'I lived in fear': Yorkshire woman faced major financial difficulties after 'unfair' six-figure loan to pay for divorce

She believes her experiences are the “tip of the iceberg” and that more action is needed from politicians and regulators to protect vulnerable people from finding themselves in major financial difficulties. While litigation funders in England and Wales self-regulate via the Association of Litigation Funders, not all are members, reveals a report commissioned by the Legal Services Board last March. Following the sector’s growth over the past decade, the Government is reviewing existing regulations.

In September 2014, Heys’ then-solicitors introduced her to a firm called Novitas Loans Limited to apply for a loan to fund her divorce proceedings. An initial £100,000 was secured against her marital home. Novitas had started providing loans to pay divorce solicitors’ fees in 2011, telling the Financial Times the following year that the demand for its lending – done at higher rates than normal bank loans – was “amazing” and suggesting its business model could generate high rates of return for its investors.

Heys says she had been under significant emotional strain when she agreed to the loan, having been hospitalised following the collapse of her marriage. “I’m thinking back to how vulnerable and confused I was,” she reflects. “I wasn’t thinking straight. I had no experience with the legal process, and I relied on the lawyers.”

By August 2015, she had extended the loan twice, taking the total before interest to £230,000. Heys says she felt she had to commit to the extensions as the divorce costs mounted and she struggled to sell the family property. “I felt trapped. I’d seen £100,000 disappear with no progress made. But I was desperate.”

After switching law firms, Heys took out a £380,000 loan in December 2015 from a different lender at a nine per cent interest rate to pay off the new solicitor fees and the money owed to Novitas. The cash came through RateSetter, a peer-to-peer lending platform that matches borrowers to lenders. Heys faced further financial turmoil when RateSetter began possession proceedings against her in 2021 to recover the debt, pursuing her for nearly £1m, which she negotiated to £700,000. Meanwhile, she battled to put the house solely in her name and says she borrowed £219,000 from loved ones to pay off her mortgage. A court eventually granted the Decree Absolute to end the marriage in September 2016.

After she complained in February 2021 about Novitas’ conduct, a Financial Ombudsman Service (FOS) ruling published in March 2023 noted the firm accepted it had “unfairly charged her interest for a period of time while it had failed to provide compliant annual statements for her loan”. But Novitas rejected several other complaints she had made. The FOS upheld her complaint, concluding the loans were “unaffordable,” the firm had not made adequate affordability checks, and the lending decision was “unfair”. Novitas refunded Rosie over £7,000 in interest charges.

Heys is not the only person to have a complaint against the provider upheld - the FOS has supported three others since 2021. Merchant banking giant Close Brothers bought Novitas in 2017 in a £30m deal. In a 2019 Twitter post, Novitas said it was working with over 900 British law firms. But in July 2021, Close Brothers stopped new lending via Novitas and, in January 2023, announced it was facing writing off up to £183m in bad loans. A Novitas spokesperson did not wish to comment on Ms Heys’ case.

In August 2023, the Legal Ombudsman (LeO) ordered the initial legal firm she had used to pay her a remedy of between £15,000 and £19,999 following a complaint about poor advice. Its full findings were not published, but a case reference confirmed that compensation was needed “for emotional impact and/or disruption caused” and “to refund fees already paid”. Rosie says it’s frustrating that the decision was not made public like the FOS’s was. A LeO spokesperson claims it cannot publish full decisions due to confidentiality requirements by the Legal Services Act 2007, except for “in exceptional circumstances” such as serious systemic failings.

Rosie suffered a further blow when she did not accept the award within the deadline and missed out on it. She says her lateness of six months was due to poor mental health and a hospital admission, but the LeO decided that her circumstances could not be considered "exceptional”. Rosie applied for a judicial review, but the judge denied it, and she now owes the Ombudsman £3,250 in legal costs. “No one can know why the LeO made the initial award,” she says. “Clients treated like I was will not know they could have their complaint upheld.”

The watchdog also removes decision announcements from its website 12 months after publication. “You can’t know how many complaints have been upheld against a law firm. It doesn’t incentivise firms to give good service. And it’s unfair to good law firms that the bad ones get to cover up their tracks.” Reflecting on what she’s been through over the past decade, Rosie adds: “I think it’s a scandal. These loans can bankrupt you.”