British Money, the Protection specialist, gave out a warning to lenders today stating that lenders who in the future offer credit to consumers without providing a suitable mechanism to ensure continuity of payments will have no power to force borrowers to repay back their loans.
They went on further to state that if the borrower’s income is interrupted due to accident, sickness or unemployment, lenders will have to carry the responsibility of having to compensate customers for any damage caused to their credit ratings.
The decision comes following increased widespread resistance from lenders to discuss or offer borrowers protection products.
Nick Baxter, Independent Chairman of the Professional Financial Claims Association (PFCA), put forward a statement agreeing that the issue was cause for concern:
“We seem to have gone full circle! It was not that long ago when the then government had to issue targets to lenders to ensure that debts were adequately protected. Then we went through the ‘ridiculous period’ when lenders arranged inappropriate products – often without the customer’s knowledge – and failed to undertake robust needs and circumstances analysis.
“Such behaviours resulted in a number of mis-selling scandals. We’re now back to the pre-government target era when lenders seem afraid to talk to customers about their protection needs. Such a situation will be seen by many as equally poor and where customers are left without any ‘safety net’ advice, fingers will again be pointed at lenders for acting irresponsibly.”
British Money commissioned an online survey In March to ask 100 claims management companies to identify the next financial service mis-selling scandal. 79% of respondents said they often find “lenders fail to discuss or offer any form of protection or obtain an acceptable disclaimer” and this could leave them exposed to a second wave of compensation claims.
British Money Director, Alexander Burgess, put forward a statement regarding this issue saying:
“‘It appears claims management firms are confident they can secure compensation for borrowers on the basis their lenders failed to act prudently. There must be a quality debate now, between all stakeholders, on how to tackle the protection gap issues. If left unaddressed, it may cost lenders dearly.”
It appears that our financial institutions are now more concerned about being targeted for mis-selling financial products than actually selling their products.