Peer-to-peer lending sites, which were once the town’s speak, face a multitude of obstacles in the sense of continuing lawsuits and tighter legislation, highlighted by a complaint against Tera Financing, experts said Tuesday.
Tera Financing is faced with another class action from plaintiffs who are dissatisfied with late fees and investment losses. This is the second time that the company has been faced with a lawsuit since August 2020 when a consortium of 500 plaintiffs dragged the company to court, arguing that it had committed fraud.
At the same time, Tera is about to lose at least one forum that attracted potential users.
Earlier this month, Toss, a fintech app with 18 million subscribers, announced the end of its relationship with Tera Funding on March 4. The organization argued that the termination of its relationship was due to an expired deal, but the decision came when Tera Funding holders threatened to sue Toss as well. They accused the organization of unfairly promoting project funding as risk-free.
Kakao Pay is now mulling whether or not to expand a relationship with P2P lending firms.
Toss and Kakao Pay’s resistance represents the problems facing P2P lending firms, experts claim.
“The delinquency rate is getting higher and platforms like Toss and Kakao Pay are cautious about expanding their partnership,” said an industry expert who wished to remain anonymous.
“You could earn or lose money when you choose any type of investment, but some high profile failed investments by several P2P lenders and lawsuits against Tera Funding certainly have had a negative impact on the industry which is already suffering from tepid interests by investors who have other options in the bullish stock and crypto markets,” the expert added.
According to the P2P Loan Research Website Midrate, the average rate of delinquency of 121 P2P companies is 23.46 per cent as of Tuesday. The number is 9 percentage points higher than a year earlier and the highest since the crime rate was first revealed in November 2017.
In January, six P2P firms issued fines from the Financial Supervisory Service, the country’s financial watchdog, for obtaining higher interest rates than the regulatory rate.
The so-called Online Investment-Linked Finance Act, which came into force last August, mandates all P2P firms to have paid-in capital of at least 500 million won ($450,000) each and to register with the country’s financial watchdog by August of this year.
As of Feb. 17, only six P2P lenders, including the Citizens Fund and 8percent, submitted an application to the country’s financial watchdog.
In addition, state-registered P2P companies must publicly report their financial records, have a computer infrastructure and security equipment, and are barred from selling high-risk instruments.