Peer-to-peer lending sites: MSE guide discussion
Comments
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geoff_s---r wrote: »I'm concerned about the reserve funds that p2p companies hold on investors' behalf.
When p2p companies started, it was said that reserve funds may in the future be run by an independent trust. Zopa said, that as they were a fast evolving sector, the P2P owners needed direct & flexible access to administer how the investors' reserve funds were spent and to set the size of the reserve required.
I think that now that P2P companies have become a mature sector, the investors' reserve money needs to be increasingly separated from the P2P business.
We may end up with some of the same directors who've mess-up in a P2P company boardroom, simply moving to the room next door and voting in private as 'The Reserve Fund Board' to amend lenders' funds & patch-over the problem. They can also vote to transfer more of the lenders cash into the lenders' reserve fund at will.
As most p2p directors have significant shareholdings in these companies, there must be a direct conflict between the value of their shares and what they do with the cash being held on behalf of the lenders.
I wonder if a journalist (or MSE?) might research a spreadsheet, asking the big P2P companies
1) what is the composition of the board that administers the lenders' reserve fund?
2) What proportion of the board are independent of the P2P business and are there to act on behalf of the lenders?
3) Are there plans to eventually have the reserve funds held and administered as an independent trust?
As the P2P companies have formed a powerful trade group that votes on how they police themselves. I fear there's little the government is doing to make them do the right thing and separate the lenders' reserve funds from the businesses.
Just like Bank of England has been separated from The Government. The optimum size of the lenders' reserve fund, and how it is spent should be independent if the p2p company.
As p2p savings regrettably still remain outside the government's savings guarantee scheme, transparency like this, over what is done with lenders' cash, becomes even more vital for savers.
Why bother, wouldn't touch p2p with a bargepole.0 -
- odd response to a p2p thread?Why bother, wouldn't touch p2p with a bargepole.
But to answer, I bother because I love the refreshing new concept of p2p, & so have supported it by lending to it. But I think the lack of regulations makes it important that users lobby for P2Ps to become as transparent, & therefore as safe, as possible.
It seems not safe or transparent, for p2p staff to say, 'I am employed to work solely to benefit my shareholders', and a minute later say 'I am now an independent trustee of lenders cash & as such I'm working solely on behalf of lenders'. The majority on such board of trustees do need to be independent of the business?0 -
I joined ratesetter in the early stages when rates were high and there was much talk by them of the provisional fund, as initially marketed, being a protection scheme for lender's which would in future years, as it grew, be used to pay out lender dividends or bonuses. That didn't last long...
I ditched ratesetter for that reason, it's telling that as their provision fund grew to what is now a substantial sum and secretive company financing and backing arrangements have been made, such talk has completely vanished along with provision fund profits.'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB0 -
...such talk has completely vanished .
That's disappointing John.
In that case, perhaps its time for the regulator to start pushing for the majority on the boards of such trusts to be independents? It wouldn't necessarily increase p2p costs or complexity, but would add vital transparency. It may even benefit the companies? Zopa did after all loose you as a customer, through not doing this.
I asked above if research could be done (or has been done?) on p2p trusts, as I'd consider moving too if I could identify a p2p company that uses an independent reserve trust, rather than just a pretend trust. I couldn't easily identify one.
A healthy P2P company should be the just the platform that arranges loans & shouldn't be actively controlling lenders cash that is held in reserve.0 -
Then you need to learn more about the range of what's on offer via P2P. Places like Zopa normally have something like a 90%+ decline rate for personal loan applicants.Moonchild10 wrote: »As per my experience in the field of finance, P2P lending is increasing day by day. This process helps people to get personal loans easily. ...
Most P2P lending is secured, not unsecured. Most often on either land and buildings or cars but also a wide range of other things, as for instance invoice financing. Even a place that made its name with unsecured personal loans like Zopa now does some secured lending to Uber drivers for vehicles.Moonchild10 wrote: »Cons of P2P Lending
Unsecured
Note sure what you mean by that but the legal ties depend on the deal and include:Moonchild10 wrote: »Generally did not follow any strong legal bond
1. First charge over a building and land, just like any mortgage. Or sometimes second charge, perhaps with a cap agreed by the first charge holder on what they can claim to protect the P2P with the second charge.
2. Charges registered at Companies House where Land Registry use doesn't apply. Often named item charges that are near the top of the precedence in insolvency rather than generic charges that are closer to the middle or bottom.
3. In both the secured and unsecured cases the usual legal measures are available. For example, I know of a case where the P2P firm went to the Queen's Bench court in London to get an emergency freezing order and is now working through the winding up process and getting the directors made personally liable so their assets can also be seized, as normally happens in the circumstances involved. You don't get much stronger ties than directors having their own personal bank accounts frozen except for limited living expenses and perhaps having their home sold to pay the debt.
This is possible as is the fear of it but I've been doing P2P since 2008 and have never heard of an example of the money not being paid to details other than those supplied at the time of application. Identity fraud does happen sometimes though, as a low level matter of routine in the unsecured lending to individuals area, to the extent that the usual identity checks don't stop it.Moonchild10 wrote: »Fear of delivering the money in wrong hands
Well, no more than with traditional lending, though of course the usual money laundering and identification checks are required.Moonchild10 wrote: »Can’t determine the chances of fraud0 -
Moonchild10 is a spammer inflating their postcount. Their post is copy and pasted from quora.com. Bizarrely MSE have deleted about 6 of the 8 banal posts they had yesterday instead of just banning them.0
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Geoff
Given what you have noted, combined with what i have read in the terms and conditions that govern an "investment" in p2p, i repeat, why bother even considering putting money into these schemes.
Just because an individual says that p2p is less risky than BTL, or another individual says they have 100k on loan to p2p, is not a good enough reason (justification) to place money at risk in a scheme where you could loose all.0 -
Geoff
Given what you have noted, combined with what i have read in the terms and conditions that govern an "investment" in p2p, i repeat, why bother even considering putting money into these schemes.
Just because an individual says that p2p is less risky than BTL, or another individual says they have 100k on loan to p2p, is not a good enough reason (justification) to place money at risk in a scheme where you could loose all.
A sensible investor would diversify.
Multiple loans on multiple platforms is the way to go0 -
There is a choice to put cash on deposit in a bank and take zero investment risk ; that is low risk, low reward and it will be difficult to grow significantly (or even maintain) your wealth over the long term using cash products.Just because an individual says that p2p is less risky than BTL, or another individual says they have 100k on loan to p2p, is not a good enough reason (justification) to place money at risk in a scheme where you could loose all.
There are a variety of other things that you can do with your money to make a return, including p2p lending at a variety of perceived risk levels, tradition equity and bond and property funds, individual holdings of company shares or company or government bonds, investment property etc.
Of course you should not jump from being a cash hoarder to being an investor in one of the many many other categories just because someone says they have done it and been successful so far. That is common sense. Also, "don't invest in what you don't understand" is a fine motto too. Cash isn't a bad thing to stay in for the short term even though interest rates are low.
However, the idea that you shouldn't touch any p2p firm with a bargepole just because it is possible to take losses on an investment with one, or because you are not sure whether the person determining the usage of the bad debt provision pool is totally independent of the platform, is perhaps shortsighted. You can lose money on all the types of investments I mentioned above, from shareholdings in the world's most valuable companies to inflation linked 40 year loans to your own government, in pursuit of a better return than cash.
If cash returns are sufficient for your long term needs because you are already on target to accumulate as much wealth as you want though work or inheritance, then sure - don't seek out investment opportunities.0
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