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Lenders threaten strike action on Encash / YES-secure
A day can sometimes be a long time in the world of P2P. The fallout from the Encash / YES-secure reduction of lending rates is gathering pace. Several lenders have stated on the YES-secure forum that they will no longer be offering funds in response.
The lender phltrnr wrote:
I have an apology to make to all you borrowers.
I've been a lender almost since this site's inception, helping dozens of people to the tune of thousands of pounds - despite a few defaulters owing me nearly £600!
Sadly, owing to the breathtaking arrogance of the Yes-secure / encash management in reducing the lending rates to the point where lending is no longer a viable proposition after tax and default losses are taken into consideration, I will have to cease lending at least for the moment.
I deeply regret this course of action but Y/S encash have forced my hand in this matter.
I sincerely hope that they will reconsider their actions and in the fullness of time I may recommence lending but it won't happen until they offer realistic rates.
I wish you well and hope you don't feel too let down; if you do, you know whom to blame.
The Encash / YES-secure management have not made any response to these points on the forum, which has also exacerbated the situation. Lets have a look at the new maximum rates to understand the reasoning behind the concern from lenders.
If we now compare these maximums with the bad debt statistics (correct as of 3rd April 2012) you will see that YES-secure are predicting between 1.5% and 11.0% annual bad debt. The actual lifetime bad debts have varied wildly from the predictions.
Lets assume that bad debts will move towards estimates, so putting aside these large differences, lets calculate the returns a lender would expect to receive:
For the A* market, at a maximum 13% AER a 20% tax payer would expect to receive (13% - 0.9%) * (1 - 20%) - 1.5% = 8.18% and a 40% tax payer would expect to receive (13% - 0.9%) * (1 - 40%) - 1.5% = 5.76%.
For the E market, at a maximum 18% AER a 20% tax payer would expect to receive (18% - 0.9%) * (1 - 20%) - 11% = 2.68% and a 40% tax payer would expect to receive (18% - 0.9%) * (1 - 40%) - 11% = -0.74%.
So for the higher risk markets it would be better for a lender to put their money in a bank than lend at those rates. Lets hope that Encash / YES-secure have a rethink as they need to decide if they want to continue to support the higher risk markets if they don't want the higher rates.