Investigation rules divorce action lender did not complete necessary checks on £230,000 loan

Borrower finds she no longer has to pay back loan

An investigation has revealed that a divorce action funder failed to check a borrower’s income before lending almost quarter of a million to pay divorce costs.

Novitas, the legal financer, were investigated by the Financial Ombudsman Service (FOS) who found that Novitas acted unfairly and have been ordered to repay all interest and charges to the client. The woman, who received the loan, complained to the Legal Ombudsman over the way her case was handled and how she was treated as the loan was arranged by her solicitors.

The case is in regard to a loan granted by Novitas in 2014 which was for an initial £100,000, which was secured against the client’s home. However, the total value of the loan rose over the following 12 months to over £232,000, with 18% interest applied to the loan. The woman was able to settle the debt in 2016 after refinancing via another lender.

The woman, who has not been named, claimed she was not told the consequences of her loan and complained to the lender who agreed to remove some of the interest. The woman was not satisfied with this which resulted in the FOS investigation who found that Novitas had not followed its own lending policy by not checking the borrower had the ability to repay the loan.

The FOS 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”.

They found a simple check would have revealed the woman would not have been able to pay back the loan and that the woman will not be asked to pay any more to Novitas than she already has. Novitas did not contest the findings.

These findings follow reports earlier this year revealed by the Gazette that numerous divorce clients of law firms felt they were pressurized into taking loans with Novitas. The company no longer provides legal financing, as of last year.