Lender Exchange: downright wrong or a good idea poorly presented?

Quietly, lenders could be moving closer to taking control of the conveyancing market. It started with the rise in mortgage fraud, which prompted a thematic review by the Financial Services Authority in 2011. Its outcome included recommendations for lenders to review their panels, which kicked off a major policy change in the sector. It led to banks and building societies purging less reputable firms off their books.

This had unintended consequences too. Some law firms found themselves booted off panels for reasons unrelated to their competence or the robustness of their risk processes. Separately, lenders demanded that the legal profession put its house in order and provide assurances that it took property fraud seriously.

The response was the Law Society's Conveyancing Quality Scheme, launched in October 2010, which now has 2,889 members. Ostensibly, the new scheme was about raising standards, with clear protocols aimed at keeping errors and fraud out of conveyancing.

By and large observers agree that the scheme has helped, but maybe not as much as anticipated, and with just over half of the firms undertaking property work on board, it still has some way to go. What's more, it is also used by some lenders as a prerequisite to panel membership, making it more challenging for some firms to compete and stay in the market.

Now, lenders have come up with a further scheme, which they will administer via a third party. Lender Exchange, due to go live in the first quarter of 2014, will be a centralised portal where law firms will provide their details when applying for panel membership with lenders that have signed up to it. Built under the auspices of the Council of Mortgage Lenders, the exchange will be run by a private company, Decision First, a joint venture between title insurance First Title and Decision Insight.

Lloyds Banking Group, Santander and RBS were involved in early discussions about Legal Exchange and have signed up to it for launch.. Under the scheme, firms will no longer need to provide the same information '“ or different information '“ several times to different lenders. Lender Exchange will act as a single entry point. Most property lawyers seem keen.

Sensible proposition

'The principle is essentially a good one and one which the Law Society recommended some time ago,' says Boys and Maughan senior partner Peter Rodd. John Outram, partner and head of property at Taylor & Emmet is equally positive in principle. He describes as 'sensible' the creation of 'one repository that would contain all the information, and lenders could dig into that as they needed to, that would be extremely helpful.' And so does Eddie Goldsmith, senior partner at Goldsmith Williams and chair of the Conveyancers Association, who says the current system is the cause of 'great frustration'.

For David Buchanan, partner at Clifford Smith and Buchanan Solicitors, the question is not so much whether there should be a centralised application process but about reducing time and costs, and increasing the level of service. Ideally, he says, 'CQS, Lender Exchange and other similar services should compete with each other to reduce
the costs, and conveyancers could choose which one to subscribe to.' The best solution, he continues, 'would be for the banks to get Law Society membership and SRA record direct from the SRA and the society, without solicitors having to duplicate all the data', which would avoid 'a middle market which is totally unnecessary.'

But there are grave concerns over the lack of information about the new portal, in particular the criteria for panel membership, how firms could appeal against exclusion from panels, and whether exclusion from one panel would mean exclusion from all panels.

Portal challenger

It could also be the first stage of a more ambitious strategy that would see lenders and search companies take control of the dynamics of the conveyancing market, effectively making CQS and the Law Society's forthcoming e-conveyancing portal redundant.

Unsurprisingly, the Law Society has expressed concerns '“ 'quite rightly', according to Goldsmith, who says the society has 'a pivotal role to play' in the stand-off between lenders and the profession. As long as Lender Exchange remains a panel management tool, which is what lenders say it is meant to be, Chancery Lane has little to worry about. But things could get a bit tense if it becomes an e-conveyancing portal occupying the same space as
the society's own.

On 16 December, Law Society chief executive Des Hudson wrote to his counterpart at the CML, Paul Smee, voicing these very concerns. Correspondence between the two in the few months leading to Christmas last year shows the extent of their differences. Hudson highlights the duplication with CQS, which asks members for similar information, and with the role of the proposed e-conveyancing portal, and he offers to provide that information to lenders free of charge.

Smee '“ who seeks to make clear CML is only acting as a conduit for Decision First '“ says Lender Exchange simply provides a single application point for member lenders, leaving them to continue to apply their own panel membership criteria as currently. The reply received last week by Chancery Lane doesn't appear to move the discussion any further. 'We are still considering their response,' a spokesperson said, 'but continue to have reservations about Lender Exchange and the impact it could have on members'.

The concern remains that with only weeks to go before expected launch there is hardly any information on key elements of the scheme. The Lender Exchange website is a mere holding page with a set of FAQs giving a general idea of the scheme's mechanism, fees, and membership criteria. The latter are possibly the greatest unanswered question.

Membership criteria

'What we don't know is whether there is a risk that if you are rejected from one lender for reasons that may not be communicated to you, you
may find yourself removed from other panels as well,' says
Peter Rodd.

Lenders can perfectly legitimately decide how they want to run their panels, 'but some criteria are blunt instruments,' he says. 'For instance if a lender is saying that 'your firm is not doing adequate volume therefore we'll remove you', is that a fair test? The firm may otherwise be excellent but they may be practising in an area where that particular lender doesn't have a large share of
the market.'

John Outram has similar reservations. 'As a private practice if you're excluded from a panel '“assuming they all run the same criteria '“ you could end up being off all the panels. Without any explanation behind the process, it could be wholly unfair and unreasonable,' he says.

'Obviously you shouldn't do anything that could get yourself off a panel, but very minor things that go wrong within a process can sometimes lead to dramatic consequences.

'Most of the information going to the lenders is provided to the Law Society under CQS,' Outram says. 'It duplicates to a major extent what is in CQS and it's also run by an outside body whose end game isn't known.'

On the face of it, Lender Exchange is not necessarily a bad idea if it can save time and cost but there are still major issues left unresolved. Perhaps this is not so much about what the scheme purports to achieve at this stage but more about its potential to place control of the sector in the hands of a single, commercial organisation. And the more secretive this initiative is, the
less likely it is to receive the support it needs from other stakeholders. SJ