Rob Cooper, chief executive and co-founder of litigation financier ME Group, could easily be mistaken for a bouncer.
In fact, before he helped to set up his current business, he was in enforcement in trading standards, although he insists much of his job involved “educating” businesses on what the law was.
Nonetheless, he needs his tough presence as now he is dealing with errant mortgage brokers.
The company assesses claims that come through its website to determine whether they have merit for a claim from the broker, Financial Ombudsman Service or the Financial Services Compensation Scheme.
Many of them he turns down, but for those that appear valid, he passes them on to a law firm, which will take 35 per cent of the final pay out if successful. In return he gets a fee ranging from £250 to £2,500 from this deduction.
Mr Cooper, who also runs private equity company Forbes Ventures, says: “We have never cold-called people and we have never bought in data; all of our advertisements are placed on TV and people come to us.”
More than 90 per cent of the enquiries that come through the website are rejected, based on an initial assessment by an algorithm.
Mr Cooper says: “Looking at past decisions where the complaint has been upheld, based on information from their current lender; as a free-to-use service, we will obtain the advice data and consent, and once we’ve got the full mortgage file back from the client, we will work out whether they’ve been mis-sold.”
Mortgage prisoners
Many of these cases refer to clients, often in the near-prime or sub-prime category, who were sold mortgages or remortgaged in the run-up to the financial crisis.
Credit was easy to obtain, and many financially vulnerable people were sold mortgages that they were not in a position to repay – many of which were repackaged into the mortgage-backed securities that caused so many problems.
Mr Cooper says: “It’s about looking at what the adviser should have done, based on the rules. What position the customer would have been in today and comparing [that] to what position they are in because of the independent advice, and working out what the redress should be.
“In the mortgage mis-selling, we end up with two different defendants: either the mortgage broker or a number of the large networks for whom these mortgage brokers acted.
“The mortgage broker would hold liability or the network. In the absence of both, it will end up being with the FSCS.”
So what has been the nature of most of these claims?
Fundamentally it is about brokers not doing affordability checks on their client, and lenders not being in a position to question them. This has now changed with the Financial Conduct Authority’s Mortgage Market Review, hence the more stringent criteria that these clients – many of them mortgage prisoners – are subject to.
“A lot of people were sold high [loan-to-value] interest-only mortgages [and] were mis-sold in every sense of the word because the broker broke [the FCA’s Mortgage Conduct of Business] rules.
“Interest-only mortgages were designed for sophisticated people to put their capital to work in the market, pay down the capital at the end of it, and benefit from the investment.”
Vulnerable borrowers
Unfortunately a lot of the wrong people were sold this type of mortgage, with no checks in place to determine if they could repay the capital at the end of the term.
Mr Cooper says: “The only way they could get the capital is to sell the home and they [would] be homeless.
“[This is] what the FCA would term a ‘financially vulnerable’ sector. These are people who have a choice between heating and eating, it’s very much about the here and now. Having taken out an interest-only mortgage – if they’re aware they took out an interest-only mortgage – they weren’t aware it was a problem.”
In some instances it was a blatant disregard for the client’s interests, especially if the client was saddled with debt.
Mr Cooper says: “In the run-up to the financial crash, credit standards were very weak; you were being given car loans and credit cards, people were borrowing well beyond their means.
“They would go to a mortgage adviser and say, ‘I need to do something about this.’
“As an adviser, if you’re not able to find a suitable product, you should have sent the client to a free debt advisory service, but you’re not earning anything from that.”
Instead, many advisers repackaged the credit card debt into a new mortgage, so that the monthly payments fell but all the adviser did was extend the loan.
But many people simply do not know about the Fos and how it works, or the FSCS.
Mr Cooper says: “They can’t go through the ombudsman or the FSCS because they don’t have the confidence or the skillset.”
But these are the last people to have been paid attention from the misdeeds of the credit boom pre-crash, says Mr Cooper.
“The only person that hasn’t been redressed is the financially vulnerable consumer who has been left to pick up the tab, in more ways than one.”
Melanie Tringham is deputy features editor of Financial Adviser and FTAdviser.com
