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Credit Controls Not to Copy: Banks Chasing Debtors Through Defunct Solicitors Firms

Friday, 22 August 2014

It seems almost impossible for banks to avoid any opportunity to attract public opprobrium at the moment.

In the latest controversy, British banks, including RBS, Natwest, Lloyds and HSBC, have been caught out issuing legal demands to customers from what at first glance appear to be independent solicitors firms. However, on further investigation, these firms have been revealed to be mere names for the banks’ respective in-house lawyers and legal departments.

The revelation follows on from Wonga recently being ordered to pay over £2.6m in compensation to its customers as a result of its sending certain letters to its customers in the name of fictional legal entities.

All businesses should have effective credit control policies in place but those policies must be appropriate and legal.

What Were the Banks Up To?

RBS and Natwest had been issuing legal demands under the name of ‘Green & Co Solicitors’ while Lloyds used ‘SCM Solicitors’.

According to the Solicitors Regulation Authority (SRA), SCM Solicitors ceased to trade as an independently regulated law firm in 2011, so the firm was not a legal entity but a mere trading name. In fact, searching the SRA register, none of the names that the banks had been issuing legal demands under existed as entities supervised by the regulator when the investigation took place.

In the letters, there was a form of wording in the small print which identified the seeming law firms as a department or working group of the bank itself. For example, Lloyds’ letters state that SCM was “part of the in-house litigation department of Lloyds”.

Nevertheless, the SRA were concerned that the approaches appeared designed to give the overall impression that a “third party or external agency…has been instructed to take legal action”.

Did the Banks Differ from Wonga?

In a word, yes.

With regard to the banks’ seeming intended effect, that of giving the customer the impression of impending legal action via a third party, the banks’ actions bear a distinct similarity to Wonga’s recent practices.

The difference lay in the fact that whereas the banks stated, albeit in small-print, the true legal nature of the sender of the letters, Wonga’s ‘firms’ were simply a fabrication.

SRA Warning to In-house Lawyers and Credit Controllers

Notwithstanding the important differences between the practices of Wonga and the banks, in response to the letters, the SRA has issued a warning to all in-house lawyers advising them against misrepresenting themselves publically as independent legal advisors. Such behaviour would go contrary to the Code of Conduct to which all solicitors must adhere.

A breach of the Code could mean the solicitor being liable for a sanction, for example paying the SRA’s costs for remedial action, or possibly even prosecution by tribunal.

Businesses are advised to avoid copying these practices, not only to avoid the negative image which is likely to result, but also the potential financial sanctions available to regulators.

Barclays, RBS and HSBC have all changed their practices in response and now only issue correspondence under their own respective branding and names.

For specialist advice regarding credit control and appropriate enforcement measures contact Peter Gourri today by email or telephone 0207 611 4848.

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