Promise of increased protection for peer-to-peer borrowers
There have been few financial success stories greater than that of peer-to-peer lending in recent years, as people cut out banks and building societies in a quest to find the best interest rates. Despite approval from Business Secretary Vince Cable among other public figures though, one persistent criticism has been the lack of regulation in the market, which could potentially hit both borrowers and lenders in the pocket.
Currently, the industry is regulated by the Peer-to-Peer Finance Association, and any depositor runs the risk of losing their money, since they are not covered by the Financial Services Compensation Scheme. Although most companies have arrangements in place to protect borrowers and lenders should they become unable to trade, the collapse of small French P-2-P company Quakle in 2011 caused quite a stir and undid a lot of the good work done by the Peer-to-Peer industry in reassuring financial markets.
But that may all be about to change, if new proposals from the City regulator the Financial Conduct Authority, which came into being earlier this year, are taken up. Designed to give more protection to borrowers, they will also seek to bolster confidence in this thriving market which includes big players such as Zopa and Funding Circle.
The proposals include:
- A 14-day cooling-off period for borrowers, during which they can cancel arrangements with no reason given either over the phone or in writing.
- P-2-P lending sites must explain the main features and risk of a loan to a borrower before anything is signed.
- Sites must check the creditworthiness of potential borrowers, and provide anyone who falls behind on their repayments with information on debt advice.
- If a loan is secured against a home, sites must make this very clear to borrowers.
These proposals serve to strengthen the idea that the government remains firmly behind the rise of peer-to-peer lending, and keen to ensure its future viability. For any more information please contact us.
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