A recent report by Pollen Street Capital, based on data collected from 50 specialist lenders across the consumer, SME and real estate credit sectors, has revealed the sheer resilience of the specialist lending sector.

According to the data supplied by the lenders, since 1 March, 20% of loans entered forbearance of plans, and 84% of these have since exited those plans. There was also no change to the average monthly cash taken in April to August compared to the previous three months.

Pollen Street said that, while there has been a significant uptake of payment holiday schemes, the majority of those seem to have been taken by customers who were performing well when Covid hit and have been proactive in reducing their monthly outgoings.

It also noted the outperformance of smaller, more hands-on, lenders compared to larger lenders relying on greater automation, pointing out that where ongoing contact has been maintained to support customers, a higher proportion of those customers have continued to make payments.

This very much reflects the situation we have seen at Brightstone Law.  We transact in the same space and proactivity works, as does the personal direct approach. Significantly it works for creditor and consumer.

Forensic review of portfolios

So, during lockdown, whilst the messaging from the media seemed to suggest that payment holidays and the court moratorium was a no-brainer one size fits all opportunity for all to take up, many lenders either directly or through their legal representatives, set about forensic reviews of portfolios.

This is what we found. In the midst of what appeared a bombardment of new regulations and provisions, the basic principles remain. Once it was explained to consumers that mortgage debt is a priority debt, moratoriums do not last forever, debt forbearance is not debt forgiveness, and crucially the financial cost of taking deferment or delaying an exit strategy, the vast majority continued or resumed repayment arrangements.

In many of these cases enforcement was avoided by achieving consensual arrangements.

Treating customers fairly

Now, as we start to look forward to the future of the market, it is worth emphasising that collections cases are technically no more difficult than they have been in the past.

Yes, there will be further considerations. And yes, there will some added procedural steps as well as some logistical issues for the courts to overcome. But the prospects of success have not changed – although the approach that lenders must take has shifted.

TCF has never gone away but will now be thrust into the limelight. And the treatment of consumers, in these times, will go to the very heart of the creditor-debtor relationship.

There is a good chance that some consumers, or their legal representatives, may look at the post Covid treatment as an indicator of an unfair credit relationship.

In the next 12 to 18 months, those lenders that are most successful in terms of collections will be the ones that are faster, more proactive, and able to identify those customers who may seek to game the system as opposed to customers in genuine difficulty.

More than ever before, this means that lenders cannot afford to take a broad brush approach to either originations or collections. Successful lending will take a bespoke approach and specialist know how.

This is where experience becomes so important. Experienced lawyers in this sector will recognise different types of customer behaviour and will be able to identify the most appropriate approach to take for each individual customer.

If lenders show this type of discernment, so must their lawyers, and do this they must display relevant expertise to present a case to the courts in the correct way. Courts mostly come up with the right result for all parties but for that to happen, the preparation must be thorough, bespoke and on board.

We are living and working through a very difficult economic environment – there is no doubt about that. But there is also no reason why specialist lenders should not continue to thrive throughout this period – as long as they are able to adapt, and work with the right partners.

Jonathan Newman is senior partner at Brightstone Law