RateSetter hands back £384m to 45,000 investors after Metro Bank takeover

Around 45,000 investors in the now-defunct peer-to-peer lender RateSetter have had their accounts closed and their money returned after it was taken over by Metro Bank last August.

Customers began receiving emails from last Tuesday after the High Street lender in February gave investors two months’ notice that it had bought £384million worth of loans in early February, said to be earning around 8 per cent a year.

However, some of the emails detailing the closure of investors’ accounts only came through on Monday.

RateSetter was snapped up by Metro Bank last August

One of these, seen by This is Money, said: ‘On 2 April 2021, the investing side of RateSetter closed. Your money has been returned in full to your holding account.’

The closure of 45,000 accounts over the last week came as Metro Bank on Monday began offering RateSetter loans through its 77 branches for the first time since the £12million takeover last summer.

Consumers can borrow between £1,000 and £25,000 over a period of between one and five years.

Loans have been available online through RateSetter’s website since last summer, with Metro Bank’s own loans page still redirecting applicants to the website, but the announcement and the purchase of the £384million back book represent the next steps in the bank’s integration of the platform.

Applicants need to be over 21 and be earning £12,000 a year or more. Personal loans have a representative APR of 4.9 per cent while loan rates start at 3.9 per cent. Borrowing £10,000 over five years through RateSetter would see borrowers back £11,004.60.

The best rate on the market is available through Cahoot, which charges a representative APR of 2.8 per cent. At that rate, a £10,000 loan would incur £718.40 in interest, costing £286.20 less over the five-year period.

While online borrowers will see little difference, the fact personal loans will now be funded from Metro Bank’s balance sheet represents another nail in the coffin for the idea of lending funded by everyday investors.

RateSetter was the UK’s largest peer-to-peer lending platform. It allowed everyday investors to earn returns by funding personal loans to individuals 

RateSetter was the UK’s largest peer-to-peer lending platform with more than 750,000 investors and borrowers, and was one of the few to be primarily funded by everyday investors.

However, as a result of the pandemic, it slashed the returns it paid investors in half last year before being snapped up by the bank, which was seeking to diversify its lending beyond mortgages.

Neil Faulkner, the chief executive of P2P comparison site 4thWay, told This is Money last year that ‘the more closely a loan book matches that of typical bank lending, the more likely it is that the P2P lending business is going to be sold to a bank.’

He added: ‘RateSetter arranged a lot of standardised, automated, unsecured personal lending, so it fits that bill.’

But the move represented the end of an era, particularly as RateSetter’s chief executive, Rhydian Lewis, was one of the most bullish about the future prospects of retail peer-to-peer investing.

Of the other ‘big three’ UK lending platforms, Zopa has stepped back from its peer-to-peer roots after it launched its own bank, while Funding Circle closed its doors to everyday investors in order to be eligible to participate in government-backed coronavirus loan schemes.

Ravi Anand, the managing director of business lender ThinCats, told This is Money last year: ‘For years RateSetter has been claiming it had a better funding model than banks, clearly it doesn’t. 

‘P2P was a moment in time response following the financial crisis.

‘The current coronavirus crisis is showing that alternative finance is relevant to those borrowers that the banks don’t properly address, but lending capital needs to be at scale and stable which means sourced via a bank or through institutional capital.’

Metro Bank then bought loans funded by 45,000 investors this February for up to £384million, with those purchases completing from the start of this month. 

Investors began to get access to their funds from 2 April, with sales completing as recently as Monday.

The email to 45,000 investors said: ‘RateSetter launched over ten years ago and grew to be the UK’s most popular P2P platform, attracting over three quarters of a million investors and borrowers.

‘We are proud to have delivered an average annual return of 4.4 per cent, while our credit management and pioneering provision fund ensured nobody lost a penny of capital – a unique track record that we maintained throughout the current time of economic uncertainty and through to today.

‘We wish our investors all the best for the future.’

This post first appeared on Dailymail.co.uk