RATESETTER has sold £2.1m of bad loans to debt management company 1st Credit, in what is believed to be a first-of-its-kind deal for UK peer-to-peer lending.
The non-performing loans were written between 2010 and 2015. These tend to be loans where RateSetter could not get in touch with the borrower for a long period of time or where it has not been possible to put a debt management plan in place.
Defaulting loans are usually covered by RateSetter’s provision fund, a pot of money set aside that can be drawn down from if default rates get too high.
“RateSetter has consistently achieved very low default rates, but when a loan doesn’t perform according to plan, we aim to maximise recoveries for the provision fund and have a built up a strong track record of making recoveries ourselves,” said Ryan Marais, operations manager at RateSetter. “We undertook this debt sale to secure some value for the provision fund from loans where we’d exhausted the other options available to us.
“We always strive to ensure that RateSetter borrowers are treated fairly and that is why we specifically chose to partner with 1st Credit as they are a progressive, responsible debt purchaser.”
RateSetter saw its default rate rise higher than expectations in both 2013 and 2014, raising questions about the capacity of its provision fund. The proceeds of the debt sale have been paid into the provision fund, retroactively reducing the provision fund usage figures for 2010-2015.
There is more than £20m in RateSetter’s provision fund, meaning that no individual lender has ever lost a penny to date. The firm has been bolstering its risk processes recently with a high-profile new appointment and the introduction of an “interest buffer” to reassure investors.