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Risk warnings


General Risks

When lending or borrowing on a peer-to-peer (P2P) platform there are general risks as follows:

1. Data Theft, ID Theft, Fraud
With ID theft going on there is a risk of a user fraudulently impersonating another. We are committed to ensuring your security and confidentiality and we request that you adhere to our guidelines for safe use. For example, do not give your login and password to anyone. Always ensure that you are logged out of the site before leaving your computer. Ensure that your username does not give away your identity.

We have implemented many tests and checks to mitigate this risk: ID and address verification via Equifax, the Credit Reference Agency and fraud checks via CIFAS, the UK's Fraud Prevention Service, of which we are members. We also check that the user actually lives at the registered address and that the bank account details given actually belong to the user. We have secured your data, using encryption where necessary and the website from hacker attacks.

2. Money Laundering
Peer to peer sites do not present a high risk of money laundering. Nonetheless we have implemented many Anti Money Laundering ("AML") tests and checks which are more focussed on the lender. The basic checks are similar to those above, but there are more specific tests. We require passport photo ID and utility bills. We check for high account funds throughput combined with low volume lending, and any unusually large transactions. We also prevent transactions being attempted with connected persons.

3. System, Operation or Administration Failure
Software systems are vulnerable to "bugs" which may create unexpected results. Operations and administrative errors or omissions can also create unexpected results. Having designed and written all the systems and operational procedures in-house we have a deep understanding of how to correct or fix any "bugs" or faults.

4. Failure of LendLoanInvest or Madiston
Peer to peer websites are not parties to any loan contracts, but merely enable their agreement directly between the borrower and the lenders. In the unlikely event of Madiston plc failing, the loan agreements will continue as before. In this event Madiston plc will arrange a reputable Loan Servicing Company to continue to oversee the collection and distribution of repayments as before.

Following a company failure, in the event of borrower default, the repayments continue to be collected by the reputable professional Debt Collections Agency ("DCA") that has been appointed by Madiston, on behalf of the lenders, to collect any arrears. The costs of the collections activity will not vary if Madiston plc has failed. Debts assigned to the DCA, will continue to be pursued where possible and any sums recovered returned as if this website and Madiston plc still existed.

5. Bank Failure
Prior to lending out your money, it is in our segregated Client Money Bank Account, and is therefore not part of the assets of Madiston plc. In this situation and the case of a bank failure the loss of your money is covered by the Financial Services Compensation Scheme.

Borrower Specific Risks

When borrowing via a peer-to-peer (P2P) platform there are specific borrowers' risks:

1. Damage to Your Credit Rating for Missing Repayments
If you do not make the loan instalment repayments on their due dates there is a risk of damage to your credit rating. We define a loan as Status = "Late" if a scheduled monthly repayment has not been made within 5 days of its due date, and only one month's repayment is outstanding. We define a loan as Status = "Arrears" if two scheduled monthly repayments are outstanding.

2. If your Loan goes into Default it will be Passed to a Debt Collector
If three scheduled monthly repayments are outstanding, the loan is defined as Status = "Default". This is serious and triggers a demand for full repayment of the loan with interest. It also means that we pass the loan to a reputable debt collector for recovery. These actions seriously damage your credit rating.

3. Loss of Compensation Scheme Contribution Repayment
If you are late with any repayment during the currency of your loan, your Compensation Scheme contribution repayment is forfeited. This is specific to this site. We are the only site that repays a Compensation Scheme contribution if the loan has always been repaid on due dates.


Lender Specific Risks

When lending via a peer-to-peer (P2P) platform there are specific lenders' risks:

1. Borrower Default
When your money is lent out it is not covered by Financial Services Compensation Scheme. Because this is unsecured lending, the risk of borrower default on a loan may cause a reduction or even the total loss of your lending funds. Our estimated borrower default rate is 1.5%. However circumstances can change. Our Compensation Scheme, which is optional for lenders, attempts to mitigate such risk. 

2. Borrower Cancellation in the First 14 days of a Loan under the Distance Marketing Regulation
Under the Financial Services (Distance Marketing) Regulations 2004, a borrower has the right to cancel a loan in the first 14 days after its acceptance by the borrower. If this occurs the borrower has to repay the loan with interest within 30 days from the notification of cancellation. In this situation, as a lender you receive your interest for the period and we do not charge you any fees on that loan. 

3. You are Required to Account for Tax 
For a lender lending as an investment activity, as opposed to a business, and because interest is paid to you without any deduction of tax, you have to make a return of interest income to Her Majesty's Revenue & Customs ("HMRC"). This can either be done via a self-assessment return, or, if you pay tax under the Pay As You Earn system, you should contact your HMRC Tax Office who will adjust your tax code to collect the tax that is due on the interest.

At the end of the tax year we will make available for you to download an annual interest income statement. This will show the total gross interest you've received over the tax year and the fee payments you've made. 

HMRC do not, at present, allow lenders to offset any bad debt losses against their interest gains. There is lobbying of the Government and Treasury going on currently to try to change this, so that Social Lenders are treated the same way as normal commercial lenders. 

Further information is available on HMRC website: http://www.hmrc.gov.uk/manuals/saimmanual/SAIM2400.htm

4. Past Performance May Not be Repeated
Past performance may or may not be sustained in the future. Therefore do not base decisions on past performance but on a considered view of the future. Lending and borrowing funds and their interest rates are subject to market influences, fluctuations and risks.

 

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