As part of FCA regulation, any money that hasn’t yet been lent out must be held separately to any other funds, so that if the platform goes bust, the cash will be returned to lenders.
By April 2017, all peer-to-peer companies will have to have a minimum of £50,000 worth of capital, or more for larger companies, held in reserve. This money will then act as a buffer in case the company runs into financial problems.
Lenders also have access to the Financial Ombudsman if they have any problem with a peer-to-peer lender which cannot be resolved directly.
Unlike savings accounts, peer-to-peer lending is not covered by the Financial Services Compensation Scheme (FSCS). This protects the first £75,000 of your money in the event that the savings provider goes bust, or £150,000 in the case of joint accounts.
Many peer-to-peer lenders, however, have set up their own ‘provision funds’ to ensure that lenders don’t lose out. Zopa, for example, has a ‘Safeguard’ fund which is held in trust by a not-for-profit organisation. If a borrower can’t pay back what they owe the Safeguard fund will cover savers for any loss of capital or interest. There is further protection for savers too, as the fund also contains a buffer in addition to what it expects to pay out.
Similarly, RateSetter has a Provision Fund, comprised of borrower fees, which reimburses lenders in the case of late payment or default. The fund has compensated 100% of claims to date. Remember however, that this fund is not a guarantee.
Many peer-to-peer lenders belong to the peer-to-peer (P2P) Finance Association, which is a voluntary trade body set up in August 2011 to protect consumers by ensuring a set of minimum standards. These include demonstrating high standards of transparency, and providing clear, balanced and fair information to all customers. All members must also have insurance in place so that in the event that they go bust, a third party collection agency will be able to collect loan repayments to pass on to lenders.
The Association currently has eight members: Zopa , Funding Circle, RateSetter, Landbay, MarketInvoice, LendInvest, Thincats and Lending Works.
More information about the Association can be found at its website www.P2PFinanceAssociation.org.uk.
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