PEER-TO-PEER lending platforms have moved to reassure their customers, after it emerged that Lendy investors are possibly facing legal action from a borrower.
A property developer who borrowed money from Lendy is threatening to sue the P2P property platform and its investors for £10m, after Lendy put the developer’s loans in default.
Lendy has described the threat as “vexatious” and with “little prospect of victory.”
This has prompted Lendy investors who are on other platforms to seek clarification on the risks involved in the wider sector.
Business P2P platform MoneyThing told Peer2Peer Finance News that some of its investors have asked for advice on the situation they are facing with Lendy.
Sophie Pearce, managing director of MoneyThing, said while the firm cannot help with the specific Lendy case, it has reviewed its own procedures and sought legal advice to confirm that the same thing could not take place on its own platform.
“There is a lot of scaremongering going on in the press lately regarding lender liability in P2P lending,” Pearce said.
“The Lendy case should be viewed in isolation and not as an industry-wide issue.
“MoneyThing already has in place appropriate protections for lenders to mitigate as far as possible any potential liability lenders may have over and above the amount they lend.
“As with all P2P lending, your capital is at risk, but on our platform, it would be almost impossible to become liable for more than you lend.”
She added that no-one can prevent vexatious claims from being made, but said the platform has taken “both legal and structural steps to provide the best protections for all parties.”
Pearce said there is no reason why investors should be concerned about their liability generally in P2P lending.
“P2P is a regulated industry with further regulations due to come into force shortly,” she added.
“The regulations are designed to give investors protection, prevent harm and ensure that platforms are well run. We welcome the additional regulation as it gives greater consumer confidence in the industry as a whole, which helps investors to see any individual platform difficulties as isolated and not industry-wide.”
Other platform have faced similar concerns from investors.
Ben Shaw, founder of asset-backed P2P lender HNW Lending, said one of its users is also a Lendy investor and has expressed concerns about the risks of being held liable by borrowers.
“I think the key is having good documentation so that a case brought by a borrower will not succeed – we have very meticulous documentation and in addition have a very specifically worded assurance from our solicitors on each loan that should cover our lenders against this sort of risk,” Shaw said.
“In practice, this means we may well be able to pass the case on to our solicitors and the professional indemnity insurers to defend against this sort of claim.
“In addition we keep a war chest to fight these sorts of claims as well as to fund litigation expenses to repossess a property or make a borrower bankrupt, so that lenders should never have to dig into their own pockets to pursue a borrower or defend a case issued by a borrower.”
Michael Lynn, founder of P2P commercial property lender Relendex, echoed the importance of clear loan documentation.
“Every lender usually has in its loan documentation the right to withhold funding if it believes its security is in jeopardy,” he said.
“The likelihood of a borrower claim succeeding in such circumstances is probably low.
“None of our lenders would be at risk for any call on their capital.
“Sums bid in a loan auction are held in escrow until the borrower meets its drawdown obligations.
“No individual lender is at risk for any additional sum beyond the auction value of his or her loan part.”