I saw the headline during the week Trustbuddy ceases operations – under investigation’.

I was not surprised as I never did understand their lending model. I considered buying shares in their firm earlier in the year as they are one of the few peer to peer lending platform in the world that are listed on the markets. Upon further research & a review of their lending model I declined. Their model attempted to be a ‘nice payday lender’ allowing customers/borrowers to pay no interest if their loan was repaid in the first two weeks. The catch however was that the rate jumps substantially following that 2 week grace period. It just did not make sense.

It was always loss making with the losses continuing to increase. The firm recently made an effort to switch into a typical peer to peer lending model, with long term loans to businesses, however their appears to have been financial misconduct found by the new management team which has been raised to the local authorities.

The misconduct is a shame for the whole industry, and only strengthens the case for further regulation, which is happening within the UK implemented by the FCA. Lets hope this is just a one-off case & other alternative finance startups do not go down this path as it only strengthens the corrupt “traditional banking” system.

Elsewhere in the market, yields continue to fall in the peer to peer lending world, also the number of opportunities to invest are decreasing. As more investors look for higher yielding investment areas such as peer to peer lending, these areas are attracting a lot of fresh capital, which is good news for borrowers as they can achieve a lower lending rate, however established peer to peer lenders are suffering as they have less opportunities to lend and at lower rates.
For me personally as a peer to peer lending investor, I have now ceased lending with Funding Circle following their new, low fixed rates, and also I am winding down lending with Platform Black, the invoice discounting lender, as the number of lending opportunities have decreased and the yields for most offerings have fallen to less than 6%, compared to last year’s average of 11%. I will continue with my personal secured lending with the likes of Rebuilding Society averaging 14% return & Unbolted and Funding Secure averaging 12% return.
Lets hope the Fed and the Bank of England walk the walk and not just talk the talk and raise interest rates soon to allow us investors to get a decent return on our hard earned money!