Fend Off Peer-To-Peer Lending Fraud & Incompetence – A Checklist
This page was last updated on 21 March, 2020
In China, the number of websites offering lending platforms reached more than 2,000. For a long time, after that, 80 of them were being closed down every month due tofraud or incompetence.
The UK is far from China in more ways than one. But, wherever there is money, fraud and incompetence will be taking place against some people, somewhere. Be it in the stock market, property or something else.
For lenders in P2P, here's a list of very simple, basic checks of fraud, dishonesty and incompetence, which will massively reduce your risks. At time of writing, this checklist would have either helped all investors to steer clear of all the (relatively few) disasters that have occurred so far, or helped you to pull out before it was too late.
It's a very solid way to nearly eliminate these kinds of risks from your lending.
Even beginners can do the vast majority of these checks before lending through a P2P lending orprovider to gauge whether there are major discrepancies or issues.
Below is a simple checklist you can use to look for signs of fraud, negligence, misconduct, dishonesty or other financial crimes, or even just plain ignorance, before you choose to lend through awebsite or provider.
Not all the individual signs on this list automatically mean that there is fraud, negligence or stupidity going on, but the more of these that you see, the more sceptical you should be about lending your money. Remember rule number one from 4thWay's 10 P2P Investing Principles: “If there's any doubt about lending at all, the answer's “No”.
fraud and incompetence checklist
- No opportunity to contact by telephone, the telephone number does not function, or the line quality is poor.
- No meaningful response when you attempt to contact them or overuse of highly technical and complicated answers.
- The platform or a “broker” cold calls you to get your interest.
- No entry on the How To Check The Financial Services Register For Monsters) or an entry on its unauthorised firms register. 's online register (read
- Not showing on 4thWay. (4thWay’s experts often don’t get a chance to assess and review some sites and that will clearly include many of the dodgiest, since they, unsurprisingly, don’t even answer our requests for basic information.)
- Worrying question marks in 4thWay’s assessment of the P2P lending site. (We won’t spot all serious fraud, dishonesty or negligence, but when we are in the position to assess a P2P lending site I expect we’ll be able to warn strongly against most of those situations.)
- Poor quality website.
- Poor English on the website and marketing materials, or an overseas location.
- No secure website. (No “https”, with an “s” on the end, in the website address bar.)
- Claims of being expert while being highly intransparent about the key people making decisions and the processes they use.
- Very few details about their record so far, including incomplete statistics, especially compared to other P2P lending sites.
- Average interest rates above 10% with claims of no bad debts, despite a long record.
- Heavily selling the “zero bad debts” theme when they have only been operating a short time, such as up to two years.
- Very ambiguous information and wording, conflicting information and statistics that are rarely updated.
- No external sources show in any detail the experience the people in charge have had in the past (e.g. at banks), including the institutions they worked for and what specific posts they held.
- They claim to being linked to or backed by major companies or high-profile figures, but there is no independent source (such as a news publications) backing that up.
- Highly aggressive marketing language, especially saying there is low or no risk or that you have “guarantees”, while also talking up glitteringly high interest rates.
- Be very sceptical of invitations to join “exclusive” clubs or investments.
- Being rushed to make a decision, e.g. by highly attractive introductory deals that will expire imminently.
- High pressure sales tactics.
- They show frustration when you ask questions or want to get a second opinion.
- The P2P lending site uses conspiracy theories to sell to you. (“The bankers and the wealthy are trying to keep this investment from you.”)
Learn more sophisticated checks as you go
Once you’ve got used to those, there’s always more room to become more sophisticated, such as learning how to use Companies House and read company accounts in order to gather more information about the directors, the business and its finances.
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Independent opinion: the opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA, and does not provide personalised advice. The material is for general information and education purposes only and not intended to incite you to lend.
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