Twino (P2P Lending) buyback guarantee

TX9000

Hi folks,
Friends of mine have moved some money into peer to peer lending platforms over the past couple of years. I have stayed out of it due to the risks (outside of my 'personal risk tolerance...'

However, earlier today I was told that Twino are advertising a buyback guarantee as follows: 

TWINO will buy back loan (principal amount and accrued interest for full term), if a borrower is late with the repayment for over 60 days.

Is this effectively offsetting the risk of a borrower defaulting? Reducing it solely (but not insignificantly) to the health of Twino as a company? 

Thanks

AnotherJoe

Your last comment nails it. If defaults increase too much, and this is probably the best time for that to happen, the company will collapse and then the  guarantee is worthless.
There's a lot of complaints right now with people unable to get their money out of P2P, why would a new company do any better.  Look for somewhere else to put your money. 

bigadaj

I would have thought that a buyback would go against FCA requirements, the risk of the platform going under is too large with the result that the guarantee is worthless.

masonic

The infamous Collateral P2P platform had buyback guarantees in place for a number of its loans secured on jewellery, whereby several jewellers had pledged to buy the items loans were secured on should those loans default. When push came to shove, they declined to purchase the items as agreed and there was no legal recourse taken.

Some important questions to ask before relying on such a guarantee:

• Does the guarantor have a legal obligation to stand behind the guarantee they are making: (a) while it operates as a going concern, (b) if it enters administration?
  
• If there is a legal obligation, what is the governing law and how are you going to enforce your legal rights in practice [for example in this case the governing law of your contract is that of the Republic of Latvia, so understanding and enforcing your rights may not be straightforward]
  
• If there is no legal obligation, at what point might the guarantor consider that ending/breaking the guarantee to be in its best interests?
• What capital does the guarantor hold to meet its guarantee and how is this protected from being spent by the guarantor or used to satisfy other claims from its creditors?

keyboardworrier

I personally wouldn't get involved with any P2P platform at the current time. It's perhaps better to wait until this Corona Virus situation passes then reassess the health of the platforms left.

DiggerUK

Early days of P2P seemed to give higher rates of return compared to savings accounts. An accepting blind eye to the risks was used because of the allure of higher rewards.
The risks involved in P2P at the start were enormous, but nowadays they are beyond acceptable. Stoopid iz az stoopid duz..._

TX9000

Thanks everyone for the excellent informative feedback which has validated my concerns.
The business model just smells so funny, instigating a race between their investors and potential defaulters? Incentivising more and more short sighted investors with the buyback? 
(This is pure speculation but) I really do wonder what will happen when these defaults start kicking in and punters (try to) pull their money, house of cards may just come tumbling.

Thanks again