The FCA confirmed it had received a letter from Lendy regarding the action, which was first reported by the Financial Times, and said it was “monitoring the issue”.
The lawsuit has come as arrears at the firm have soared in the last week with two loans worth almost £9m going past their due date alone, according to analysis by Specialist Lending Solutions.
At present more than two thirds of Lendy’s active loan book is past its due date – 56 loans worth approximately £112m out of a total active book of 82 loans worth £180m are late to be repaid.
However, Lendy does not class loans as being in arrears until 180 days after the due date, but even under this measure £79m worth of loans are in default.
Concerns have been raised by many within the specialist lending industry around the peer-to-peer sector over recent months.
Contributors to Specialist Lending Solutions Marketwatch last month welcomed the FCA’s proposals to increase scrutiny, saying the regulator’s concerns were legitimate and warned that lenders could close.
Meanwhile, earlier this month specialist lenders also warned that new entrants were taking too many risks and could be particularly vulnerable, with the potential of losing smaller investors’ money and hurting the reputation of the wider industry.
Many investors commenting on Lendy’s Trustpilot review site have also warned about the lender’s increasing arrears, with some noting that interest return had fallen well below the expected 12% to 4% or even nothing.
Others also criticised its valuations policy, claiming Lendy overvalued properties to achieve a lower loan to value (LTV), but this had then bitten hard when trying to return investors’ funds.
Overall, while there was some positive feedback, Lendy has garnered a “poor” two star rating on the site.
In a statement, Lendy said all its loans were secured on UK property at conservative loan-to-values (LTVs).
“As with any form of lending, there is a possibility of loans defaulting. However, the possibility of losses to Lendy investors from those defaults is lower, due to the value of the security held,” it said.
“Lendy has a dedicated recoveries team that works to return as much of our investors’ funds as possible. We have added significant experience to this team over the last twelve months.
“We also spend six-figure sums each year on legal fees purely related to recoveries. These costs are borne entirely by Lendy and not investors,” it added.
Help protect investors
The legal challenge, as reported by the FT, has been brought by one of Lendy’s biggest borrowers in relation to an £8.2m deal affecting around 5,000 investors and the firm itself.
According to the paper, the borrower accused Lendy of giving notice on loans and not giving it further funds as per its contract, with a £10m damages claim being threatened in response.
Lendy said it called the meeting with the FCA to help defend investors interests should the case be successful.
However it described the lawsuit as vexatious and believed it would have very little chance of success.
“A borrower was failing to perform on a development loan so we started a recovery process against the borrower,” it said.
“As part of their efforts to frustrate that process the borrower launched a claim for damages for not making further installments of the financing available to them.
“The claim by the borrower is vexatious and we believe it has little prospect of victory.
“However, if the borrower were to win in court it might cause complications for the investors who have invested in this loan – which is why we requested a meeting to discuss this with the FCA. We think it perfectly appropriate to meet with the FCA to discuss this kind of issue,” it added.
Properly governed platforms
The FCA told Specialist Lending Solutions: “We are monitoring the issue but we can’t disclose our discussions with individual regulated firms.”
“All regulated firms have been through an authorisation process. We expect all platforms to be properly governed, have in place appropriate systems and controls and provide both lenders and borrowers with clear information so they can make informed decisions.
“We are currently consulting on strengthening requirements in this area,” the regulator added.