P2P lender Ratesetter faces $80m of endangered loans
Ratesetter, a London-based peer-to-peer lender, has suffered a hit of £80m ($104m) in struggling loans. In order to protect its 50,000 users, the company has had to dig into its own pockets. Ratesetter, which has seen £2bn lent via its online platform, gave millions in loans to two companies which subsequently failed, and admitted the loans should not have cleared its credit policy. "We did something on behalf of our lenders that was quite clearly a mistake. It is not right for them to take that hit", said co-founder Peter Behrens.

The peer-to-peer lender Ratesetter has been hit by £80m of struggling loans in the first major setback for the nascent online lending sector.

The company said it would use its own funds to prevent losses being taken by its 50,000 users, who are mostly small investors using the website in order to lend their savings to other individuals and benefit from higher interest rates than are available at high street banks. Some £2bn has been lent through the site, which currently promises returns of up to 4.7%.

Peter Behrens, Ratesetter’s co-founder, said: “We did something on behalf of our lenders that was quite clearly a mistake. It is not right for them to take that hit.”

The endangered loans are among the first signs that the fashionable peer-to-peer lending sector might not be immune to the problems that have plagued traditional banking. They have emerged just as the company has started to promote itself more as a business with establishment connections and less as a startup.

The City grandee Paul Manduca, chairman of Prudential, has just taken over as Ratesetter’s chair. Details of the website’s efforts to correct past mistakes come just weeks after the business’s co-founder and chief executive, Rhydian Lewis, was awarded an OBE in the Queen’s birthday honours list.

The company admitted that it had made £36m of loans to a company called Vehicle Trading Group Limited (VTG), a motor finance holding company that then fell into administration because it had taken on too much debt. Ratesetter said it had acquired the vehicle loans out of administration “in order to best protect our lenders’ interests” and that it would “expand our motor finance lending capabilities by integrating the two businesses into Ratesetter product lines”.

It also loaned a further £12m to an advertising company called Adpod, which during 2015 became 50% owned by VTG. The website admits that the loans, of which £8.5m are still outstanding, should not have cleared its own credit policy. It has now fully acquired Adpod to make sure that the loans will be repaid to the website’s users in full.

A further £32m has been loaned via George Banco, a provider of consumer credit, in which Ratesetter had taken an equity stake. Ratesetter now says it is withdrawing from its partnership with the company and will only be a “passive shareholder in the business”.

On Tuesday, the peer-to-peer lender told users lending money via its website that they could withdraw their deposits free of charge. The company said: “If you feel this information changes your investment, we are giving you the option to review your investment with us and sell out without incurring any fees.”

However, lenders were told that they might have to wait 30 days to get their money back.

