I can understand why a conveyancing lawyer might have a persecution complex. During the last twenty years the industry has been subjected to ever more risks at a time when fees are being driven down. As if to add salt into the wound, it is often to lawyers who are the first port of all when it come to claiming compensation when things go wrong.
In the last couple of years there has been a dramatic increase in occurrences of online fraud cases affecting conveyancing – sometimes resulting in house buyers losing hundreds of thousands of pounds.
Whether you call it ‘cyber crime’ or ‘Friday afternoon fraud’ this is where fraudsters hack into the email accounts of either the client or solicitor, recognising the fact that many solicitors now use email as the preferred method of communication with clients. The most common scam sees fake emails sent to either party – the client or solicitor – instructing them to divert large payments to the hacker’s bank account, often during the final stages of a property purchase.
The good news?
A few weeks ago an important ruling ruling took place which should have positive ramifications for the conveyancing industry. The financial ombudsman, which settles disputes between customers and financial services firms has told Lloyds Bank to repay £47,508 plus interest to to Mr and Mrs Kelly, a couple who got caught out by a fraud during a conveyancing transaction. Its decision was based on what Lloyds should have known about the fraudsters.
Like many victims before them, the Kellys received, what appeared to be a legitimate email from a hacker who pretended to be their solicitor and requested payment into an alternative account. The Kellys believed they were paying a deposit of £47,508 to their solicitor handling their conveyancing. You guessed it...the money disappeared.
The couple complained to the Lloyd's with whom the fraudsters had set up an account and subsequently took their case to the ombudsman.
In an email to the Kellys with her findings, Sandra Quinn, the ombudsman for banking and credit, said: “As you know this account was newly opened. I can review whether the payment coming into the account was consistent with what [Lloyds] knew and whether it could have done anything. “I believe [Lloyds] had time to be alerted and take some action and there’s no evidence it did.”
Whist it must be recognised that an ombudsman’s ruling does not establish a formal precedent it nevertheless suggest that should have a duty of care in ensuring that a fraudulent’ account is not opened. This decision may well result in PI Insurers facing claims arising from similar fraud to look to the bank where the fraudulent monies was established.
Sting in the tail?
Assuming the courts and the ombudsman adopt the same approach one can be sure that lender’s will not take this lying down.
Lloyds public reaction to the Ombudsman decision was graceful “We would like to apologise for the inconvenience caused to Prof Kelly. We will accept the decision from the ombudsman once it is received and will offer him compensation in line with the ombudsman’s findings.” Chances are that this comment was made through the proverbial ‘gritted teeth’.
The backlash may come swiftly. Lenders could use this as an excuse to further reduce their conveyancing panel. It is almost six years ago to the day since 2500 firms have been axed from Lloyds Banking Group's panel.
The best case scenario is that lenders require law firms to adopt new procedures to reduce the chances of these frauds occurring. For example it might be that the COT will require the lawyer to tick a box acknowledging that they have confirmed their bank account details to the borrower over the phone as well as in writing. The CML Handbook P2 may well be changed to introduce certain protective measures.
Lawyers should expect some some reaction.
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