Peer-to-peer lending sites: MSE guide discussion

masonic

Further to the above, I've taken a look at the lender T&Cs and it seems the waterfall was outlined in these:

Lender T&Cs dated 11/07/2018
"13.3 In the event of a shortfall in the amounts available for repayment of the Loan, the available proceeds will be paid in the order set out in the Loan Agreement, as follows: first, payment of any unpaid fees, costs and expenses of the Agent under the Finance Documents; second, payment of any accrued interest, fee or commission due but unpaid under the Loan Agreement; third, payment of any principal due but unpaid under the Loan Agreement; and fourth, payment of any other sum due but unpaid under the Finance Documents. However, Lendy may, and Saving Stream Security Holding may, vary this order in their discretion."

So it does appear the default waterfall in the lender terms is the one the administrator intends to use, and no changes have been made to these terms since July 2018.

The lender T&Cs also state:
"Each agreement between each lender and borrower comprises a Loan Agreement, a Loan Confirmation and an accompanying Term Sheet setting out the specific details of the loan (together the "Loan Contract"). There will be more than one lender for each loan (and each Loan Contract is a separate agreement between you and the borrower and is governed by separate terms and conditions. If there is a conflict between these terms and conditions and the Loan Contract, the Loan Contract will prevail. Please note that under clause 9 of these terms and conditions you grant us the authority to amend the Loan Contract (without the need for your agreement to those changes and you will be bound by those amendments)."

And in clause 9:
"9.8. You agree that Lendy will be acting as your agent on your behalf in:

9.8.1. negotiating and agreeing amendments to the Loan Contract in accordance with clause 9.6 above; and
9.8.2. negotiating and settling any dispute relating to the Loan Contract.

9.9. You hereby appoint Lendy (for the duration of your membership of the Lendy Platform) as your agent on your behalf with full power to carry out those amendments referred to in Clause 9.8 without your specific agreement. You will then be bound by those amendments. You agree and acknowledge that Lendy shall take on no liabilities, obligations or rights under the Loan Contract as a result of such agency, and you agree that you will continue to be solely liable and responsible for the rights and obligations under the Loan Contract (as amended) and Lendy and/or Saving Stream Security Holding will not be liable for any amendments to the Loan Contract."

So it seems to me that overturning the waterfall would necessitate establishing that the terms granting Lendy authority to enter into these contracts on lenders' behalf were unfair and should be invalidated. The consequence of which would be that the loan contracts themselves were not validly executed, and the borrower, Lendy and the individual lenders should be released from the agreement. That's not to say the borrowers would not be liable to repay the principal lent by the lenders, but these would presumably revert to unsecured loans to which Lendy and SSSH was not party, and Lendy and SSSH would not have been entitled to collect any interest, fees or hold legal charges over assets used to secure the loans. There's a general principle that unfair contracts only need to be modified to the minimum extent to make them fair, but I can't see a smaller change is feasible than revoking those parts of clause 9.

bigadaj

The date of the change to the general contract is important, I stopped investing in Lendy in early 2017 and had fully exited by late 2017 or possibly very early 2018, I remember having some concerns about the debacle around the London loan as it was made just after I left and had mild concern I could be drawn into a court case if the liability was found to extend to all lenders, unlikely and illogical as that sounds.

I'm not sure if Lendy actually made any loans after July 2018, there were certainly very few if they did so. So teh change in terms appears to have been a cynical ploy by the comoany at that time anticipating administration a few months later, acting against the interests of the lenders for whom they act as agents.

The introduction of the July 2018 terms and conditions was commented on on the p2p independent forum, and some posters explicitly stated they had contacted Lendy and formally rejected those new terms; as above very few if any lenders would have lent more money on the site so could be deemed to have explicitly accepted.

Ultimately the courts are the only option and natural justice won't necessarily prevail so it will be an interesting case to observe. Lendy seems to have almost single handedly pretty much killed off p2p lending, certainly of the 'higher' risk and rates nature.

masonic

Just to correct the record, it was actually March 2018 the term detailing the waterfall was introduced. I found the following over on P2PIF after doing some digging there: http://p2pindependentforum.com/attachment/download/2951 (forum account needed). The date of the change is of little consequence. Prior to the change there was nothing in the T&Cs governing how the loan enforcement would be carried out or how the proceeds would be used, only that Lendy may enforce payment/security.

So whether this is a change comes down to what was in the Loan Contracts prior to the change in general T&Cs. Regardless, lenders would not have known about the waterfall when these pre-March 2018 contracts were formed.

If there is no change, just an increase in transparency, then it could still be argued one party was incapable of agreeing to the Loan Contract owing to not having been made aware of the terms, so the contract should be void.

If there was a change, then those lenders who rejected the change should be treated preferentially vs. other Model 2 investors.

I wonder if Model 2 investors who did not explicitly reject the new T&Cs (or did not accept them by refraining from making investments in any loan parts, either on the primary or secondary markets, or put loan parts up for sale, after early March 2018) understand the result of the court case could reduce the amount recovered by all M2 investors (in the case Loan Contracts are voided), or benefit only some of the M2 lenders (in the case everyone is held to the terms they agreed).

I can't really comment on the relative likelihood of the above outcomes vs the stated aim of the legal action (to benefit all M2 investors), so, as you say, the court case will be interesting to observe.

shoi

masonic wrote: »

Good luck to them, but this seems like throwing good money after bad.

What these villains are trying to do is to sabotage p2p, ALL p2p.


In the words of the LAG

I've been asked to explain again why we are raising money to fight the waterfall. Here's the simple explanation:
Lendy originally promised to only deduct charges for administering the default loan then pay back investors. (that's not what was in the notes we were never allowed to see) Then after the portfolio started defaulting en mass and we were stuck, Lendy sent an email, retrospectively changing this.
The issue is what is defined as a "fee" which Lendy defined in a way that paid penalty interest and many other items to themselves first. This is a hole LAG is focused on plugging.
You should know, RSM did not include these deductions when estimating investor recovery. We think these illegal deductions could reduce our recovery by £20m - that's 25% of the total recovery forecasted and that money could go to Liam. ?
Are you ready to fight now?
www.crowdjustice.com/case/lendy-action-group-legal-fund/


(I think that the administrators RSM actually make more money from this perverted interpretation, so the venal bast***s don't want to fight it)


If this runs, any p2x running into trouble could change the deal and then abscond with your investment, It would become p2LyingFatCat like many other city scandals. You would hope that any judge with any interest in fairness would kick this out without hesitation


SO anyone invested into p2p needs to support this. Personally I only stand to lose a few hundred if Liam gets away with this, but if the whole of p2p founders, that's different

masonic

shoi wrote: »

What these villains are trying to do is to sabotage p2p, ALL p2p.

Their sole interest will be their self interest. They put the terms in place to maximise their own profits. The impact on the sector is just collateral damage. Personally, I feel that ship has already sailed and the reputation of P2P couldn't be damaged much further.

In the words of the LAG

I've been asked to explain again why we are raising money to fight the waterfall. Here's the simple explanation:
Lendy originally promised to only deduct charges for administering the default loan then pay back investors. (that's not what was in the notes we were never allowed to see) Then after the portfolio started defaulting en mass and we were stuck, Lendy sent an email, retrospectively changing this.
The issue is what is defined as a "fee" which Lendy defined in a way that paid penalty interest and many other items to themselves first. This is a hole LAG is focused on plugging.
You should know, RSM did not include these deductions when estimating investor recovery. We think these illegal deductions could reduce our recovery by £20m - that's 25% of the total recovery forecasted and that money could go to Liam. ?
Are you ready to fight now?
www.crowdjustice.com/case/lendy-action-group-legal-fund/

As discussed above, I think the practice of recovering interest before principal is unsound, but I doubt it is illegal. I sympathise that this was in the loan contracts, but lenders had no idea until April 2018. This could invalidate those loan contracts formed prior to that date. The other issue is some investors will have agreed to the April 2018 terms, which could put those investors in a less favourable position than those who rejected the terms and stopped using their accounts.

If the loan contracts are invalidated then money recovered from disposal of assets might need to be returned, and recalcitrant borrowers might see that as an opportunity to make that money disappear. But some might consider that risk acceptable if it means the fees and interest charged by Lendy would also have to be repaid (so borrowers would join the long list of creditors).

Perhaps part of the plan is to try and make a personal liability claim against the directors, though that looks on the face of it to be tricky.

(I think that the administrators RSM actually make more money from this perverted interpretation, so the venal bast***s don't want to fight it)

It would make no difference to the administrators how the proceeds are distributed. They are priority creditors by law. What will earn them more money is this legal action that is being taken, which will allow them to clock up more hours and charge more fees. They are also required by law to act in the best interests of Lendy's creditors, and since this is not a Special Administration, investors are not formally considered to have the same status as creditors.

I have reviewed the T&Cs, and agree with the interpretation of the administrators, so disagree that their interpretation is 'perverted'. The question to be asked is whether lenders could be deemed to have agreed to those terms prior to April 2018 when they had never been informed of them.

If this runs, any p2x running into trouble could change the deal and then abscond with your investment, It would become p2LyingFatCat like many other city scandals. You would hope that any judge with any interest in fairness would kick this out without hesitation

SO anyone invested into p2p needs to support this. Personally I only stand to lose a few hundred if Liam gets away with this, but if the whole of p2p founders, that's different

That's not what happened in this case though. What happened is the waterfall was hidden from investors, not changed. As I mentioned up thread, I was always uncomfortable that I had never seen a Loan Contract - and with good reason it transpires.

bigadaj

Masonic, I don't think you can say that the waterfall was hidden rather than changed.

The first mention of it was in 2018 I don't think we can say for certain whether it existed before that but that was the first time that lenders were explicitly made aware of it, and many lenders objected to it at that time.

masonic

bigadaj wrote: »

Masonic, I don't think you can say that the waterfall was hidden rather than changed.

The first mention of it was in 2018 I don't think we can say for certain whether it existed before that but that was the first time that lenders were explicitly made aware of it, and many lenders objected to it at that time.

It must have been hidden rather than changed because the general T&Cs state that in cases where the Loan Contract is in disagreement with the general T&Cs, the terms of the Loan Contract will prevail.

Edit: First a reminder of the how the agreements were structured and what the general T&Cs state:

Each agreement between each lender and borrower comprises a Loan Agreement, a Loan Confirmation and an accompanying Term Sheet setting out the specific details of the loan (together the "Loan Contract")

General T&Cs Clause 13.3: In the event of a shortfall in the amounts available for repayment of the Loan, the available proceeds will be paid in the order set out in the Loan Agreement, as follows: first, payment of any unpaid fees, costs and expenses of the Agent under the Finance Documents; second, payment of any accrued interest, fee or commission due but unpaid under the Loan Agreement; third, payment of any principal due but unpaid under the Loan Agreement; and fourth, payment of any other sum due but unpaid under the Finance Documents

General T&Cs Clause 13.4: The borrower will pay default fees to Lendy (for its own account) on any overdue amounts under the Loan, as described in the Loan Agreement.

The general T&Cs only give Lendy the ability to amend a Loan Contract in specific circumstances, and the borrower would need to agree to such a change.

General T&Cs Clause 9.6: Notwithstanding any other clause in these Terms you agree that, in certain circumstances, for example a change in the borrower’s circumstances, and in its absolute discretion, Lendy (acting as agent on your behalf) may agree with the borrower to restructure the loan and amend the Loan Contract (including, for the avoidance of doubt, to agree to extend the term of any loan) and you will be bound by these amendments.

General T&Cs Clause 9.7: "Where Lendy and/or Saving Stream Security Holding believes that an agreement to restructure the loan and amend the Loan Contract is in the interests of the relevant lenders as a group, and intends to amend the terms of the Loan Contract in accordance with clause 9.6 above, we will notify you of this."

Turning now to the worked example in the Joint Administrators' first progress report (page 4), in which the waterfall is described, the priority of repayments is as follows:

1) Costs deduction, including annual service fee that kicks in when the loan is put into default and other direct costs (Valuers & Legal Fees)
2) Loan principal, interest to investors, interest to Lendy, default interest to Lendy, Exit fee - all ranked pari passu

Is it really being suggested that the service fee payable while the loan is in recovery or valuation/legal fees incurred during the default, were not originally payable to Lendy or were not ranked ahead of repayments to lenders? Or is it being suggested that default interest to Lendy was not in the original Loan Contracts and that all of the borrowers agreed to an amendment where they would have to pay this penalty interest after agreeing to terms where it was not payable? Or is it being suggested that the default interest was always in the contract, but it used to be payable to lenders rather than Lendy? I'm struggling to believe any of these are possibilities.

bigadaj

Given this is Lendy/ Savingstream then anything is possible.

It is up to the courts to decide, and interesting to see that it's only £25k to start the case, costs could easily escalate so maybe that's an indication about the confidence of the lawyers taking the case on.

I believe that teh administrtaors arent defending this case, but are seeking clarification, in which case I'm not sure who might be defending the waterfall or at least the interpretation that has been taken.

If the 2018 waterfall condition was not in the original contract then why was it suddenly published at that time, when teh comoany was obviously in trouble. It was teh first time that lenders became aware and many would have rejected those terms so can it still be applied? Again to be determined in court.

If the contract was found to be invalid then waht would teh consequences of that be? In theory then borrowers would simply pay back the borrowed capital but that isn't available in many cases. Lenders obviously haven't given their money away, so it's not as though borrowers can simply walk away with the money, though many appear to have done so anyway.

Maybe lenders recourse would then to be to sue Lendy. Savingsstream as they were the agent but that would put lenders back in a worse position as they would no longer be secured.

Ultimately it's a real mess and I feel a lot of sympathy for lenders and contempt for the Lendy management, and also contempt for the fca who authorised the firm after a long period of deliberation on the basis that they thought it better than not granting authorisation. The fca is more than a waste of time as if it didn't exist then we woudn all save hundreds of millions in fees that would flow back to savers and investors one way or another.

masonic

bigadaj wrote: »

Given this is Lendy/ Savingstream then anything is possible.

It is up to the courts to decide, and interesting to see that it's only £25k to start the case, costs could easily escalate so maybe that's an indication about the confidence of the lawyers taking the case on.

It has not been stated that the £25k needed (and £35k so far raised) would pay for a lawyer to take the case on. The stated purpose of the funds is to "to hire specialist support by engaging a qualified solicitor". Presumably no such solicitor has reviewed the matter at this stage, and certainly no legal strategy has been formulated.

I find it hard to believe that between April 2018 and now, nobody has successfully obtained a Loan Contract from Lendy/administrators, as this would be critical to determining whether it is worth spending £25k on a legal action.

I believe that teh administrtaors arent defending this case, but are seeking clarification, in which case I'm not sure who might be defending the waterfall or at least the interpretation that has been taken.

If the administrators are seeking clarification, why raise money to pursue a legal case before the administrators have a clear position? This could be unnecessary if the administrators change their position, or fruitless if in due course they provide a water-tight justification of their position.

If the 2018 waterfall condition was not in the original contract then why was it suddenly published at that time, when teh comoany was obviously in trouble.

Based on the worked example, the administrators aren't using the waterfall described in the general T&Cs as amended April 2018. Those are more unfavourable towards lenders and rank principal behind interest. If a Loan Contract contradicts the general T&Cs then the terms of the Loan Contract would prevail. The fact that the proposed waterfall does not align with the April 2018 T&Cs means that the Loan Contracts do not align with the general T&Cs and that they were in fact not renegotiated with borrowers around that time to bring them in line with that waterfall. The waterfall in the April 2018 T&Cs is therefore not relevant.

It's also worth remembering that Lendy received full authorisation and a clean bill of health from the FCA in July 2018. If it was "obviously in trouble" at that time, the FCA ought to have noticed. Lendy was able to continue trading for a year after gaining authorisation.

It was teh first time that lenders became aware and many would have rejected those terms so can it still be applied? Again to be determined in court.

This is the aspect that seems to hold water. Can Lendy unconditionally act as agent to lenders in order to enter into, and amend, Loan Contracts without lenders' agreement or knowledge of what is contained in those Loan Contracts? As you say, to be determined in court.

If the contract was found to be invalid then waht would teh consequences of that be? In theory then borrowers would simply pay back the borrowed capital but that isn't available in many cases. Lenders obviously haven't given their money away, so it's not as though borrowers can simply walk away with the money, though many appear to have done so anyway.

Maybe lenders recourse would then to be to sue Lendy. Savingsstream as they were the agent but that would put lenders back in a worse position as they would no longer be secured.

Ultimately it's a real mess and I feel a lot of sympathy for lenders and contempt for the Lendy management, and also contempt for the fca who authorised the firm after a long period of deliberation on the basis that they thought it better than not granting authorisation. The fca is more than a waste of time as if it didn't exist then we woudn all save hundreds of millions in fees that would flow back to savers and investors one way or another.

Agree with all of that.

What would happen in theory if the contract was invalidated (for example after striking clause 8.1 from the T&Cs or determining that the requirement within the terms to show an example Loan Contract to lenders for agreement when they first lend hadn't been fulfilled in accordance with clause 7.1) is that the company/SPV that was advanced lender money would be liable to repay that money. Any available money collected by Lendy would flow back to that company/SPV along with assets or proceeds from the disposal of those assets (borrowers could pursue Lendy for any shortfall, impacting the Model 1 lenders). Lenders would then need to take action against each of the companies/SPVs either collectively or individually, hoping the individuals operating them don't try to pull a fast one.

As you say, a complete mess.

Kendall80

The administrators RSM have put out an update today specifically mentioning LAG. Good to see them gaining some traction. Considering the content of the update though i'm still sceptical. They seem to be able to do whatever they like and crucially over any timeframe they like. Accruing their hourly rate all the way.