An insolvency specialist has hit out at historic due diligence among peer-to-peer lending platforms.
Terry Bell, of debt strategists Bell & Company, which works on behalf of borrowers, said he has seen many cases of P2P lending where the due diligence undertaken on the validity of the asset and liability statements is poor and warned there is a legacy of issues associated with personal guarantees.
Bell said new Financial Conduct Authority (FCA) regulations are improving processes but added that poor practices in the past have been driven by a desire to “fire out” money and earn fees.
“We have seen a number of ‘car crashes’, where money has literally been thrown at clients, almost under the premise of the more loans you have the better credit risk you are,” he said.
“A genuine example of this is, when we sat with two indebted directors owing in excess of £500,000 and struggling, receiving an unsolicited text, on their smart phone, already approved loan of £35,000. You couldn’t make it up.”
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Bell said P2P platforms have focused more on data than due diligence, claiming there were “no slow nos” as the sector grew in the aftermath of the financial crisis.
He added that there is a place for P2P lenders, but warned some are too reliant on legal action to pursue recoveries when things go wrong.
“We have recently settled a P2P loan on the back of a personal guarantee totalling £84,000 at £27,000,” Bell said.
“Lenders are all too keen to give carriage of cases to solicitors with no consideration to the amount that will actually recover.
“This, we believe, stems from the over reliance on data and information.
“At which point the lack of quality of due diligence often becomes apparent.
“Bell & Company continues to strive to work with P2P lenders, but solely for our clients, to ensure they maximise their recovery for their stakeholders.
“They are usually very aggressive at the start of any case. Our role is to explain the true position they now find themselves in.
“As we always say in a failed finance position – the clients should not have borrowed but then the lenders should not have lent – so this is a two-way street.”