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What is a default?
When a borrower signs a loan contract with LendingCrowd, they agree to various terms and conditions. The most significant of these is that they meet their monthly loan repayment on time. If they fail to meet any of the terms and conditions, they’ll be in default of the loan.
We allow up to 4 days for the payment to be received after the due date before we show it as overdue. This allows sufficient time for any delays that may have occurred in the banking system. In the event a repayment is overdue, the loan will be disabled from being listed to be sold on the Loan Market as a precautionary measure, so that it cannot be sold to another investor. This is to protect an investor from purchasing a loan part for a borrower which may be having issues. At this point, we aim to establish and discuss the reason for the late payment with the borrower and come to a suitable solution to get their repayments back on track. A borrower then must make two consecutive repayments on time before the decision to allow the loan to be listed for sale is reviewed.
We mark a loan as ‘in arrears’ if we don’t receive the repayment within 45 days.
When a borrower can no longer meet their repayment schedule nor pay the outstanding loan, we’ll declare the loan as a capital loss. We’ll identify the outstanding capital as a bad debt. This normally happens after 120 days, in line with industry practice. For accounts held outside an ISA, investors can declare bad debts against earnings on their tax statement.
Lenders will not be able to sell their holding(s) in a loan if the loan is overdue, in arrears, or has been marked as a bad debt (loss). If LendingCrowd (in its discretion) is of the opinion that there is a potential loan default event, then lenders may also be unable to sell their holding(s) in the relevant loan.
If a loan falls into default and there’s no clear indication of how and when we’ll receive the payment, we’ll take recovery action. This will include referring the matter to our panel of experts – which includes solicitors, accountants and debt collectors – who’ll provide guidance or act on our behalf, whichever is the most appropriate course of action. Our loans are asset backed, so our recoveries process can involve forcing the sale of assets through a legal process, which can take time.
As highlighted on our Risk matters page, your capital is at risk when lending through LendingCrowd or any other peer-to-peer platform. While we’ll make every effort to recover as much capital as possible, you should remember that you may not receive all the money you invested.
Our Credit Team will send investors updates on any potential defaults and actions carried out. At the same time, they’ll maintain contact with the borrower to obtain payment.
Treating Customers Fairly
Throughout any default or recovery process, we’ll ensure that we treat our customers fairly in line with the Financial Conduct Authority’s principles.
As a borrower, it’s important to remember that defaulting might lead to the debt being passed to an agency for collection. Investors need to be mindful that they’re lending to businesses so their capital is at risk. LendingCrowd and its products are not covered by the Financial Services Compensation Scheme.