Banks fake legal letters are ‘worse than the payday lenders’

The press is a curious beast. Just a couple of weeks ago there was furore across the board when details of a payday lender’s use of spurious legal letters was released. For this historic debt collection activity, employed from 2008-2010, there was widespread condemnation in print and broadcast media. The company involved has since issued a public apology for this practice and is in the process of compensating its customers to the tune of £2.6 million.

Given the comparative lack of coverage it has received, you might be surprised to learn that many of the UK’s biggest banks have been involved in exactly the same practice. However, unlike Wonga, which was involved in this activity for just two years before ceasing voluntarily, some banks have been intentionally misleading their customers since the 1980s.

Calculated to mislead

Lloyds was the first bank to come under fire after admitting to misleading customers into believing they were receiving debt collection correspondence from a third party. In fact, the law firm in question, Sechiari, Clark & Mitchell, later renamed SCM Solicitors, was part of Lloyd’s in-house team. The spurious legal firm was used because customers had failed to respond to previous letters in the bank’s name.

In a letter to MPs, Mr Horta-Osorio, the bank’s chief executive, admitted the letters had been sent to customers by a law firm which had been formed by solicitors within Lloyds Bank. He also said this practice had been ongoing since the 1980s, and only ceased in March of this year as the bank believed “views on transparency and clarity had changed”.

Until 2011, the bogus law firm SCM solicitors had actually been registered as a law firm with the Solicitors’ Regulation Authority. However, even after the partnership was dissolved, Lloyds Bank kept the name on letterheads when chasing both private and small business customers for payments.

Lloyds are not alone

Unfortunately, Lloyds is not the only bank that employs tactics which pressure customers into repaying their debts. The high street banks Halifax, Barclays, RBS and HSBC are also guilty of sending letters to customers from a supposed third party.

While Barclays bank has been using the name Mercers Debt Collections to chase debts, the Halifax Bank of Scotland has sent misleading letters to its customers under the moniker Blair, Oliver & Scott.

And it’s not only the banks that are guilty of this practice. The Student Loan Company has employed similar tactics when chasing graduates for student loan repayments.

Reaction to the letters

As part of their investigation into the debt collection activities, Mr Horta Osorio was asked by the Treasury Select Committee to disclose details of the practice and to provide a typical letter which would have been sent to customers. The letter employed scare techniques by demanding thousands of pounds were repaid to avoid court proceedings.

In response to the evidence, Andrew Tyrie, Chairman of the Treasury Select Committee, said: “This is very concerning. The sample letter seems calculated to mislead. Lloyds failed to convince us that this was not the case, or provide any satisfactory explanation as to why it issued letters in this form, but at least this practice has been brought to an end.

“Banks have repeatedly assured Parliament that they are raising standards and now have robust procedures in place to bring consumer detriment to an end. But examples of bad practice like this keep surfacing.”

Why is it that such misleading practices, when performed by the banks, receive such limited press coverage? Do you think the banks should compensate their customers for the doubtless distress caused by these letters? We’d love to hear your views on this contentious topic, so please your thoughts in the comments section below.




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