How Zopa Chases Loans That Go Bad

At our request, Mat Gazeley of Zopa wrote the following blog about its collections and recoveries policy, which has been published both here and on Zopa's own website.

Treating customers fairly and delivering value to them is the central idea behind Zopa. This means giving consistent returns to the lenders while offering competitive rates to our borrowers.

Our responsible lending practices created through sophisticated data analysis and underwriting has enabled Zopa to fulfill this promise for the last 10 years. Our default rate since we launched in 2005 is 0.6%, which is extremely low compared to other financial lenders and P2P lending platforms.

Small as they are, we at Zopa have invested heavily in our arrears management process. The process strives to strike the balance between treating each borrower with respect, consideration and safeguarding the lenders' interest.

So what does the Zopa arrears management process look like?

Missed payment

All our loans are set up on direct debit arrangements. When it fails, a Zopa representative will try to contact the borrower via phone and email to inform them about the payment failure. In more than 70% cases, the borrower is able to clear the arrears within a few days of missing their payment.

Zopa do not automatically request the arrears via direct debit, instead we strive to contact our customers and establish the reason for the late payment. These discussions may highlight that the borrower is experiencing financial difficulty. In all our written communications to borrowers in arrears, Zopa provides signposting to debt charities in case the borrower needs to seek help.

In the event that contact is limited and the borrower does not make an attempt to get back on track within 30 days, we may use the assistance of a collections agency to recover the arrears.

Arrangement

In cases of financial difficulty or other hardship, Zopa works with borrowers to create either a short-term arrangement (3-6 months) or a long-term arrangement (6 months).

These arrangements are set based on the customer circumstances and we ensure that they are affordable and enable the borrower to pay their priority debt. Arrangements are reviewed at the end of each term. This provides borrowers with any financial issues the ability to pay back a suitable amount that they can afford with the chance to clear the arrears amount at the end of each arrangement term if possible.

Safeguard and P2PS

In cases where borrowers are in four months of arrears, or have filed for insolvency prior to that, P2PS Ltd (a 3rd party team) take ownership of the loan. In most cases, before assignment to P2PS, Zopa would have issued a default notice to the borrower and the borrower would have defaulted.

In case the loan is a part of the safeguard, the Safeguard fund (Zopa's bad-debt provision fund) makes appropriate payments to the lenders. For loans prior to the introduction of the Safeguard fund, P2PS passes on proceeds to the original lenders.

In addition to the arrangements described above, P2PS might also initiate legal action in a very small number of cases wherein, in P2PS’ judgment, the borrower is not paying back amounts that are affordable for the borrower.

Throughout this process, we update the borrower loan status on the credit bureaux to ensure that other institutions have the best information available to make their lending decisions.

Read the Zopa Review.

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