Philip Jansen probably had enough going on already. On top of the auctions for 5G spectrum and English Premiership rights due this quarter, as well as the pension fund and wholesale market reviews due before summer, the BT chief executive now has to repel an attempt to introduce class actions to the UK courts.
Justin Le Patourel, a former consultant at regulator Ofcom, said BT has failed to compensate 2.3m customers for overcharging on line rental. His case stems from BT’s agreement in 2017 to cut the price of its landline-only package by £7 a month, Ofcom having found that the telecoms incumbent had delivered years of poor value for money to some typically elderly and vulnerable customers.
The threatened action would follow roughly the same shape as a test case against Mastercard, which is being pursued for damages on behalf of 46m credit and debit card holders. The Consumer Rights Act 2015 had made these opt-out class actions possible for competition issues but progress since has been glacial. The only ones compensated so far have been lawyers.
A Supreme Court ruling against Mastercard in December might unblock the case pipeline, in effect by deciding that the Competition Appeal Tribunal had become an obstacle by setting the evidence bar to trial too high. But the complications of that case — including the death of one judge during the case and a 2-2 split decision between the remaining justices who then agreed to reject Mastercard’s appeal because a re-hearing would be too expensive — suggest it is too early to talk about precedent. The case against BT looks more simple, yet it is still far from straightforward.
BT’s landline-only customers were collateral damage in last decade’s broadband price war. Line rental costs jumped as operators rejigged pricing bundles to reflect falling voice use and a shift to flat pricing for unlimited calls. And while market dominance forced BT into being the market’s last-man-standing for landline connections, Ofcom found that the company exploited its position as price setter from 2013 onwards. Discounts on offer (BT’s defence against the legal claims on Monday) were designed to pacify the few that complained from defecting rather than to protect vulnerable groups.
Where Ofcom failed was to secure any binding remedy. Its final report found no clear breaches of competition law and made no explicit references to excessive pricing. Everything was voluntary. So, while the fight for compensation is likely to be little more than another long and convoluted distraction for BT management, broader fears of a US-style ambulance-chasing legal culture to the UK still seem largely theoretical.
Covid-19 may have led to plenty of sleepless nights for Britain’s small business owners. But it has been rather less stressful for some of the companies that lend them money, writes Jonathan Ford.
Take, for instance, Funding Circle, which has just issued its trading update for 2020. A year ago, this online peer-to-peer lender to SMEs was visibly struggling. Concerned by a weakening credit environment, it had slowed down loan originations, imperilling its “fintech” style growth story. The shares fell as low as 44p — 90 per cent below the 2018 float price of 440p.
Covid-19 has now delivered a salutary shot in the arm to the business. Demand for government backed business interruption loans — dubbed “CBILS” — have more than immunised it against the force of the pandemic.
Demand rose last year, with originations up 17 per cent to £2.7bn and by an even more impressive 41 per cent in the second half. What’s more, much of the income came in like clockwork. The fees Funding Circle receives for new UK lending have been obligingly paid by the government, as well as the first year of interest payments. The state even picks up 80 per cent of the losses on any defaults.
Funding Circle has shown it can lend money in the teeth of a public health crisis. The bigger question is whether it will still have such a vibrant business when the rest of us get a shot in the arm.
First there is the question of how demand will evolve when the government pulls back on its support. CBILS is likely to continue until the end of the first quarter. Beyond that, it is less certain. It is a similar story with the US version, the Paycheck Protection Program.
Funding Circle argues that government support is not the be all and end all. The pandemic has converted more businesses to the joys of online lending, with its quick decision turnround.
The biggest question though is about the lending side. With CBILS now the only show in town, government rules have forced Funding Circle to switch off the retail side of the lending operation — historically about a fifth of the total. That has turned it into a wholly institutional business.
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It is one thing picking up 9 per cent on loans 80 per cent backed by the government. But as support tapers off it will be a different story. If the history of institutionally-dependent finance companies teaches anything, it is that those backers can get flighty if the going gets tough.
Funding Circle’s share price has more than doubled from its nadir in March last year. Lockdown has been kind. Further progress will depend on what happens when the shutters come back up.
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