Litigation lender Novitas failed to carry out any checks on a borrower’s income before lending her £232,000 to pay divorce costs, financial watchdogs have concluded.

A Financial Ombudsman Service (FOS) investigation, the outcome of which has been seen by the Gazette, found that Novitas acted unfairly in the matter and should repay all interest and charges.

The litigant had her loan arranged by solicitors handling her divorce and has complained to the legal ombudsman about the way she was treated. The Gazette has agreed not to name her while these complaints are ongoing. 

Earlier this year the Gazette reported that several law firm clients felt pressured into taking out loans with Novitas by solicitors instructed in divorce proceedings. Novitas, now a subsidiary of Close Brothers, exited the legal financing market a year ago.

The FOS decision, which has not been contested by Novitas, concerned a 2014 loan agreement for an initial £100,000. It was secured by a charge against the borrower’s matrimonial home. She was also required to sign a deed assigning her rights to any financial awards.

Over the following 12 months extensions were granted bringing the total value of the loan to £232,688, to be repaid at 18% interest a year. The loan was settled in 2016 when the client refinanced via another lender.

In her complaint to the FOS, the borrower claimed the relationship between Novitas and her solicitors was unfair and that she was not given enough information to make an informed choice. Novitas agreed to refund part of the interest after admitting errors in statements, but rejected the other complaints.

The FOS investigator noted that Novitas’ lending policy included checks to ensure funds would be available for repayment. But no steps were taken to ascertain the borrower’s income or expenditure. At the time, she took home £700 a month from her job and received £700 a month in benefits.

The FOS decision stated: Novitas ‘knew that [the borrower] was likely going to need to sell her home or realise other assets before she could re-pay the loan and chose to lend to her regardless’. The investigation found that reasonable and proportionate checks would have shown she was not able to sustainably repay her loan. The FOS added that it would be disproportionate to ask Novitas to pay anything else back, given that the borrower benefitted from the funds received.

Novitas declined to comment on specific customer matters.


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