LendingCrowd Loses Its 4thWay PLUS Ratings
LendingCrowd* has taken the rare step of deciding to no longer publish its loan book or provide 4thWay with it on a regular basis. As a result of this large step back in transparency, LendingCrowd has lost all its 4thWay PLUS Ratings on all its lending accounts.
I'm going to tell you about loan books, why they are essential for rating P2P lending and IFISA accounts, what information LendingCrowd will be providing in future, and the next steps for both you and 4thWay on LendingCrowd.
What are loan books?
Loan books contain all historical loans ever made by a P2P lending company or IFISA provider. A loan book tells us the status of each loan, whether it has ever turned bad, and how much of the loan has been repaid.
Loan books contain many other important details about each loan, which makes it possible for a detailed analysis. That information includes interest rates, fees, the value of any property security that the borrower owns, and a great deal more.
Why are loan books necessary for ratings?
The vast majority of P2P lending companies that have provided 4thWay with loan books continue to do so and they show that they have no reason not to. Indeed, the transparency is good for all concerned: lenders, the regulator, the P2P lending companies and their shareholders, 4thWay, and even borrowers.
4thWay uses the loan books to conduct a wide range of analyses into the quality and risks inherent in the loans, to look for dangerous practices or worsening conditions, to aid in our assessment of P2P lending companies' understanding of their borrowers, and to look for inconsistencies versus the information that the P2P lending companies are providing us and the public with elsewhere.
Loan books are an invaluable tool that are a central plank in making P2P lending a cut above most other investments, due to the information available for assessing the risk-reward balance.
The 4thWay PLUS Ratings are a reflection of our core analysis on these loan books: we conduct the Basel tests that global banks are required to do to see how they might hold up in a severe recession and property crash.
We use substantially stricter standards than the banks. This ensures that lenders using the 4thWay PLUS Ratings, combined with our other research, can invest their money across a basket of six or more similarly rated accounts with a large margin of safety.
What is LendingCrowd providing instead?
In terms of transparency, LendingCrowd has also removed its statistics webpage. It has reverted to providing what's called an outcomes statement, which it is required to do anyway by the financial regulator.
LendingCrowd's first outcomes statement was published recently and it contained some useful information. Although it doesn't come close to the level of detail it used to provide, certainly helps in an overall assessment,
As part of its outcomes statement, LendingCrowd is having some of the information on its loans verified by LoanClear, which was spun off a business that you won't have heard of but that is substantial, called Dynamic Credit.
LendingCrowd* is only obliged to publish it once a year by the Financial Conduct Authority and it plans to do so from next year. However, it's decided to publish the outcomes statement every three months until the end of 2021 in order to keep lenders informed.
These things show willing and go at least some way towards mitigating the loss of information.
Why has LendingCrowd done this?
LendingCrowd is not obliged by the regulator to provide just the outcomes statement and then hide further details from analysts and the public for assessing risks. It's allowed to provide as many details as it wants. LendingCrowd hasn't given us any reason for this step backwards.
Will LendingCrowd still be listed and reviewed on 4thWay?
Yes, LendingCrowd will continue to be listed in the comparison tables, whenever its lending accounts are opened to new lenders. (They remain closed to new lending at present, at least partly because LendingCrowd switched to offering government-backed loans.) It will show that it is no longer rated by 4thWay.
4thWay will continue to provide a LendingCrowd Review. Due to this latest development, the LendingCrowd Review will be updated with one of our specialists‘ opinions before the end of August 2021.
Which brings me to my last point…
Should I continue to lend through LendingCrowd?
Educate yourself on the latest by reading the updated review – when it's published next month (subscribe to be notified) – and thereby informing yourself of everything you need to know about LendingCrowd.
In the meantime, I'll leave you with a final thought to ponder over. In the rare times that a P2P lending company has suddenly stopped providing or publishing its loan book, we have pointed 4thWay users to our 10 founding P2P Investing Principles, which have stood the test of time. Principle three states:
“Treat buried information as if there's a reason, missing or ambiguous information as if it contains bad news, and decreased information as if it contains worse news. Demand more verifiable information the less that is provided freely.”
Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.
We are not financial advisors, which means that we don't offer advice or recommendations based on your circumstances and goals.
The opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA. All the specialists and researchers who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.
The 4thWay® PLUS Ratings are calculations developed by professional risk modellers (someone who models risks for the banks), experienced investors and a debt specialist from one of the major consultancy firms. They measure the interest you earn against the risk of suffering losses from borrowers being unable to repay their loans in scenarios up to a serious recession and a major property crash. The ratings assume you spread your money across hundreds or thousands of loans, and continue lending until all your loans are repaid. They assume you lend across 6-12 rated P2P lending accounts or IFISAs, and measure your overall performance across all of them, not against individual performances.
The 4thWay PLUS Ratings are calculated using objective criteria that can be measured and improved on over time, although no rating system is perfect. Read more about the 4thWay® PLUS Ratings.
*Commission and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from LendingCrowd and other P2P lending companies not mentioned above when you click through from our website and open accounts with them. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.