Peer-to-peer lender RateSetter is using its own money to prevent its clients from facing losses over £80m of loans.
The company has dipped into its own funds to make sure investors were not affected by a series of loans it had made.
In a letter to investors, Peter Behrens, the company’s chief operating officer and co-founder, said: “We believe it is important for all our lenders to be comfortable with their investment and aware of the risks of investing with RateSetter on an ongoing basis.
“These three interventions all stem from RateSetter’s wholesale lending which we discontinued in December 2016 and we do not intend to intervene like this again.”
He pointed out that the expected default rate on RateSetter’s outstanding lending is unaffected and stands at 2.9 per cent.
The intervention relates to loans totalling £36m made to Vehicle Trading Group Ltd, a motor finance holding company which went into administration because it had taken on too much debt.
It also relates to Adpod, an advertising company which Vehicle Trading Group lent £12m of lending from RateSetter to.
Meanwhile George Banco Ltd is repaying £32m, with RateSetter as a passive shareholder in the business.
Mr Behrens said that despite these interventions the provision fund remains large enough to cover all expected future losses.
But he added that this does not provide a guarantee of safety for an investment.
RateSetter has told its users that if they would like to sell out of their investments on the back of this information, they can do so without incurring a fee for a period of one month until 17 August.
Peer-to-peer lending entered the mainstream last April with the government's launch of the Innovative Finance Isa, after being announced in the 2015 Summer Budget as a way to spark investment in small businesses, allowing savers to invest in peer-to-peer lending arrangements without paying tax on the gains.
However a year later in April 2017, just 14 of the so-called ‘peer-to-peer Isas’ were available to investors, with one industry player branding the introduction of the investment vehicle a “damp squib”.
Advisers have also been reluctant to recommend the Isa to clients, citing high risks to both themselves from a due diligence and liability point of view, and to investors who could lose their cash, as the biggest concerns.
damian.fantato@ft.com
