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What Happened To P2P Lending Companies That Closed?
I've taken a new look at what happened to lenders at the different peer-to-peer lending sites that closed or shifted away from the P2P model.
The vast majority of closures have been benign for lenders, leading to a profitable return of their money, but there are a few very notable exceptions.
Before I get to each of the closed companies individually, let me talk about closures in general, which I have grouped into five broad types:
1. Companies that switch from P2P lending to another model
Some platforms don't close by shutting down their operations completely, but instead their owners find it best for their businesses and for themselves to just close to P2P lending and switch to a different lending model. This could be offering the lending to financial institutions only, or shifting to lending that doesn't constitute direct (P2P) lending between the end borrowers and lenders.
This is one of the ways to soft close that leads to lenders gently getting their money back.
2. Companies that sell their P2P lending operations or loan books
Some P2P businesses have sold their operations and even their existing loan books to a financial institution, which then discontinued the online lending platform.
This is another soft close, leading to a return of individual lenders' money. Existing loans are either paid off naturally over time or individual lenders bought out.
The amount lent through platforms that have either switched models (see 1) or sold up (2) is substantial, although it's easily outweighed by the amount lent through the companies that remain in the growing P2P lending industry. (A lot of lending businesses went the other way: they started out as private non-bank lenders and then opened up their businesses to individual lenders through P2P.)
3. P2P companies that close down by choice
Lots of former bankers and other entrepreneurs have tried to take a piece of the P2P lending pie, but not all of them were able to grow their businesses enough in a sensible way to reach critical mass.
Most of them have calmly closed down their operations for good, choosing to simply wind-down their existing lending (if they had even got as far as arranging even one loan).
Total lending affected in these P2P companies is a very small part of the total lending made through P2P.
Many P2P lending companies are required to have funded wind-down plans in the event that they go out of business, as well as a minimum level of cash set aside in advance to get the process rolling. Depending on their legal structure, some might not be required to have wind-down plans, but they might have one anyway.
4. P2P lending companies that go bust
Some P2P lending companies have actually gone bust, meaning they couldn't pay their bills.
Usually, this results in it entering into administration. Given enough time, I think the next most typical solution will turn out to be a company voluntary arrangement (CVA). Theoretically, in both cases, the company could still be saved and rise from the ashes. But sensible lenders should assume it will close down until proven otherwise, because this will usually be the case.
It might surprise (and reassure) you to learn that a platform going bust doesn't automatically mean lenders will suffer an overall loss on outstanding loans afterwards. This is because P2P lending is direct between online borrowers and lenders, so you don't owe the bust platforms themselves, which are separate entities. This is providing the P2P lending company has set up and run its legal structures in the correct way.
When a P2P company goes into administration, the critical task of winding down goes to the administrators. These are insolvency practioners and they usually have an accounting background.
In a wind down of a bust P2P lending company, what's important is that loans continue to be administered and any bad debts pursued. Lenders should continue to receive their due repayments and interest, with as few delays as possible. It's necessary for the P2P lending company or administrators to communicate well with existing lenders, offering both transparency and timeliness. A good wind down recognises and manages conflicts of interest. The administrators need to reduce the business' costs by cancelling sales and marketing operations, and focus merely on the necessary costs for winding up.
And the bust P2P lending companies' records, legal contracts, IT systems and administrative procedures could play a pivotal role in how easily administrators are able to take over and disburse as much to lenders as possible when borrower payments come in.
5. P2P companies that go bust in apparent disgrace
It's sad for businesses when they fail by going bust, but business failures are all part and parcel of an innovative, entrepreneurial economy.
What's not so easily forgiveable is when they go bust in disgrace.
A few P2P companies have gone down with apparent disgrace in terms of what came out of the woodwork afterwards. This might be the revelation of a lot of bad debts that were previously hidden, regulatory question marks, or accusations of mis-selling, fraud, negligence or plain incompetence.
These things happen in all asset classes, including shares and bonds, although thankfully it's a small fraction of UK investments that are impacted.
Sometimes, the regulator is dragged into it, with questions about how it could have done its job better. While I have sympathy for a regulator that must keep watch over so many firms, and different types of firm, those questions are sometimes justified.
These platforms have been avoidable for educated lenders that use some simple techniques. Even so, the amount of money on the line is sizeable enough that it's both interesting and useful to know what happened to these platforms – and how lenders can avoid them.
Avoiding P2P disaster has been easy
Most of the time it's no big deal when a P2P lending company closes gently, shifts model or sells operations. Although you might sometimes have cause to grumble about such things as waiting longer for your money or lack of communication, you do continue to receive your repayments and have a positive result, and can deploy your money elsewhere. And that's by far the main thing, at least in my opinion.
However, if you want to reduce the risks to you from P2P companies going bust or of fraud, history has shown that you could have avoided every one of these cases easily by following our simple tips in three guides:
- The Peer-To-Peer Lending Risks guide.
- The Peer-To-Peer Lending Fraud Checklist.
- 4thWays's 10 P2P Investing Principles.
Plus, well over £1 billion has been paid out in interest in P2P lending, after deducting bad debts, so the amount eventually lost in bust businesses must be taken in that context. It shows that a sensible strategy spreading your money across quality P2P lending accounts is the main way to shrink the different risks right down to size.
How 4thWay readers dodged all losses in closed P2P lending companies
The vast majority of lenders instinctively seem to have avoided heavy exposure to the worst cases, but you don't have to rely on instincts.
If you had followed the very simple tips in all three of those 4thWay guides (or probably any one of those guides), you would not just have avoided most of the platforms that closed down but, much more importantly, you would have avoided all of the ones that closed giving overall losses – or that are currently expected to give overall losses – to lenders by the end of the wind-down phase!
How are the worst closers performing?
The table below shows the results of individual closed P2P lending companies.
The ones that are looking at overall losses for lenders in the wind down are at the bottom of the table. The common themes with all of those are that they didn't provide enough information to be listed on 4thWay, or they had no 4thWay rating or the 4thWay review was negative.†
Even so, if you had lent a lot of money in any of the opaque, worst-performing opportunities – and I really hope you haven't and wish you the best possible result if you have – losses can be substantial.
Over the life of the loans, the amount of loans that have been at risk on these shocking P2P lending platforms after their closure was probably about 3% of all P2P lending during the period. I loosely estimate that, after loan repayments, bad-debt recoveries, legal issues and wind-down costs, lenders will have 1.5% of all lending during the period written off. (This will of course be at least partly offset by interest earned, which will often be high rate in the most problematical closed P2P platforms.)
So I believe that lenders in those few, really badly performing closed P2P companies might typically lose around half their money in the end, before prior interest earned, although results will vary a lot.
Table summarising P2P lending company closures and what happened to lenders
The following table shows you some closed P2P lending companies, as well as the result of the closure for lenders. For more details, and for a word on platforms missing from the table, see beneath.
A “1” in the Situation/result column indicates the primary reason for being on the list was that it switched business model. 2 means that it was sold and all P2P operations discontinued. 3 means it decided to close down.
4 is the first less desirable way of closing down, as it means the P2P company went bust. 5 means it went bust in apparent disgrace, with lenders angry at what might turn out to be very misleading behaviour (such as a lot of bad debts being uncovered only after closure), or with mis-selling, negligence, incompetence or fraud, or at least that it's being accused of such.
(I suppose that, especially where emotions run high, some lenders might disagree with the categories I have given.)
|P2P company||On 4thWay †||Situation/result|
|Landbay||Yes, with 3/3 “Exceptional” 4thWay PLUS Rating.||1 Now available to institutional lenders only. It stopped doing P2P lending in 2019. All lenders got their money back and earned every penny of interest that they expected to while lending.|
|Octopus Choice||Yes, no 4thWay PLUS Rating but a positive review.||1 Now available to institutional lenders only. Permanently stopped doing peer-to-peer lending in 2021 and is winding down gently. Lenders are highly likely to keep making stable profits till fully repaid.|
|ThinCats||Yes, but no 4thWay PLUS Rating. With a short, mixed review due to limited info.||1 Switched away from doing peer-to-peer lending in December 2019. It now only allows financial institutions to fund loans through it. I believe that most individual lenders who sensibly lent across many loans will have made a profit in its P2P lending.|
|LendInvest||Yes, but no 4thWay PLUS Rating.||1 It's not clear if LendInvest was ever actually P2P by 4thWay's definition, but it chose another path in 2017. Its lenders did well.|
|Fruitful||No, didn't provide enough info.||1 Fruitful soft-closed its doors to P2P lending in autumn 2015 to shift to more ordinary, non-P2P mortgage lending. Within a few months, lenders had already received most of their money back and were still earning interest on the remainder. I think all or most lenders probably made a profit.|
|PropertyCrowd||No, didn't provide enough info.||1 Stopped doing P2P lending in 2020, during the COVID-19 outbreak. The owner of PropertyCrowd no longer arranges loans for individual lenders to take part in, but continues its business for other types of lenders. Lenders ultimately got their money back, we believe including all interest.|
|RateSetter||Yes, with 3/3 “Exceptional” 4thWay PLUS Rating.||2 Operations sold to Metro Bank in 2020 and, eventually the remainder of its P2P loan book too. All RateSetter lenders profited in its 10 years, typically with roughly 5% returns.|
|UK Bond Network||Yes, but no 4thWay PLUS Rating.||2 UK Bond Network closed its doors to arranging new P2P loans in 2019. It transferred outstanding accounts to a new owner. It's a long time since we had an update, but last we heard UK Bond Network investors were still receiving their repayments and interest. All or most lenders very likely made a good profit.|
|GraduRates||No, didn't provide enough info.||2 Loan book sold to RateSetter in 2014, rather than face the incoming full regulation of the P2P industry.|
|QuidCycle||No, didn't provide enough info.||2 Was bought out and closed, with a new P2P lending platform, Leap Lending, eventually created in its place. 4thWay has received no information or data to indicate that lenders overall did badly after QuidCycle's closure. While I expect that means most lenders finished profitably, there's no information to confirm that.|
|Growth Street||Yes, with 1/3 “Fair” 4thWay PLUS Rating.||3 Closed as it couldn't meet its own liquidity targets. All lenders are fully paid off. All lenders made a profit, receiving the interest that they expected.|
|Orchard Lending Club||Yes, but no 4thWay PLUS Rating or review.||3 The group owner of Orchard Lending Club closed the platform very quietly. I believe all or most lenders will end profitably, but we have no information.|
|FundingKnight||Yes, but no 4thWay PLUS Rating or review.||3 Closed down by its owner. Most diversified lenders will have made a profit.|
|BondMason||No, didn't provide enough info.||3 Closed in 2019, stating it could no longer offer lenders the risk-reward balance it believed necessary. Most loans are already repaid and I think all or most lenders will finish profitably.|
|crowdahouse||No, didn't provide enough info.||3 Closed down, relaunched and apparently closed down again. It possibly now accepts lending again, but only if the lender is a business, not an individual.|
|CrowdLords||No, didn't provide enough info.||3 Decided to close gently when faced with greater regulations for the particular way it structured its lending. I currently believe all or most lenders are likely to make a profit by the time their loans are fully repaid. P2P Finance News reported in August 2020 that CrowdLords wants to re-open to sophisticated lenders.|
|YES-Secure (formerly Encash)||No, didn't provide enough info.||3 It closed with bad-debt rates above 20%, but still returned lenders all their remaining money.|
|First Great National||No, didn't provide enough info.||3 It closed as quietly as it opened. I have no information about what happened with its few lenders.|
|MoneyThing||Yes, but no 4thWay PLUS Rating. A short 4thWay review stated not enough information to assess bad debts.||4 (initially 3) MoneyThing closed and went into an orderly wind down in 2019, as it was unable to compete. 12 months later, due to one borrower litigating against it, MoneyThing couldn't afford to continue as it was, and so it went bust. Initial public statements from MoneyThing and from its administrators are encouraging. Administrators confirm there are no irregularities with the client account and that they are already able to regularly pay out lenders as their loans and interest come in. The final lending result is still unknown.|
|Wellesley||Yes, but no 4thWay PLUS Rating and with a sell recommendation long before it stopped P2P.||4 (initially 1) Wellesley switched away from the P2P lending model many years ago, at which point all lenders had made a profit. (Bear in mind its “P2P ISA Bonds” were not in fact P2P lending.) 4thWay was not sorry to see it go, having published a negative/sell recommendation, giving subscribers to our newsletter and alerts a very long time to sell any loans they had before any troubles arrived. Years later, in 2020, it went bust due to its own financial problems. Wellesley is attempting to take the course of restructuring with a CVA, rather than closing down. Since it left P2P so long ago, Wellesley has long since left 4thWay's P2P-focused radar. I therefore don't know how many loans remain in its ageing, legacy P2P accounts. Personally, I expect remaining lenders to make losses and I wouldn't be surprised to see Wellesley downgraded to a 5.|
|The House Crowd||No, didn't provide enough info.||4 The House Crowd went bust in 2021. The House Crowd was last claiming that lenders averaged 7%-10% returns each year from 2016 to 2020, yet the administrators state that all of its outstanding development loans are bad debts in the process of being recovered. It also did bridging loans, of which we have no word. It's too early to say what lenders final results will be.|
|FundingSecure||Yes, but no 4thWay PLUS Rating and with a negative review for a long time before it closed.||5 Went into administration in October 2019 with a lot of bad debt outstanding. The administrators have areas of concern and lenders will suffer substantial losses. More details about FundingSecure's closure.|
|Quakle||No, didn't provide enough info.||5 According to thisismoney, “unverified estimates” put its total lending at a mere £20,000. That's good, because this company was deeply out of its depth. Lenders lost most of their money.|
|Basset & Gold||No, didn't provide enough info.||5 The FSCS found in 2020 that Basset & Gold was mis-selling and individual lenders can now put in a claim for compensation. B&G went bust prior to this, in April 2019. Lenders haven't yet received any repayments or interest, and they will not be repaid in full.|
|Collateral UK||No, didn't provide enough info.||5 Went into administration in 2018, after falsely appearing as regulated on the FCA's register. Lenders were unable to access their accounts. Administrators had difficulties retrieving lender data (mostly now resolved) and found discrepancies, such as the amount of cash held in the client account. Most of the outstanding loans have turned bad, but recoveries are coming in. The administrators haven't yet distributed loan repayments and interest while it clarifies a few more investors' entitlement. More time is needed to see the final result for lenders.|
|Lendy (formerly Saving Stream)||No, didn't provide enough info.||5 Closed in 2019 with a lot of question marks hanging on it, such as whether Lendy was properly ensuring that P2P lending was ring-fenced from the businesses that Lendy itself owes. Lenders still have a long wait to find out their final result. More details about Lendy's closure.|
† If the table says “no 4thWay PLUS Rating”, this was the situation for at least six months prior to the P2P lending company closing. It also means it had no 4thWay Alt Rating for at least six months. P2P lending companies will be without a 4thWay PLUS Rating for one of three reasons: 1) our rating calculations found their future results were likely to end up being too poor for lenders; 2) their history was not substantial enough for our calculations; or 3) they didn't provide 4thWay with sufficient information to do the calculations or to conduct regular quality checks.
Note that we usually get relatively little evidence on the situation/result after a platform closes, so I sometimes had to give my best guess as to whether lenders got or are getting all their money back with a profit. I made it clear in the table if it was opinion rather than fact.
Lendy was very substantial compared to all the other P2P lending companies that closed after going bust (i.e. those numbered 4 or 5 in our table above), with £152 million in loans at the time it collapsed. So I think Lendy's entry in the table is worth expanding on a bit more.
Please appreciate that the full, ongoing Lendy wind-down story is more complex than I can possibly explain in full here and that, in any event, 4thWay doesn't closely follow the situation of lending platforms that don't provide enough information to us and the public – whether they are operating successfully or have closed.
This is because it's not possible to assess whether an investment opportunity is a good one if you have insufficient information, so in those cases, like Lendy, we simply leave it at that. Our message has always simply been to avoid opaque providers and lend somewhere else.
I particularly mention my ignorance if Lendy, because I imagine that many Lendy lenders are probably angry about what's happening with their Lendy investments and I'm hoping that you won't take it out on me or 4thWay if I've made a word out of place in attempting a summary, or if I've not covered an aspect of the wind-down that you consider to be important.
This summary is intended to give non-Lendy lenders a skeleton idea of what generally is the situation, since most Lendy lenders will likely have more details and a closer eye on the story than me. (I do still appreciate any important factual corrections you may have, though, using the form above.)
Lendy did development lending and bridging lending with high interest rates.
It was not listed on 4thWay, due to lack of access and little information about its processes, performance, people and legal structure. Its publicly provided information left a lot to be desired and serves as a warning to prospective lenders attracted by high interest rates and vague concepts of property security.
Lendy had costly legal issues and a lot of late and bad debts even before it closed. Lendy appears to have had very poor processes both in approving and administering loans, including recognition of bad debts and bad-debt collection processes.
£152 million in loans was outstanding at the time Lendy went down. This came down by £35 million to around £117 million, as of November 2020, with most of that outstanding debt being bad. Of the £35 million, lenders are getting back less than half their money. With so many bad debts still outstanding, the final result for lenders is not known.
At first, repayments and recoveries from borrowers were, on many loans, being split between individual lenders that lent through Lendy's online platform as well as the businesses that Lendy itself owed. This is not supposed to happen in P2P lending, as lending is supposed to be directly between borrowers and lenders, or a legal device is used to reach effectively the same result.
Individual lenders joined forces to argue for a better solution for themselves. The court case was heard in June and the judgment came out in August – resoundingly in favour of individual P2P lenders. Those who were lending directly to borrowers in the P2P model will now get their money back on the loans they were lending in before anyone else.
The administrators have frozen the personal assets of Lendy's former directors themselves and are carrying out legal proceedings against them.
Lendy took £1.5 million from its bad-debt reserve fund to pay off a loan to Metro Bank. The Financial Conduct Authority felt that the marketing of the fund to lenders was misleading.
The FCA found that Lendy had made payments totalling nearly £1 million that it had no knowledge of and that had not been authorised.
Lendy also failed to make lenders properly aware that it was charging borrowers extremely high additional interest rates, in the event that they fell into trouble in repaying their loans. This incentivised Lendy to drag out bad debts and perhaps even find them highly desirable, which was clearly contrary to lenders' wishes. Indeed, the judge in the June court case wrote that Lendy misappropriated default interest for its own use.
This section on Lendy was updated in August 2021.
(As with my comments on Lendy, above, please bear in mind this is a very brief summary, so that non-FundingSecure lenders can get a skeleton of an idea of what the situation is. For impacted FundingSecure investors, who I am certain will be better informed than me, this doesn't replace reports from more direct channels. FundingSecure lenders, please read my opening paragraphs to the Lendy section, above.)
FundingSecure first had internal issues in 2018 that involved missing money from the client account. A director left and the company made good the difference in the account. But the trouble didn't end there. The company litigated against parties who benefiteted from lender money on loans that hadn't been properly approved. Its directors say that the costs of litigation is what led to FundingSecure going bust in October 2019.
The administrators sometimes found it unclear “who owns what” and there was no insurance on the non-property assets, which the administrators rectified.
It was then that the total bad debts became clear. The administrators found the way the client bank account was managed was not in line with the lender terms and conditions, and that the company failed to manange client cash. Even so, following a review, the administrators wrote that they have no concerns with the level of funds in the client accounts, which match the amounts shown in lenders' online FundingSecure accounts.
As with Lendy, there was a question about whether FundingSecure had properly segregated lenders' investments as they had said they would in the contracts. Only through properly ensuring the lending is direct between borrowers and FundingSecure's individual lenders, can lenders be confident that other businesses owed money by FundingSecure can't take a cut of the borrowers' repayments. FundingSecure was claiming to achieve this setup for lenders through trusts.
The legal issue was never actually settled, because those owed money by FundingSecure itself agreed that lenders' investments were protected by the trusts and that lenders are therefore the beneficiaries of the outstanding borrower loans.
The current administrators have two “main areas of concern”, as of October 2020. The first is either negligence by FundingSecure directors or by prior administrators. The second is potential claims against property valuers, who might, for example, have valued property too highly/unprofessionally (which can sometimes be with the complicity of directors).
Details of legal issues and areas of concern are confidential, but administrators have submitted a report to the relevant government department on the conduct of the directors under the Company Directors Disqualification Act 1986.
There was around £80 million outstanding in 470 loans when the administrators came in – a hefty sum. As of October 2020, £23 million has come in from borrowers, with lenders getting about £17 million of that after costs. There are 119 remaining loans worth £57 million, after writing off £600,000 from one loan. All of these loans are bad debts in recovery. At this rate, very roughly speaking, all of the interest that lenders received from FundingSecure over its life as an operating company will be eaten up by bad debts.
It took a long time for the administrators to sort out the mess and begin to process things for lenders. Lenders can now withdraw monies received through their online FundingSecure accounts, usually on a weekly basis.
Articles and guides that are mentioned on this page:
The Peer-To-Peer Lending Risks guide.
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.
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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.
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