Peer-to-peer lending platform RateSetter has completed a sale of £2.1million worth of non-performing debt to 1st Credit. The sale is believed to be the first of its kind for a UK peer-to-peer lender.
The debt sold comprises non-performing loans worth £2.1million written between 2010 and 2015, where RateSetter believes that it stands a low chance of making a recovery. Typically, these are loans where RateSetter has not been able 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.
RateSetter pioneered the concept of a Provision Fund, made up of risk-weighted borrower contributions. In the event of a missed payment from a borrower, as long as it is sufficiently capitalised, the Provision Fund steps in to ensure that the lender receives his or her expected capital and interest. If a borrower defaults, the Provision Fund takes ownership of the loan and begins a recovery process, making every reasonable effort to restart payments.
The value of the Provision Fund is in excess of £20million and to date it has ensured that no individual RateSetter lender has ever lost a penny, although this is not a guarantee for the future.
The proceeds of the debt sale have been paid into the Provision Fund, and are reflected in a small reduction in the Provision Fund usage for the years 2010-2015. The price is not being disclosed for commercial reasons.
Ryan Marais, Operations Manager at RateSetter, said “RateSetter has consistently achieved very low default rates, but when a loan doesn’t perform according to plan, we aim to maximise recoveries for the Provision Fund and have a built up a strong track record of making recoveries ourselves.” We undertook this debt sale to secure some value for the Provision Fund from loans where we’d exhausted the other options available to us. We always strive to ensure that RateSetter borrowers are treated fairly and that is why we specifically chose to partner with 1st Credit as they are a progressive, responsible debt purchaser.”