Peer-to-peer lending carries risk and the FCA has warned platforms not to compare returns to savings accounts. It's misleading, says the regulator. The problem is, everybody does it.
We don't mean all the peer-to-peer lenders. We mean the mainstream media and the financial pages of quality newspapers. The critics of crowdfunding and the skeptics do it as much as advocates and marketers.
A week or so ago, the Mail on Sunday ran a piece on 'fed up savers' looking at putting their money into peer-to-peer lending. We shared our thoughts with you. The Mail is not a peer-to-peer lending platform. It is a respectable family newspaper that many people read for its coverage of savings and investments. As far as we know, the FCA hasn't taken the Mail to task over that article. Nor would we expect them to. But lending platforms have been warned that the FCA does not like seeing them using that kind of language.
We realise the FCA is doing what regulators are supposed to do: pointing at something and holding its nose and saying, in effect: "We don't much like that." It's not just crowdfunding that attracts the FCA's disapproval. Recently, the regulator has warned investors about zombie savings accounts and structured deposits.
We're all exposed to so much advertising and promotion that it helps to hear a voice warning us to be careful, and explaining why things sometimes go wrong. But to tell lending platforms "you mustn't make comparisons between things that are different, because then people might think they are similar " strikes us as a case of the regulator wanting to overrule how most people make choices.
Yesterday, we went looking for trouble. It took one of us about fifteen minutes to find recent features on three of the UK's top price comparison websites. GoCompare, MoneySavingExpert, and MoneySupermarket. They all do what the regulator has told the platforms they must not do. Each of them approaches the topic in the same way:
- Peer-to-peer lending is a new thing;
- You might be interested if you don't like the low interest rates on your savings;
- But you also need to understand why it's more risky than saving;
- And decide whether the higher interest rates are worth the extra risk.
It seems to us that this is not a practice that needs to be stamped out. On the contrary, it is an entirely sensible way of explaining new products to somebody who doesn't know about them. First we make mention something our friend already knows about, and then we compare and contrast, explaining how the new thing is like the old familiar thing, but different from it as well; better adapted for some purposes, and not so good for others. It's the way most of us tell someone about a new TV show, a new restaurant, or a style of clothes. And it's part and parcel of the way savings and investment products are written about in the mainstream media.
We'll leave you with three examples to think about
We reported on a survey that YouGov conducted for the Yorkshire Bulding Society. Savers were asked a series of 'Did You Know' questions about peer-to-peer loans. The answers were very revealing, and the use of comparison helped YBS to make a case to their savers for keeping their money where it is.
Money&Co. has a simple video that explains peer-to-peer lending risk by comparing it to planting flowers in a garden. Some of the flowers die (oh no!), but most of them flourish (happy ending!) It's so simple, a child can understand it.
Finally, remember the story of Little Red Riding Hood. We imagine the FCA would be comfortable with "what big teeth you have, Grandma" but would be very unhappy if the child started to compare the figure in grandma's bed to a wolf.
And that, we suppose, is the moral of our story.
Comparison is a natural practice, and a very effective way of getting people to say 'No' to something unpleasant as well as 'Yes' to something good.