Thanks to the Provision Fund, every single lender has received every single penny of
expected capital and interest back.
How the RateSetter Provision Fund works...
"Every Lender, Every Penny"
RateSetter has made peer-to-peer lending simple and safe: every lender has received every penny.
We were the first company in the world to introduce a Provision Fund into peer-to-peer lending. We keep the quality of borrower high anyway but, inevitably, there will be some late payments and defaults so RateSetter pioneered the Provision Fund to protect our lenders. Through prudent management of the Fund, we have ensured that no RateSetter lender has ever lost a penny: "every lender, every penny".
It's important to note the Provision Fund does not provide a guarantee. What we can say is that it is managed in the interests of our Lenders,
and has ensured that every RateSetter Lender has received exactly what they expect.
That’s the RateSetter difference.
How much do we estimate the Fund will pay out?
The loans outstanding and backed by the Provision Fund amount to £120,961,636
Based on our analysis and experience, we estimate claims of £1,932,364
Therefore the Provision Fund "Coverage Ratio" is:
Where does the money come from?
The money in the Provision Fund comes from fees paid by borrowers as part of their loan. Every borrower pays a fee -
called the "credit rate fee" - which is determined by a number of factors, such as their credit rating from independent
credit reference agencies.
RateSetter takes a cautious approach to approving who can borrow through RateSetter and aims to ensure enough money is
put into the Provision Fund to comfortably cover estimated claims (figure above).
Who does the Provision Fund belong to?
The Provision Fund belongs to our lenders. The money is held in trust for our lenders. The money is legally segregated and is therefore completely separate from RateSetter’s business assets.
How quickly am I covered?
If one of your borrowers is late paying or defaults on a loan then a claim is made to the Provision Fund immediately by RateSetter on your behalf.
It is at the ultimate discretion of the trustee but the system works in real-time with the aim that there is no delay
in repayments to your account.
Is the Provision Fund covered by the FSCS?
Lending through peer-to-peer is not covered by the Financial Services Compensation Scheme (which covers savings accounts
up to a limit of £85,000). While this would be a nice blanket for those lending via peer-to-peer it is worth noting that the FSCS
comes at cost to the saver, reflected in lower rates of typical savings accounts.
RateSetter's Provision Fund aims to make sure your lending is protected but it is important to note that it is not covered by the FSCS.
Does the Provision Fund diversify my risks?
Yes, it does. Because all of your lending is automatically protected by the Provision Fund your risk is really diversified to the strength
of the Provision Fund as opposed to the individual borrowers that you are matched with.
Typically, RateSetter lenders end up with multiple loans anyway but the key point is that the Provision Fund has the effect of diversifying
your risk across the entire loan book.
The Principles of the Provision Fund
The Provision Fund is a trust on behalf of the Lenders, held by RateSetter. This means, like all customer funds, it is ring-fenced from RateSetter’s day to day operations. The Provision Fund has a set of Principles which determines how it is treated.
Principles of the Provision Fund
This sets out the principles behind the management of the Provision Fund.
- The Provision Fund is managed by RateSetter in the interest of all of RateSetter’s Lenders.
- RateSetter’s single overriding principle is that the Provision Fund is managed with the intention that all Lenders receive all capital and interest repayments due to them.
- In the case of a late payment or a default, the Provision Fund has a Standard Management process:
In the unlikely event of a significant run of claims that threatens the capitalisation of the Provision Fund, the Fund will transfer to Active Management.
In this situation, RateSetter will provide Active Management of the Provision Fund with three principles governing the consideration of claims submitted to the Fund:
- a. A claim is automatically submitted by RateSetter to the Provision Fund.
- b. The Provision Fund will consider the claim and, in accordance with the second Principle, recompense the Lender.
- c. In the case of a default, all monies recovered by the Debt Recovery process (after costs) will be transferred back to the Provision Fund.
- a. To provide the most equitable management of the Fund in the interests of all affected Lenders.
- b. That payment of affected Lenders’ capital will take precedence over payment of interest.
- c. That the Provision Fund will not return to Standard Management until all defaulted Lenders have received their capital.