Earlier this week, Funding Circle came under fire for the sale of 280 non-performing small business loans to specialist debt purchaser Azzurro Associates – an offshoot of US-based hedge fund Elliot Management.
But the bundling up and sale of bad debts is not unusual within the world of peer-to-peer lending.
Funding Circle has tapped the securitisation market no fewer than seven times over the past few years – packaging various different tranches of debt and selling it in Europe, the UK, and the US. Zopa and LendInvest have also opted for securitisation. However, it is worth noting that securitisations will largely consist of good-quality loans – non-performing loans are unlikely to qualify.
Luckily, there are plenty of debt purchasers who have shown a willingness to buy up non-performing loans from P2P lending platforms. Over the past four years, this method has been tried and tested by all of the ‘Big Three’ P2P platforms.
Here are just a few examples from the past few years of similar deals in P2P history.
- December 2016
RateSetter sold a tranche of non-performing loans to debt purchaser 1st Credit in December 2016, in what was believed to be the first transaction of its kind for a UK-based P2P platform.
RateSetter reported that the value of the sale was £2.1m and related to non-performing loans which were written between 2010 and 2015. The platform explained that it believed there was a low chance for them to collect on the assets, due to an inability to contact the borrower for a long period of time, or where it has not been possible to put in place a debt management plan with the borrower.
- November 2018
In November 2018, Zopa sold a batch of defaulted loans to an unnamed debt collection agency for an undisclosed amount. A platform spokesperson told Peer2Peer Finance News at the time that the purpose of the sale was to ensure a faster and higher recovery for investors.
All of the loans included in the sale were in default, and the borrowers had not been making payments for some time.
- November 2019
One year later, Zopa sold another batch of bad loans to an unidentified debt recovery company, citing the same reason: to ensure lenders are repaid.
Once again, the platform decline to comment on the value or number of loans but said it was not making any profit from the sale and investors should be repaid over the coming days.
- April 2020
Earlier this year, RateSetter sold another bundle of non-performing loans for £4.65m. The platform would not disclose the name of the buyer but said it only sells debt to Financial Conduct Authority-regulated specialist debt management firms.