Yacht (and vehicle) P2P Pawn Broking

What you say here should be absolutely correct and until recently I would have said the same.  But I have a friend who had some images of his ripped off and then used commercially by a competitor of his.  He was unable to make any kind of case against the people involved because 'since he had placed his images onto the internet they were now deemed to be stock images'.  And that seems to be the accepted attitude.  Doesn't sound right at all, but it's the way it is.

That's definitely untrue.  Publishing something does not affect the copyright that you hold over it.  Indeed stock image libraries have robots that trawl the internet and make sure that the images you're using that they own have been correctly licensed from them.

I could be wrong but I suspect that your friend simply received very poor legal advice from an uninformed or confused lawyer.

Edit:  Or it could be they licensed the images on a non-exclusive license allowing the other party to also obtain a license.

That may have been how it went - I certainly don't know all the details.  He didn't have any watermarks or copyright statements embedded in the images which would have certainly put him in a very weak position, even though he would have been able to prove that they were his.  I guess that's the difference, so I wish I hadn't piped up now .

OK so lets put aside the issues with the website, advertising and publicity and put it down to naivety when it comes to IP rights, copyright law and advertising law and not overt criminal intention (however the issue of financial regulation is less forgivable since it is core to the business) and look at the savingstream offering as I understand it from the information available.

The (unregulated) savingstream proposition.

Working purely with the information on your website it appears on the face of it to be a fairly standard scheme, I purchase shares in loans secured against assets and where the loan has an LTV of not more than 50% and in return I will receive a 1% per month return (12% AER).

So using the given example we have the situation where borrower B borrows £60,000 against a £120,000 and saver B buys a £10,000 share in the loan for which saver B will receive return of £100 per month for the duration of the loan.

What we have learnt that does not appear on the website: as a lender I will be totally dependent on Savingstream and their valuers for information about the assets as any information supplied will be either illustrative and/or redacted so that I can neither identify the asset nor the borrower. This means that I am unable to do any substantive due diligence to confirm that the asset is real and has the value apportioned to it, but gleaning what I can about the secondhand market for boats things do not look promising, as it appears to be a buyer's market with buyer's looking for discounts on of up to 30% on market adjusted prices so we are potentially looking at having to adjust the LTV from 50% to 70% should loan default.

What we haven't learnt: As yet we do not appear have an answer mrclondon's question: savingstream - can you describe how the wind down of the loan book would be handled in the (unlikely) event of the failure of Lendy Ltd.

The (regulated) Lendy Marine proposition

Again working from the website we appear to have a fairly standard pawnbroking business with money being lent purely against assets (no credit checks) and with the assets being held by the lender. Assets must be worth more than £20,000 as valued by Lendy's marine surveyors, loans can be £10,000 to £1,000,000 but the LTV must be less that 50%, typical loans are for 6 months and are released to the borrower in 24hrs. Loans are subject to a 4% setup fee and charged at 4% per month (APR 53.7%). If the loan is not settled at the end of term then the vessel is sold

I have some operational questions but they do not impact the lending process.


Bring the two propositions together

Sticking with the original example from the savingstream website:

Borrower B borrows £60,000 against a £120,000 and saver B buys a £10,000 share in the loan for which saver B will receive return of £100 per month for the duration of the loan.

Lets expand it, but for the ease of understanding I shall refer just to Lendy Ltd since savingstream and Lendy Marine are just trading names.

Borrower B applies for a 6 month £60,000 loan against his vessel which Lendy Ltd values at £120,000, and Lendy Ltd gives Borrower B £60,000 out of their coffers, with the result that Lendy Ltd is out of pocket to the tune of £60,000 but holds an asset worth £120,000

Lendy Ltd put the £60,000 loan up for auction and Lender B buys a £10,000 share with the remaining £50,000 being taken up by other lenders. The lenders transfer the money from their coffers to those of Lendy Ltd meaning that Lendy Ltd are now only out of pocket to the tune of their overheads, and the lenders are out of pocket to the tune of £60,000. However it is contractually unclear who is holding the assets Lendy Ltd or the lenders. So there is a big risk for the lenders if the assets are not safeguarded in someway against other creditors should Lendy Ltd get into difficulty. Plus the lenders are relying on Lendy Ltd's word that the borrower exists, the assets exist and Lendy Ltd is holding them, and that the valuation is correct.

For the ensuing six months Lender B's £10,000 loan share earns 1% or £100 per month. What is not clear is whether this £100 is actually credited to Lender B's account and so can be reinvested or it is just accrued on a monthly basis to be credited at the end of the 6 month term. Since the savingstream website uses the word 'earn' and borrower B is not going to pay any interest until the end of the term I will assume the latter, and that borrower B has a £10,000 deficit for 6 months.

At the end of the 6 month term assuming everything goes to plan borrower B pays off the loan, this payment consists of £60,000 captial, £2,400 setup fee and £14,400 interest making a grand total of £76,800. The £60,000 capital is returned to the lenders so lender B gets his £10,000 back, the setup fee goes in to Lendy Ltd's coffers to cover their costs. However we now get to the interesting bit, of the £14,400 paid in interest £3,600 is paid to the lenders with £600 going to lender B and we have to assume that the remaining £10,400 goes into Lendy Ltd's coffers. 

Summary

So in summary unless I have either grossly misinterpreted the information supplied by Lendy Ltd and I stand to be corrected or somebody is being mislead and as far as I can see it is either: 

1. Borrowers who are being informed that they are being charged 4% pm interest when in fact they are being charged 1% pm interest and 3% pm management fee 
2. Lenders who are being informed that there are no fees when there is actually a 75% fee on interest earned 
3. Lenders who are being lead to believe that that they are buying loan parts in asset secured loans when they are actually just lending funds to Lendy Ltd on a 6 month term at 1%
4. a combination of the above

The terms on the Lendy Marine site clearly stipulate that the borrower is responsible for the storage cost and insuring of the vessel whilst it is held as an asset so there are no costs there. My understanding is that liquidation costs are normally taken along with the outstanding loan value when the asset is liquidated and any residual is returned to the borrower. 

The key issue I have here is the 75% of the interest paid on the loan appears to go to Lendy Ltd. Either I am buying a share in a loan in which case I should get 100% of the 4% being paid on my money or Lendy Ltd are misleading me and the borrowers in stating there are no fees other than the 4% setup fee which is charged to the borrower.

The situation here is very similar to the way Funding Secure operate.  One major difference is that Lendy supply the funds for the borrower initially out of their own resources and then attract funds from lenders to refill their coffers so that they can repeat the process, whereas FS don't actually make the loan until they have the lenders' money in hand. 

Another major difference is in the characterisation of the fee the borrower pays.  Lendy refers to 4%/month interest (53.7% APR), whereas FS divide their charge into two distinct parts -- a certain percent interest that flows to the lenders and an additional percentage for an administration fee that ranges from 2.4%/month for small (<£3k) loans down to 1.2% for extra large (>£35k) loans.  (On certain classes of assets, FS charge an additional 0.5% fee on top of the admin fee.  The FS Ts&Cs don't make it clear whether this extra fee is a one-off or a monthly fee.)  I don't know whether it makes any difference to the borrower whether they're paying 'interest' or 'admin fee'.  If it does from a legal or tax point of view then, based on what we've seen so far, it may be a case of sloppy writing of the Ts&Cs and/or loan documents.

The end result is the same -- the broker/facilitator [FS or Lendy/SS] arranges loans and charges high fees/interest (though probably no more than typical for pawnbroking) and funds these loans from investors/lenders who are paid a high rate of interest compared to most other investing opportunities but considerably less than the broker is receiving from the borrower.  If anyone thinks the broker is taking too large a share of the gross revenue, they don't invest.  If the broker has trouble raising the funds they need, they have to offer lenders a higher return.  If they can raise the necessary funding then they have a business model that works -- as long as they can find enough borrowers.

PS.  I don't understand why the 4% setup fee doesn't show up in the quoted APR.  (53.7% is the result of 4%/month interest compounded semi-annually.  1.24*1.24=1.5376)  When Zopa charge a borrower's fee they have to include it in the quoted APR, so I don't see why this situation should be any different.

I'm willing to accept that SS/Lendy may be naive in this regard, but whoever built their website with those components taken from elsewhere should be well aware of what they can do and what they can't.  If they aren't, they have no business being in business!  If I were SS/Lendy, I'd sack them immediately, and seriously consider suing them for malpractice and the damage they have caused to the SS/Lendy reputation.

Having said that, though, it doesn't take an expert to know that it's inappropriate to identify a stock photo as being something that it isn't, and I presume there's someone within SS/Lendy who approved the website and they're to blame for this PR disaster.

SavingStream:  We know the photo isn't James Marshall.  Can you please let us know whether James Marshall, SS lender since Feb.'13, really exists and whether he actually made the statement he's purported to have said?  If so, I'm sure all the readers here would appreciate seeing the evidence of that.  Or is he just an invention of a PR department?

Perhaps for obvious reasons there is no link advertising the designer of the web site shown on any of the pages.  But perhaps the answer is obvious.

The 0845 contact number for SS is shared with a web site / web app development company based on the Isle of Wight with a common director with SS.

[The 0845 number is also associated in some way with a supercar hire company on the IoW but this may have been a previous number for them. Also Lendy Marine have a different 0845 number]