The Reserve Scheme
The Reserve Scheme (“RS”), which may be offered on some lender investment products, endeavours to protect lenders from late and missed payments, arrears and defaults by borrowers. Its objective is to provide funds to lenders where there has been such a problem with a borrower.
The ultimate objective of the RS is that lenders receive all the principal and interest repayments that they are expecting. This will ensure that lenders view this site as a safe place for their savings. This directly benefits borrowers - there being more lenders, and more lenders' money, available for borrowers!
The Reserve Scheme is not available on all lending products, an insurance product, is not enforceable and does not guarantee that the funds available in the RSF will cover every default.
It is a sort of "lenders' cooperative" and is operated by the site on a reasonable endeavours basis. The RSF will allocate funds to a lender who suffers a missed payment, arrears or default, on a “pro rata, first come, first served” basis, subject to sufficient funds being available in the RSF, and such lender will be recompensed their expected repayment, more than 45 days after a due repayment instalment is still unpaid.
The Reserve Scheme is managed to benefit the lenders who might potentially suffer loss.
THE RESERVE SCHEME FUND
The RSF is designed to have sufficient funds to adequately cover the likely default rate of less than 1.5%. However, to be prudent we aim to accumulate a fund at least 40% greater, so we aim for a RSF in excess of 2% of all outstanding loans. We will manipulate the level of contributions to endeavour to achieve an adequate RSF to cover the estimated fund target at the minimum cost to RS lender members and borrowers.
We will build the RSF from:
1.Borrower RSF Contributions
By deducting a percentage, depending on the borrower’s credit score, averaging 1% (from 0.4% to 1.9%), from each loan when disbursed to a borrower, being paid into the RSF.
Example: On a loan of £3,500, the borrower will have, on average, £35 deducted when the loan is disbursed and paid into the RSF.
2. Monthly Contributions deducted from Borrower Repayments (similar to the Loan Servicing Fees)
Depending on the credit score of the borrower of the Loan, from 0.2% to 0.8%, for example 0.4% for borrower Credit Stars 7 - 9 (which approximates to credit rating of A on the A*, A, B, C, D scale), per annum for each loan (paid monthly, 0.0333% per month) on the money lent, which is paid into the RSF.
Example: If a borrower with Credit Stars 7 - 9, then the deduction from the monthly repayment will be (2000 * 0.0333%) 67p per month into the RSF.
The RSF is held in a separate bank account for use only to pay out in case of late or missed repayments, arears or default.
THE RESERVE SCHEME IN ACTION
In the case of a late or missed payment, arears or default, the following procedure occurs:-
After a set number of days, on behalf of all the lenders involved, claims are automatically submitted to the RSF.
Administration will review the circumstances of these claims, and, assuming they are approved, will automatically reimburse the lender/s affected.
If the borrower's missed payment is later paid, that money will be credited to the RSF.
In the case of a default, any funds later collected by the Debt Collection Agency ("DCA"), net of any costs, will similarly be credited to the RSF.
IF THE RSF PROVES INSUFFICIENT
If there is a sudden increase in late or missed payments, arrears and/or defaults and the RSF may not have sufficient funds to cover all its claims, the company will consider an injection of funds into the RSF. In the meantime the following will happen:-
1. The allocation of RSF funds will be managed to the equitable benefit of all the participating lenders involved.
2. If necessary RSF repayments will be pro-rated across lenders, until such time as further RS funds are available.
The objective of the RS is to ensure that lenders receive all the principal and interest that they are expecting