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Lord Turner, not all P2P platforms are the same

Lord Turner, not all P2P platforms are the same

Speaking on BBC Radio 4's Today programme, Lord Turner -- chief City regulator during the global financial crisis of 2007/09 -- gave some stark warnings about the dangers of UK savers becoming P2P lenders. Unfortunately, Adair Turner's comments were ill-informed, tarred the entire P2P industry with the same brush and, put simply, were plainly wrong.

Lord Turner: "P2P lending losses will be severe"

The first warning Lord Turner made was to say, "The losses which will emerge from peer-to-peer lending over the next five to 10 years will make the worst bankers look like lending geniuses."

Lord Turner then added, "You cannot lend money to small- and medium-sized enterprises (SMEs) without someone doing good credit underwriting. This idea that you can automate that on to a platform, it has a role to play, but it will end up producing big losses."

The good news is that we at Assetz Capital completely agree with Lord Turner's above statement, because you can't lend money willy-nilly to SMEs without proper vetting!

Thankfully, at Assetz Capital, we have brought together a highly experienced group of ex-business lending bankers and other credit professionals to make up our team of Relationship Directors, credit team, recoveries team and board of directors. Between them, these people have well over one hundred years of experience of secured lending to British businesses.

Lord Turner: "P2P platforms don't know their borrowers"

Lord Turner then argued in his BBC interview that "proper checks were required to ensure a company actually possessed the premises, equipment and expertise it claimed."

More good news: we absolutely agree with Lord Turner's second statement, because you can't take an asset as security without first checking it actually exists and then securing it carefully with legal charges!

At Assetz Capital, we do our utmost to ensure that our lending is responsible, because we don't want any of our individual P2P lenders to lose even a single penny. That's why every single one of the 317 business borrowers we have arranged lending for to date has been visited in person, usually several times, by one of our nationwide and credit experienced relationship directors.

Lord Turner: "P2P lending needs multiple health warnings"

Lord Turner then went on to warn that all advertising from P2P lenders should come with clear 'wealth warnings' and that only investors who can afford to lose all of their money should become P2P lenders.

We feel these comments are to a degree fair, but only just. If you lend through unsecured peer to peer platforms, and especially if you don’t diversify across enough loans, then you may find that you could have material losses on your portfolio at some point. Nonetheless at Assetz Capital, we only lend on loans with tangible security, intended to limit losses on any defaulting loan and we also repeatedly warn our investors that P2P lending has risk and is not covered by the government-backed safety net that is the Financial Services Compensation Scheme (FSCS). The latter is a legal requirement under FCA regulation so to say this is somewhat strange from someone supposedly well versed in FCA requirements on financial promotions.

Assetz Capital takes great care to explain to P2P investors that bad debts and loan losses will reduce P2P lenders' returns and of course capital is at risk. To further enhance the tangible security that we take on each loan, we also have available discretionary, ring-fenced loss-provision funds on three of our leading P2P investment accounts.

Assetz Capital typically never lends more than three-quarters (75%) of any asset's value -- that's a 75% loan-to-value (LTV) ratio. For example, to secure a £150,000 loan, we will demand at least £200,000 of security (a 133% margin), purely because we want to minimise as far as possible the chances of our lenders losing out if and when a loan goes bad.

In short, Lord Turner, at Assetz Capital, we don't lend lightly, carelessly or without security, and also make material and fair warning of risks across our site!

P2P lending is very diverse, Lord Turner

Following Lord Turner's ill-judged remarks, the P2P-lending industry was quick to hit back with rebuttals. Christine Farnish, chair of industry body the Peer-to-peer Finance Association (P2PFA) said that Lord Turner's remarks "fly in the face of the evidence." Farnish added, "Since the industry began [with the launch of Zopa in 2005], default on loans are low, measuring between 2-3%."

The head of the P2PFA went on to say, "We [P2P lenders] only lend to creditworthy consumers and established small- and medium-sized enterprises. Strict credit underwriting rules apply to all our members and this should not be confused with higher-risk forms of crowd-funding or lending to subprime customers."

In other words, Lord Turner has unfairly tarnished the entire UK P2P-lending industry, simply because he claims knowledge of lax underwriting standards at a few (likely smaller) P2P platforms and because he clearly doesn’t understand the difference between crowd equity platforms that raise high risk equity capital for start-up businesses and secured business lenders such as ourselves with highly experienced credit teams, tight credit policies, a demand for well established businesses only, and with experienced personnel, strong security on every loan and cautious loan to values on each loan. Perhaps Lord Turner -- notably, a new director of 'challenger bank' OakNorth -- created this controversy in order to promote his recently published book, "Between Debt and the Devil: Money, Credit, and Fixing Global Finance"?

Commenting on this unhelpful interview, Stuart Law, co-founder and CEO of Assetz Capital, hits back, arguing "At Assetz Capital, we have assembled an elite team of experienced business bankers. In fact, we know that our lending experts are at least as good as, if not better than, those at any high-street lender. We have had comments from some people carrying out due diligence, including banks, that our policies and paperwork are stronger than theirs."

Stuart adds, "I dispute a great deal of what Lord Turner has to say and so would welcome him to visit us here at Assetz Capital. I'd be delighted to show the noble Lord exactly how we have married old-school banking expertise with cutting-edge technology to create our state-of-the-art P2P-lending platform, which aims to offer fairer rates and better service to both P2P lenders and British businesses! Our aim to do better than the best bankers."

WEALTH WARNING: "As with most forms of investment, peer-to-peer lending carries a degree of risk to your capital; in this case, if borrowers were unable to repay their loans. At Assetz Capital, we seek to reduce this risk to our investors by taking asset security on every loan, with the added benefit of a discretionary Provision Fund for some of our investment accounts."

- February 16, 2016

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