For RateSetter investors that missed the note in their monthly statement, they are making a change to their provision fund terms from the 1st of March:
It’s quite easy to miss. Anything below the numbers I would normally just assume are generic marketing posts. More details are on the RateSetter website here. They say:
If at any time, in the opinion of RateSetter, the Provision Fund does not have sufficient funds to cover current or expected borrower defaults (a “Negative Position”), and RateSetter reasonably believes the Negative Position is not capable of being rectified through the ordinary course of business, RateSetter may put the Exchange into a
During a Stabilisation Period, the Lender Rate and/or capital repayments lenders are entitled to may be reduced in accordance with terms 8.4 and 8.5 below (an “Interest Reduction” or a “Capital Reduction” respectively). The amount of any reduction will apply equally to all RateSetter Customers entitled to protection from the Provision Fund (the “Eligible Lenders”) and will be paid in full into the Provision Fund.
(From point 8.1 and 8.2 of the terms linked to above)
On the upside, this will help RateSetter cope with hard times if/when the provision fund is not enough. On the other hand, many of us felt like we were accepting the market rate based on a fully funded and forward looking provision fund priced in. You can read more of a discussion about the change on the P2P Independent Forum (which is how I found out about it) .
RateSetter are giving you the chance to sell out without the normal penalty fee if you are unhappy with the change:
If anybody with an active investment is not comfortable with this change and wishes to withdraw before 1 March, we would be happy to waive the early exit fees. Investors seeking to do this must call us on 020 3142 6226 before withdrawing.
Personally I am not going to sell out. Many peer to peer platforms are going through pressure to find high quality borrowers at the same interest rates as before. Platforms like Zopa, Landbay, Funding Circle are cutting/ have cut their rates or expected rates of return. By putting more of the risk onto the lender it will let RateSetter offer a similar rate without needing to shave off points to contribute to a larger provision fund. Potentially we might even see a higher market rate in the short term if a large number of people choose to sell out.
RateSetter appear to be making it all or nothing to use the free sell out: you can’t pick and choose certain products. This thread covers some experiences of those who are planning to take them up on the offer.