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P2P Site FundingSecure Collapse: 10 Things You Need To Know Today
At 10.48am yesterday (Wednesday, 23 October), UK financial regulator the Financial Conduct Authority released this notice. This made public the news that regulated P2P lending website FundingSecure had gone bust, with CG Recovery Ltd (CGRL) appointed as administrators to the failed platform.
FundingSecure operated a peer-to-peer lending platform through which individual investors could lend their money to fund the purchase and development of property, as well as lend in pawnbroking-style loans secured on items of value (such as vintage cars, artworks, yachts and so on). Interest rates of up to 16% a year marked FundingSecure loans firmly in the high-risk category of P2P lending.
1. Funding Secure collapse: contact details for the administrators
By law, the job of the administrators is to maximise returns to the people FundingSecure owes – FundingSecure’s “creditors”.
Yet, in this case, it also means running the online platform to wind-down the book of loans, which means collecting and chasing payments from end borrowers that are owed directly to the crowd of P2P lenders.
For more information about the administration, here are the relevant contact details:
Address: CG&Co, Greg’s Building, 1 Booth Street, Manchester, M2 4DU
CGRL will be contacting all FundingSecure’s lenders in due course.
2. What will happen to investors' money now FundingSecure has collapsed?
The first and most important thing to note is that although FundingSecure has collapsed, the contractual obligations between its lenders and borrowers remain unchanged. In other words, borrowers must continue to repay the loans and interest to lenders, while CGRL takes over operation of the existing platform.
CGRL will provide updates on progress on its website.
3. The Big Question: will lenders lose their money lent through FundingSecure?
Of course, the failure of FundingSecure will have no bearing on the businesses that borrowed money via its platform, which still owe the lenders. Hence, it's crucial to note that it's highly unlikely lenders will lose a lot of their money lent via FundingSecure as a result of its closure – so please relax and take a deep breath.
Indeed, many regulated peer-to-peer lending platforms have closed over the past five years. Although most were not substantial as FundingSecure, most of them have still ensured that lenders receive all or most of the money and interest that was owed to them.
Depending on the quality of the underlying loans, the value of assets used as security for loans, and CGRL's ability to recover bad debts, some FundingSecure investors might lose a variable proportion of the money and interest due to them as a result of borrowers becoming unable to pay. But this is always the case in peer-to-peer lending, even for active, thriving P2P lending businesses. Then again, this risk applies to all manner of investing, because only savings accounts are 100% secure.
4. How many people are affected and how much is at risk?
According to this Financial Times article (subscription required), FundingSecure’s outstanding loan book was worth about £80 million, with around 3,500 investors at risk. This equates to average lending of almost £22,860 per individual lender.
There are hundreds of thousands of UK investors in peer-to-peer lending, with several billion pounds currently on loan.
5. Are Funding Secure investors covered by the Financial Services Compensation Scheme (FSCS)?
No. As with all P2P lending, money on loan at FundingSecure is not covered by the government-backed FSCS safety net.
6. Should I use a third party to try to get my money back from FundingSecure?
While you may wish to take legal advice, you should absolutely steer clear of claims management firms (CMCs) contacting you, offering to recover your loans on your behalf.
Most CMCs charge fees of between a fifth (20%) and a third (33%) of any money recovered, which is a hefty price to pay for little or no real benefit. What's more, this industry of ‘ambulance chasers' garnered much negative publicity during the PPI (payment protection insurance) scandal.
7. FundingSecure is the second UK P2P lending website to fail in six months
In May of this year, poorly managed P2P lending platform Lendy went into administration. However, this came as no surprise to 4thWay and many of its users, as Neil Faulkner explained here.
On a brighter note, the FCA is taking steps to curtail problematic practices in the P2P sector, with new rules covering advertising and corporate-governance standards coming into force in December (less than two months from now).
8. 4thWay warned users about FundingSecure in September 2018
Thirteen months ago, in September 2018, 4thWay published a review of FundingSecure. In it, we highlighted these eight red flags and warnings:
- “There is some evidence that FundingSecure lets lenders down when it comes to taking substantial and rapid action when a loan falls late.”
- “A great many outstanding loans have been rolled over into new loans…[this] does mean that we are not fully able to assess how many loans will become troublesome.”
- “Confirmed losses have been low, but I am not entirely satisfied with FundingSecure’s published statistics and wish for more information about outstanding loans that have not repaid on the expected date or that have turned bad.”
- “As FundingSecure’s loans have progressed, it has revealed it needs to do a lot more to show late loans and to acknowledge loans that are in trouble, or provide evidence to show that it is truly open about such loans.”
- “It needs to do more to explain to lenders that the sorts of loans it offers tend to have a high proportion that fall late or go bad, even if bad-debt recovery for these kinds of loans is usually high and includes penalty interest paid to lenders. In addition, recovery times for bad debts can be very long.”
- “I think FundingSecure should do more to explain to lenders that these sorts of loans will lead to a wide range of results, with potentially as much as 20% of lenders having to wait for around one-third to half of their loans to be repaid, after they go late or turn bad.”
- “FundingSecure also needs to demonstrate more clearly that it is on the ball in chasing non-payers rapidly, which is best practice for these kinds of loans and it can greatly improve results. Currently, I don’t believe it is, which is a big red flag.”
- “FundingSecure also doesn’t provide enough information for us to use our full risk modelling and investment analyses. There is also little that we know about the three key decision makers, except we’re told they collectively have approaching 100 years’ experience in these sorts of loans.”
9. How can I reduce the chances of lending in a P2P lending site that goes out of business?
Most peer-to-peer lending websites are private companies that publish little information on their financial health and the details can be nine months too late.
However, lenders who have avoided platforms when they have become as opaque as FundingSecure will have avoided lending in all the companies running peer-to-peer lending platforms that have so far gone out of business, at the time that they went out of business.
Focus on peer-to-peer lending websites that are extremely transparent, as it lowers all the associated risks: from the risk of bad debts to the risk of worry or delays when a peer-to-peer lending site closes down.
10. Never forget 4thWay's 10 principles of P2P investing
P2P lending always carries some degree of risk, as does all investing outside of pure savings accounts. That said, following a disciplined process can make your P2P lending far lower risk. That's why we'd urge you to read (or re-read) our 10 P2P Investing Principles and follow them to the letter!
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