Former boss of City regulator warns of peer-to-peer lending losses
Former City regulator chairman Lord Adair Turner has issued a warning about the fledgling peer-to-peer lending industry - predicting losses which will "make the worst bankers look like absolute lending geniuses".
His comments were strongly rebutted by peer-to-peer (P2P) lenders, which said they "fly in the face of the evidence".
Peer-to-peer lenders match people online who want to invest some money with businesses which want to borrow it.
Often the returns on offer can be much more attractive than a saver would get on the high street - particularly in the current low interest rate environment.
But money held with P2P lenders does not fall under the Financial Services Compensation Scheme, which protects savers if their bank or building society goes bust.
Lord Turner was chairman of the Financial Services Authority, which has been superseded by the Financial Conduct Authority.
In an interview played on the BBC's Today programme, Lord Turner said: "I strongly suspect that the losses on peer-to-peer lending which will emerge within the next five to 10 years will make the worst bankers look like absolute lending geniuses.
"You cannot lend money to small and medium enterprises in particular without somebody going and doing good credit underwriting.
"This idea that you can just automate that on to a platform, I think it has a role to play, but I think it will end up producing big losses."
But Christine Farnish, chairwoman of industry body for peer-to-peer lending P2PFA, said the comments "fly in the face of the evidence".
She said: "Since the industry began, default on loans are low, measuring between 2-3%. We only lend to creditworthy consumers and established small and medium sized enterprises.
"Strict credit underwriting rules apply to all our members and this should not be confused with higher risk forms of crowdfunding or lending to sub-prime customers.
"All members of the P2PFA operate with high standards of transparency and business conduct. This includes publishing their full loan books on their websites and providing clear information on all fees and charges to both investors and borrowers. I would challenge anyone to find this level of transparency in any other part of the financial services market."
P2PFA's members serve over 90% of the current UK market and its members include Funding Circle, RateSetter and Zopa.
Ms Farnish continued: "Our most recent figures show that the P2PFA has collectively lent more than £4.4 billion as an industry. This is built on strong operating principles as an industry and our ability to challenge the existing ways of lending and borrowing."