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FSCS warns over lack of peer-to-peer protection

FSCS warns over lack of peer-to-peer protection

Category: Loans

Updated: 14/12/2012
First Published: 08/12/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Converts to peer-to-peer lending have been warned that their money is not protected in the same way that high street funds are.

Peer-to-peer lending is becoming increasingly popular, giving consumers an alternative to borrowing money from high street banks and building societies.

The system is equally beneficial for lenders who are looking for a return on their money, allowing them to lend their money to other people with returns far outweighing those available with savings accounts and other investments.

In the last 18 months savers have switched £192 million into these 'money exchange' websites, where consumers can borrow and lend money to each other.

They agree the rates between themselves and avoid the charges typically laid on by banks.

However, many people are unaware that money in peer-to-peer lending companies is not covered by the Financial Services Compensation Scheme (FSCS).

The issue of the safety of funds held by peer-to-peer lending companies has come to light after the firm Quakle collapsed.

People who have lent out money now face having to chase up borrowers to make repayments.

Despite the often very attractive rates, the FSCS is reminding people of the protection it provides for financial services products.

"It is understandable consumers want the best rate of interest for their savings in the current climate," Mark Neale, chief executive of the FSCS, said.

"And peer-to-peer lending may be the right choice for some people who are looking for a return on their savings or want a competitive loan rate.

"It is important to remember though the FSCS does not protect the money invested though peer-to-peer lending companies."

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