Last updated: July 4, 2014 8:58 pm

UK banks face demand for inquiry into lawyers’ letters

Signs sit outside branches of a Lloyds TSB bank, a Barclays Plc bank, a NatWest bank, and a HSBC Holdings Plc bank©Bloomberg

Ministers and regulators are under growing pressure to launch an investigation into how many of Britain’s biggest companies are sending misleading letters that appear to be from independent lawyers or bailiffs to get their customers to pay off debts.

Senior Conservative and Labour MPs called on the financial watchdog on Friday to launch an inquiry into the issue amid mounting evidence that companies in several sectors had resorted to the practice of sending letters purporting to be from third-party law firms or debt-collection agencies.

Three of Britain’s biggest banks – Royal Bank of Scotland, Lloyds and HSBC – have regularly sent customers letters on paper headed with the names of law firms that were actually from the banks themselves. Barclays has in the past sent letters under the name of a subsidiary when chasing debts from credit-card holders.

The revelations come a week after Wonga, the payday lender, was ordered to pay £2.6m in compensation after it sent letters from bogus law firms to customers who were in arrears, leading them to believe their debts had been passed on to a third party.

Stella Creasy, Labour’s shadow business minister, said: “The Financial Conduct Authority is investigating debt collection practices in the payday lending market. Today’s revelations show that this should be expanded into other areas.”

Her concern was echoed by members of the influential cross-party Treasury select committee.

Pat McFadden, a Labour member of the committee, said: “This practice looks to have been more widespread than we first thought. We need a broader look at this practice to find what has been going on.”

Andrew Tyrie, the Tory MP who chairs the committee, is writing to some of Britain’s biggest high street banks for an explanation of why they have sent warnings to some borrowers which purport to be from independent firms of solicitors or debt collectors.

Mr Tyrie said on Friday: “Customers should know who they are dealing with. It seems they may not have done..”

Charlie Elphicke, a Tory ministerial aide, gave warning against “disgraceful intimidation tactics”, adding: “It’s important to know how far this goes.”

Lloyds, Barclays, HSBC and RBS said they had complied with regulations, and none is alleged to have broken the law. Barclays and HSBC said they now only sent correspondence under their own brands, while RBS said it would also do the same in future.

Lloyds said earlier this year that it would “phase out” the practice. But letters are still being sent bearing the name SCM Solicitors. The bank is planning to stop sending the letters within the coming weeks.

The Student Loans Company also came under fire last week for having used similar techniques, writing to debtors from a firm that appeared to be an independent debt recovery group but was instead a subsidiary of the company. The SLC has recently stopped using the name Smith Lawson.

Utilities Anglian Water and Scottish Power have both used the name of subsidiaries when writing to customers to claim bad debts. Those companies said they had made clear who owned the firms involved when writing.

Citizens Advice is now calling on the FCA to examine whether debt collection practices are unclear and if compensation should be paid to customers.

Gillian Guy, the group’s chief executive, said: “People who are heavily in debt are under immense financial strain and need to know where to go for help, not be harassed by bogus companies exerting undue pressure and in some cases charging them for it.”

The FCA said it was unable to comment on the activities of individual firms, but that it was aware of the reports. “We would request that anybody who has further information about this type of practice passes it on to the FCA,” said a spokesperson.

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