I've read with fascination the UK banks' attempts to justify their decades-old fake collection letter scam. The RBS letter is here. The HSBC letter is here. The Santander letter is here and the Barclays letter is here. Lloyds also admitted to using the same trick. Despite the attempted justifications, all the major banks have stopped the practice. But how much will it cost them, and what other scandalous conduct is lurking in their processes?
News of the banks' scam followed uproar over the admission by Wonga that it had used a similar practice four years ago (probably borrowed from the banks). Even the Student Loan Company had been in on the act. Wonga had confessed the issue to the Office of Fair Trading, and agreed to pay customers £50 each in compensation, presumably to avoid problems with its consumer credit licence during the transfer of consumer credit licensing responsibility to the more aggressive Financial Conduct Authority.
Basically, the banks and others played on the idea that debtors are more likely to pay up when a creditor hires someone else to recover their money. The letters from the CEOs of Barclays and Lloyds stated that their debtors tended to ignore chasing letters on bank letterhead (the banks seemed oblivious to the idea that everybody dreads a letter from the bank - especially ISA customers).
Of course, the banks were reluctant to actually pay anyone else to chase their debts. So, instead of hiring independent collections agencies and law firms, the banks simply created their own firms and called them something different to create the appearance that a genuinely independent third party had become asked to chase the debt. Whether they also charged the same recovery fees as independent firms remains the subject of investigation by the FCA.
The major banks also pretended to the authorities that they weren't responsible for collecting their own debts. When the Office of Fair Trading consulted with the industry on new debt collection guidance in 2002, the banks didn't respond under their own brand names, as creditors. The list of respondents in the Annex to the consultation response only included the banks' pet collection agencies and law firms.
But as the OFT's Debt Collection guidance made clear (in section 1.9), it's the creditor who is expected to "abide by the spirit as well as the letter" of the guidance, not just its collections agencies, and ignoring the guidance could affect the creditor's licence to lend in the first place. The guidance goes on to state:
"2.1 It is unfair to communicate, in whatever form, with consumers in an unclear, inaccurate or misleading manner.
2.3 Those contacting debtors must not be deceitful by misrepresenting their authority and/or the correct legal position.
2.5 Putting pressure on debtors or third parties is considered to be oppressive.
2.7 Dealings with debtors are not to be deceitful and/or unfair."
The OFT's 2003 guidance was updated in 2011 and has since been enshrined in the FCA's new consumer credit rules. Hence, like Wonga, the banks have becone increasingly anxious to clean up their act.
The narrow question is whether the banks will need to compensate customers affected and, if so, how much.
The bigger question is how many more examples of banks' systematic disregard for customers are lurking in their processes?