Peer-to-peer lender uses own funds to protect investors from losses

Marina Gerner
21 July 2017

Peer-to-peer lender RateSetter has dipped into its provision fund to ensure its 50,000 investors are not being hit by struggling loans.

Peer-to-peer lending has become mainstream ever since the Innovative Finance Isa was announced by the government, but it’s a young industry which has yet to prove its resilience in the long term.

Critics argue that peer-to-peer lending has never really been tested, given that most providers have cropped up since the financial crisis.

RateSetter provided a £36 million of loan to the Vehicle Trading Group (VTG), which fell into administration. A further £32m has been loaned via George Banco, a provider of credit guarantees, in which RateSetter had taken an equity stake. RateSetter said it still expects the loans by both companies to be repaid in full over their respective terms.

Crucially, the company loaned £12m to an advertising company called Adpod, in which VTG has a 50% stake. Adpod Limited got into financial difficulties and the business and its loan were then taken over by RateSetter. This means that RateSetter as a company is covering capital and interest payments due from AdPod to its lenders. The amount outstanding on the loan is now £8.5 million.

All three loans had previously been made as part of its wholesale lending, which the company discontinued in December 2016.

In a letter to investors, Peter Behrens, the company’s co-founder, said: ‘We believe it is important for all our lenders to be comfortable with their investment and aware of the risks of investing with RateSetter on an ongoing basis. These three interventions all stem from RateSetter’s wholesale lending which we discontinued in December 2016 and we do not intend to intervene like this again.’

Behrens added that the expected default rate on RateSetter’s outstanding lending remains unaffected and stands at 2.9%.

Further, the company told users they could withdraw their deposits free of charge without 30 days. The company said: ‘If you feel this information changes your investment, we are giving you the option to review your investment with us and sell out without incurring any fees.’

Luke O’Mahony,  a spokesperson for RateSetter, says: ‘The expected default rate on all outstanding loans is unaffected and stands at 2.9%, and we currently estimate that the Provision Fund is currently large enough to cover all expected losses with room to spare.

‘We contacted our lenders because we believe it is important for them to be comfortable with their investment and aware of the risks on an ongoing basis of investing with RateSetter. As we recently announced changes to our relationships with former wholesale borrowers, we wanted to provide a full update to lenders on interventions with those borrowers and give lenders an opportunity to review their investments.’

This article was written for our sister magazine Money Observer.



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