Loan 4573 downrated to A from A+ with no payments made

This is FC riding roughshod over investors at their worst. I'm left with an investment I would never have made at a rate at which won't sell for par. And even if it did, how can it be right that I should lose out, the borrower gets off scot-free and FC profit from this situation? I've also written to FC requesting a full refund.

It was at least 12 months ago, if not 18, that I first emailed FC regarding a loan being taken out on the premise that a prior load would be paid off. In that case the original loan was left in limbo for a considerable time. I was frankly astonished that FC released the full value of the first loan: I had expected that they would clear the old loan and then release the balance. To do otherwise meant that a) lenders on the first who also lent on the second were left with a period of higher exposure than they intended b) until the balance was cleared the borrower was in effect in a different financial liability and interest payment scenario than lenders had reason to believe at the time of the second loan and c) left open the distinct possibility that the borrower subsequently stuck 2 fingers up and kept both. At the time I recall they said that they normally would have done as I thought and this case was an error, but the situation has arisen multiple times since and is proven to be the norm. [EDIT: I should add I cannot find email confirmation of such statement from FC].  I am not surprised that the risk of c) has eventually crystallised.  And of course all of the above then become the reasons for a credit downgrade.

Yes, in this case FC is as culpable as the borrower in my opinion. If I was in on it I too would be demanding my money back. The term 'misrepresentation' should not be used lightly in such situations, but if what has been said is true then the borrower has misrepresented and while FC are not complicit in that, they are complicit in the general sense of having enabled an utterly predictable (as in would one day happen) situation to occur when it was entirely within its powers to prevent it. How on earth they allow loans to be listed with statements that original loan will be paid off without ensuring that has to be the case I do not understand.

Uhhh ? So they held an auction where it was explicitely stated (was it ? not just stated against the downgrade of the first loan ? Edit@ you've stated that was so on the Q&A) that the first loan would be paid off; they then found out the situation was different BEFORE releasing full funds from the second loan auction; and then released the funds anyway and downgraded the rating. IF that is the case (and I reiterate IF) then I modify my previous statement: not only was the auction held on a false premise but FC HAVE been complicit to the extent of allowing the loan to complete (full drawdown) AFTER being aware that was the case. In other words it was misrepresented and FC have allowed the money raised to be released despite knowing that to be the case. IF of course what you state is correct, lawyers please note.

If another Mod feels that my post needs to be mod'd please shout.

I will quote and be damned, from the Q&A for 4573:

Funding Circle (Staff)
Q. 10 Jan 2014 18:48 - Please note: this company has an existing Funding Circle loan. This loan will be used, in part, to clear the outstanding balance on the first loan. FC
Awaiting Answer ...

Whichever way you cut it - misrepresentation, mistake or whatever, FC has a duty to its investors to rectify this situation. Personally I think 4573 should be annulled, everyone refunded and the loan re-listed with the corrected rating, and with the actual borrower intentions made clear. It would be business suicide for FC to force investors to take a hit on this.

Glad I didn't have bids at MBR 6% A+ when it should have been 7.9% ....
Perhaps FC should re-run the auction, or make up all bid repayments by +1.9% until the loan is paid off.

I wonder why there is no furore on Funding Circle's own forum about all this.

I love the comment that this downgrade does not affect our ability to sell our loan parts. Really! How can anyone selll at well below MBR. Every single loan part on this one is significantly below 7.9%.

FCs t&cs do allow them to change grades during the lifetime of the loan and I can understand that where the borrower experiences a significant change in their circumstances, but this one is entirely down to FC making a wrong call during the loan set up and they should take the hit not the lenders.

Hopefully this morning FCs inbox will be full of lender complaints on this one.

Well quite.

Yes I had understood that there was an issue in regard to whom the contracts are between. However, FC are in a sense acting on behalf of the lenders, and therefore it is entirely reasonable that their Ts and Cs allow them to take steps on behalf of the lending 'consortia'. It also seems clear form the correspondence that initially they did hold back a portion of the loan to pay back the first one: so the intent appears to have been for FC to act for the borrower by in effect moving the money from one group of lenders to the other.

And anyway, if they are not going to do that then they should not be listing based on a credit rating which is contingent on a future possible action; or if a known event which they are facilitating is going to lead to a reassessment of the credit rating.

And also: If they are not going to ensure that the second loan is used to pay off the first by virtue of FCs own actions, then they most certainly should not be posting statements in their own name which very much give that impression. e.g. the generic statement in such cases which is in FCs name stating:

"This company has an existing Funding Circle loan. This loan will be used, in part, to clear the outstanding balance on the first loan. FC"

If FC are not ensuring that then it is a rather misleading statement since it would be reasonably implied by the reader that this is a fact which is guaranteed by FC. Whereas it looks like it ought to read something like: "The borrower has stated that it is their intent to use part of htis loan...." which paints a rather different picture of where the required actions lie.