary Anderson departed the lender because a northern office was no longer required.
“As a large proportion of Lendy’s loan book is in the North of England, we had been looking to set up an office in the Manchester area to oversee and manage the recoveries process,” he said.
“As the recoveries moved forward, this move has become less of a priority and we felt that expenditure on an additional office was not justified.
“Most of that team was based in the North West and the logistics of travel were increasingly time consuming. Gary, David and Paul each made valuable contributions to the business during a period of transition and have left on good terms,” he added.
Brooke also took the opportunity to highlight that using a platform such as Lendy was a “high risk option that retail consumers must understand before committing to lending”.
And he warned that, unlike personal bank accounts, the peer to peer sector is not covered by the Financial Services Compensation Scheme, meaning any money lent could be lost entirely.
He added that Lendy was continuing contact with the Financial Conduct Authority (FCA) about the situation.
Specialist Lending Solutions has contacted Lendy for more information about the claims being made against valuers and solicitors.