Fend Off Peer-To-Peer Lending Fraud & Incompetence – A Checklist

In China, the number of websites offering lending platforms reached more than 2,000. For a long time, after that, 80 of them were being closed down every month due to peer-to-peer lending fraud or incompetence.

The UK is far from China in more ways than one. But, wherever there is money, fraud and incompetence will be taking place against some people, somewhere. Be it in the stock market, property or something else.

For lenders in P2P, here's a list of very simple, basic checks of fraud, dishonesty and incompetence, which will massively reduce your risks. At time of writing, this checklist would have either helped all investors to steer clear of the (relatively few) disasters that have occurred so far, or they would have helped you to pull out before it was too late.

It's a very solid way to nearly eliminate these kinds of risks from your lending.

Even beginners can do the vast majority of these checks before lending through a P2P lending or IFISA provider to gauge whether there are major discrepancies or issues.

Below is a simple checklist you can use to look for signs of fraud, negligence, misconduct, dishonesty or other financial crimes, or even just plain ignorance, before you choose to lend through a peer-to-peer lending website or IFISA provider.

Not all the individual signs on this list automatically mean that there is fraud, negligence or stupidity going on, but the more of these that you see, the more sceptical you should be about lending your money. Remember rule number one from 4thWay's 10 P2P Investing Principles: “If there's any doubt about lending at all, the answer's “No”.

Peer-to-peer lending fraud and incompetence checklist

• No opportunity to contact by telephone, the telephone number does not function, or the line quality is poor.
• No meaningful response when you attempt to contact them or overuse of highly technical and complicated answers.
• The platform or a “broker” cold calls you to get your interest.
• No mention of regulation on the website and no FCA registration number.
• No entry on the Financial Conduct Authority's online register (read How To Check The Financial Services Register For Monsters) or there's an entry on its unauthorised firms register.
• Not showing on 4thWay. (4thWay’s experts often don’t get a chance to assess and review some sites and that will clearly include many of the dodgiest, since they, unsurprisingly, don’t even answer our requests for basic information.)
• Worrying question marks in 4thWay’s assessment of the P2P lending site. (We won’t spot all serious peer-to-peer lending fraud, dishonesty or negligence – especially since most of the dodgiest ones just don't communicate with us – but when we are in the position to assess a P2P lending site I strongly expect we’ll be able to provide ample warning.)
• Poor quality website often with pictures that don't have any kind of consistency in their theme or any kind of meaning for why those images were chosen.
• Hardly anything clickable or doable on the website.
• Poor English on the website and marketing materials, or an overseas location.
• No secure website. (No “https”, with an “s” on the end, in the website address bar.)
• No contact or staff names on the website.
• Claims of being expert while being highly intransparent about the key people making decisions and the processes they use.
• Very few details about their record so far, including incomplete or few statistics, especially compared to other P2P lending sites.
• Average interest rates above 10% with claims of no bad debts, despite a long record.
• If the expected return is far higher than that, e.g. 25%, you need to assess this with great, great care.
• Very heavily selling the “zero bad debts” theme.
• Highly aggressive marketing language, especially saying there is low or no risk or that you are “guaranteed” to make money, while also talking up glitteringly high interest rates.
• Hardly mentioning the risks or not mentioning them at all.
• Only operating for a short time, e.g. up to two or three years, according to company registers in the country they are based in.
• Very ambiguous information and wording, conflicting information and statistics that are rarely updated.
• No detailed explanation of how they assess risk and assess borrowers.
• No external sources show in any detail the experience of the people in charge have had in the past (e.g. at banks), including the institutions they worked for and what specific posts they held.
• They claim to be linked to or financially backed by major companies or high-profile figures, but there is no independent source (such as a news publications) to support that.
• Be very sceptical of invitations to join “exclusive” clubs or investments.
• Being rushed to make a decision, e.g. by highly attractive introductory deals that will expire imminently.
• High pressure sales tactics.
• They show frustration or aggression when you ask questions or want to get a second opinion.
• The P2P lending provider uses conspiracy theories to sell to you. (“The bankers and the wealthy are trying to keep this investment from you.”)

Learn more sophisticated checks as you go

Once you’ve got used to those, there’s always more room to become more sophisticated, such as learning how to use Companies House and read company accounts in order to gather more information about the directors, the business and its finances.

For more on peer-to-peer lending fraud and similar subjects:

How To Check The Financial Services Register For Monsters.

What Have Failed P2P Lending Sites Got In Common?

The 13 Key Peer-To-Peer Lending Risks.

Try also the FCA's scam guidance and the Money Advice Service's scam guidance.

Other pages linked to in this article:

4thWay's 10 P2P Investing Principles.