Peer-to-peer lending has understandably seen an increase in popularity in recent times, largely as a result of the financial crisis. With interest rates at a low, tried-and-tested means of making money earn more money have lost a lot of appeal.
Many savers have been looking elsewhere, away from the banks and towards investment and other lending schemes. Peer-to-peer lending companies have seen a rise in popularity as a result.
What is a peer-to-peer lending company?
Peer-to-peer lending involves lending your savings to a borrower or borrowers. This is all done through a peer-to-peer lending company, which acts as the ‘middle man’. You may be able to decide the rate of interest you wish to accrue, or it may be pre-determined on your amount, depending on the company.
The peer-to-peer industry has received support from the British Government and is currently enjoying a period of real growth. As with many innovative financial solutions though, the system is not without its downside.
Risks of peer-to-peer lending
Peer-to-peer lending companies have been monitored by the Financial Conduct Authority (FCA) since 1st April 2014, although not all companies are registered. The Financial Services Compensation Scheme (FSCS) has recently announced that they may be able to compensate investors who have lost money through peer-to-peer lending if it is deemed that they were given unsuitable advice to invest. For a claim to be considered by the FSCS, the advice an investor received must have been given on or after the 6th April 2016, and meet specific FSCS criteria regarding investment mis-selling.
Although there are many firms that operate completely fairly and legitimately, it’s worth being aware of the risks of peer-to-peer lending. Firstly, you may not be protected if your borrower fails to pay your money back. A lot can depend on whether your money is invested in a business or individual. Sadly, the industry is not exempt from peer-to-peer lending scams.
If you have been approached by a peer-to-peer lending company, it is worth considering a few things before you consider any investment. A genuine lending company should not ask for an upfront payment, nor discuss any figures. Rates differ so wildly depending on a person’s own financial situation, meaning that no lending company should be able to give you an accurate quote, until they have viewed your financial situation.
As with all scams, scammers will tend to sound convincing, knowledgeable and trustworthy – without these traits it is unlikely they would ever be successful. And bear in mind the old adage that if something seems too good to be true, it more than likely is.
If you believe you may have been the victim of a peer-to-peer lending scam, TLW’s expert solicitors may be able to get your money back. Our investment mis-selling team is here to help on a no-win no-fee basis.