P2P firms urged to be cautious about borrower litigation risks
LENDY’S legal dispute with a borrower is predicted to make other peer-to-peer lending platforms more aware of the risks of counter claims as part of the recovery process.
It emerged this week that Lendy and its investors are facing a possible £10m legal claim from a borrower who has threatened action after the P2P property lender put the developer’s loans in default.
Lendy has described the threat as “vexatious” and with “little prospect of victory.”
Frank Wessely, partner at business advisory firm Quantuma, which helps P2P lenders with loan recoveries, said while this is not a common situation, firms will need to be cautious.
“The sector will benefit from a little more uniformity and standardisation around the definitions of defaults, recoveries and the consequential procedures so investors have an expectation of how loans will be dealt with across the range of platforms and different types of loans,” he said.
“I have not come across borrower legal action in my experience of working in the P2P sector, it hasn’t come to my attention with any of the platforms that we work with.
“It is possible that it is not isolated, it’s just the scale and profile of this loan that makes it interesting.
“It’s not likely to repeat any time soon with but I expect it will make platforms more conscious and aware of this risk.”
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Brian Bartaby, founder of commercial property P2P platform Proplend, said this type of issue was one reason the platform steers clear of residential development finance.
However, Filip Karadaghi, managing director of LandlordInvest, which offers buy-to-let and bridging loans, said borrower character forms a part of the risk management in the application process.
“This means that we consider the borrower’s credit history, professional experience and motives for looking for a loan,” he said.
“We also assess how the borrower interacts with us when applying for a loan.
“However, it is very difficult, if not impossible, to know beforehand how a borrower will behave after a loan is granted and litigation is unfortunately always a risk.”
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