Protection specialist British Money warns that lenders who in the future offer credit without providing a suitable mechanism to ensure continuity of payments risk facing paying for a client’s defaulted loan.
The firm states that if a client’s income is interrupted in the event of an accident, sickness or unemployment, lenders without suitable continuity mechanisms will not be able to force borrowers to repay their loans.
The lenders may even have to compensate customers for any damage caused to their credit ratings.
The prediction follows a widespread reticence from lenders to discuss or offer borrowers’ protection products, a lack of guidelines from the Financial Conduct Authority and a ‘no comment’ response from the Financial Ombudsman Service, who says British Money, doesn’t appear concerned about reducing future complaint caseloads.
Nick Baxter, Independent Chairman of the Professional Financial Claims Association (PFCA), agrees the issue needs addressing: “We seem to have gone full circle! It was not that long ago when the then government had to issue targets to lenders to ensure that debts were adequately protected.
“Then we went through the ‘ridiculous period’ when lenders arranged inappropriate products – often without the customer’s knowledge – and failed to undertake robust needs and circumstances analysis.
“Such behaviours resulted in a number of mis-selling scandals. We’re now back to the pre-government target era when lenders seem afraid to talk to customers about their protection needs. Such a situation will be seen by many as equally poor and where customers are left without any ‘safety net’ advice, fingers will again be pointed at lenders for acting irresponsibly.”
In March British Money commissioned online survey firm Usurv to ask 100 claims management companies to identify the next financial service mis-selling scandal; 79 per cent said lenders who fail to discuss, offer any form of protection or obtain an acceptable disclaimer could leave themselves exposed to a second wave of compensation claims.
British Money Director, Alexander Burgess, comments: “‘It appears claims management firms are confident they can secure compensation for borrowers on the basis their lenders failed to act prudently.
“There must be a quality debate now, between all stakeholders on how to tackle the protection gap issues. If left unaddressed, it may cost lenders dearly. This will be pay-ja vu all over again!”
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