Group Proceedings: Mortgage mis-selling and mass litigation for financial services

Mis-selling is a term with which many are familiar and it is one that is used in a variety of contexts. Mortgage mis-selling refers to a scenario in which inadequate advice or guidance has been given by a regulated body – such as a bank, building society or independent mortgage adviser – in connection with the sale of a mortgage. For example, there may have been a failure to properly advise on the suitability of the loan or to explain the relevant terms to the borrowing party.

Usually, the borrowing party will be an individual. However, as this sort of claim can arise as a result of the perceived inadequacy of a regulated body's practice or procedures, it will often be the case that there are several individuals who find themselves with very similar claims.

In England, this has given rise to class actions, whereby groups of claimants have come together in order to raise a combined claim. Due to modern technology and the popularity of social media, the ability to advertise claims and round up potential claimants has never been easier. The obvious benefit for claimants in proceeding in this manner is that, whereas the cost of litigation will be unattractive and often prohibitive to an individual claimant, in a class action the cost will be shared among a large number of individuals.

Further, as the combined claims will have a substantially higher value, they are more likely to be attractive to third party funders, who may be prepared to fund the litigation in exchange for a return. This will significantly reduce the risk and potential downside for prospective claimants. We have previously explored the benefits and availability of third party funding in a blog and podcast.

Scotland and the introduction of group proceedings

In Scotland, until recently, there was no procedure for claimants to combine their claims in the manner that is available to claimants in England. However, with the introduction of the Group Proceedings legislation in 2020, this is no longer the case. For more on the scope and potential impact of these rules, see our blog and webinar.

As the Group Procedure legislation has only recently come into force in Scotland, the extent to which it will be used is, as yet, unknown. However, it is anticipated that there may soon be a raft of claims being pursued, with those involved in the sale of mortgage products likely to be prime targets. As a result, there will be many financial services organisations north of the border for whom the introduction of the new regime will be a significant concern and, having seen the extent to which the availability of mass litigation has been used against their counterparts in England, will be bracing themselves for similar levels of activity in Scotland.

It is worth noting that the mere fact that a number of claimants are prepared to group together and assert that they have been wronged does not guarantee that they will succeed. For example, there will be many for which the introduction of these new rules has come too late and whose claims will already be time barred.

There will be other defences that are available in particular circumstances. However, for those in the financial services sector who are at risk of finding themselves on the receiving end of a mass mortgage mis-selling claim, the potential exposure should be taken seriously – and for many such businesses, detailed risk assessments and other preparatory work will no doubt have already commenced.

Brodies will continue to monitor developments in this area closely, with further insights to follow.