Zopa investors’ risk statement
The terms used in this statement are defined in the Zopa Principles. Zopa enables you to make fixed rate loans of 1 to 5 years to many other people under individual Loan Contracts. Zopa is not a party to those Loan Contracts, but agrees to administer them on the terms of the Zopa Principles. Before we allow each Borrower to receive your money, we make identity, fraud and credit checks. We are a member of CIFAS, the fraud prevention service. We also use the Borrower’s credit reference, and certain additional Information that we verify, to assess the affordability of the loan. If we find that the information was inaccurate or deficient the Loan Contract will not proceed.
Your loans are repayable to you via the Zopa Members Account in monthly instalments of principal and interest. You lend your money in small amounts to different borrowers, so if one borrower cannot pay you are less likely to lose your capital, although your overall rate of return may go down. Missed payments will be pursued by a collections agency, unless or until a default occurs or the Borrower dies or is unable to pay. The expected and actual default rates are explained here, and your projected return is stated here, taking into account fees and default rates. The amount of income tax payable is dependent on your individual circumstances and may be subject to change in the future.
The Loan Contracts do not contain security provisions, but borrowers pay a Loan Servicing Fee that includes an amount to cover the risk of not repaying their loan to you. We pay that amount into the Zopa Safeguard Trust, which is held by P2PS Limited (a not-for-profit organisation) in trust for investors. If a borrower defaults after four months’ worth of arrears, that particular Loan Contract is automatically assigned to Zopa Ltd and a claim is made on your behalf to the Safeguard Trust to reimburse your principal and interest due.
P2PS must act prudently when deciding whether to pay out. This means that you are unlikely to lose the principal amount you lend at Zopa, and your rate of return is also protected. If P2PS declines a Safeguard Claim, Zopa Ltd will commence recovery of the debt due under the relevant Loan Contract and any sum recovered will be paid to the investor, less any enforcement costs that could not also be recovered.
If you need access to the money you have lent out before your borrowers are due to pay it back, you can use the Rapid Return Facility to sell your Loan Contracts to another investor. You can access your money any time so long as there is another investor to sell your Loan Contract to. This may occur within a few business days, but there is a chance that you may not be able to access your money when you want it. For investments in Zopa Classic and Zopa Plus, Zopa will charge you a small fee (1% of the full amount owing by the Borrower under the loan) for arranging and facilitating the sale of your loan, and if your Loan Contract is for a lower interest rate than the incoming investor’s offer, you will have to pay that investor the shortfall.
Your money is held by us in trust on your behalf in a segregated bank account so that it does not form part of our assets and would not be available to our creditors in the event of our insolvency. We administer Loan Contracts in a way that ensures that the fees payable in relation to those Loan Contracts will be sufficient to cover the costs of administering them during any winding down process if we were to cease trading for any reason. Zopa customers do not have recourse to the Financial Services Compensation Scheme.