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Peer to Peer Lending-a warning

Is Peer to Peer lending the next disaster waiting to happen?

Such lending is not covered by the Financial Compensation Scheme which applies to bank savings to a max of £85,000.

Presumably,a lender lends initally to the organisation who then in turns lends to individual borrowers and so the contract is between organisation and lender.If the organisation employees either bankrupt or steal the funds lenders only rank as unsecured creditors?

Is an average 8% interest rate adequate compensation for taking such a risk.I would have expected 8% for secured lending.

Peer to Peer organisations have gone bust in the past.

Only the future will prove if this analogy is correct.


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Not with ZOPA

Nothing you describe above applies to the money I lend to others via ZOPA. Over 6 years I've lent money to over 1200 people.  Any money in my holding ac, stays there for say a week, is about 1.5% of the total money I have leant out AND is in a client account in RBS and ZOPA has no contractual relationship with borrowers.

You can't compare it to a bank deposit, your money is lent to individuals.

It's one of the best ways to do some good with your money and keep it away from banks & financial institutions.

Is the 7% average I've made over the 6 years adequate compensation for the risk?  What do you think?

Thanks (3)
29th Jul 2012 14:31



Is the 7% after bad debts and zopa's fee? If so, it's a good return.

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10th Oct 2012 22:08

Investment Opportunity

Hi Paul,

Do you have any interest in investing in residential property deals for 6-8 months, receiving a return of 10% pa? If so let me know.



Thanks (0)
28th Jul 2012 22:00

I believe one needs a

I believe one needs a Consumer Credit Licence if total lending is more than £25,000?

Borrowers must be charged more than the 1% fee + interest rate charged to borrowers as otherwise the figues do not make sense,

Presumably.there is a contract with each borrower and lender and if so how would you enforce the contract if Zopa ceased to exist.


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More info

Red Leader - In addition to the interest on lending to borrowers you also earn interest on money in your holding account and earn bonuses from ZOPA when they encourage you to lend into different markets as well as when you recommend other lenders, on the minus side you pay an annual fee and will have bad debts.  Netting all these down knocks about .7% off my earnings.

I always lend at the lower end of the going rates, or even below them, to make sure the money goes out as soon as poss at the moment I'm lending in a market where the bottom rate is 9.7% and I'm lending at 9.5%, similarly the other market I lend in has a low point of about 6.7% and I've been lending at 6.1%.  To be honest though, my prime motive has always been to get the banks out of the equation (but the interest is the best I'd get anywhere and it's paid gross).

uktaxpal - you appear to have some issues with this don't you?  Your info is way out of date.

You believe wrong, the £25K lending limit went ages ago and was always an internal limit, ie not  imposed on them by the OFT.  So you can lend anything, even through your business, and only have to worry about a consumer credit licence if you "lend as a business", ie not for your own or your business's investment purposes.  Having said all that, the average lender only has about £2.5K lent out and, if I did need a CCL, I'd lend through the firm as the ACCA provides a group licence.

No need to presume, I've already said that I lend to others not ZOPA. And how would I get my money if ZOPA wasn't around? Their collection agents are contracted to collect my loans for their entire lives, whether ZOPA is there or not.

Out of interest what made you post your "warning"?

Thanks (2)
30th Jul 2012 02:05

I wasnt sure about the CCL limit that is why I asked.

The lending is not covered by the Depositers compensation scheme.

Peer to peer lending still relies on turning a margin between lending and borrowing rates but thats what banks do.

I have seen reports of interest being wiped out by bad debts.

But mainly lack of cover under the DCS is main concern.

Only the future will show who is right.

Thanks (0)

Not sure you're getting this uktaxpal

From what I understand the Depositors Compensation Scheme applies to banks & other deposit takers, ZOPA is not a deposit taker, yes it takes my money but only as say a solicitor would as it's holding it for a short time before it's lent out, 

So, in my case, as soon as there's £40 in my account it gets offered out and after a week or two it's gone, so on balance, out of over £16K leant out, less than say £200 is ever held by ZOPA in its client account, which is, by definition, protected from ZOPA's business.

If you're scared at that sort of risk then yes, stay out of it, keep your money with all those safe banks and let them do what they want with it, maybe lending to arms dealers or even helping launder drug money?

ZOPA does not borrow money to lend out taking it's turn, it is a business bringing lenders & borrowers together and charging a fee.  It's prime purpose therefore is to cut the big financial institutions out of the equation and I think that is great.

You've heard reports about interest being wiped out by bad debts, so what, you've just heard a report about the complete opposite plus, had you bothered to research properly, you'd have seen all the positive comment by financial press, consumer surveys and the hundreds of thousands of ZOPA members who currently are lending & borrowing over £200M with each other.

I got into it all those years ago because I know two of the people who helped set it up and, it's a gem.  As I say, you either have issues with the principle or didn't look into it properly before issuing your "warning".

Any other questions then they are lovely people, give them a call or send them an email.


Thanks (2)
30th Jul 2012 09:24

Substance over form-in essence its the same as a bank.

You are kidding yourself-if a PTP company went bust there would be massive problems & bad debts.What if your money is stolen?We know how useless the criminal law is in dealing wirh crims.The theives will probably be employed as advisors or speakers!

Thanks (0)

scraping the barrel

What bit of the lending & borrowing bit don't you get?  Read what I say above, look at their website and then tell me exactly how I'm kidding myself (and have been for 6 years), what bit of my money will be at risk if ZOPA went bust? 

If you went to a marriage bureau, found yourself a partner, tied the knot and then the bureau went bust, would that mean you'd have to get a divorce?

What if my money is stolen?  Who is going to steal it?  RBS who handle the trust account....maybe or someone at ZOPA? There's insurance in place to cover any fraud.

The main risk, as predicted and clearly reported by ZOPA is in bad debts of the people I lend 99% of my money to and not the 1% that ZOPA manages at any one time.  I'm perfectly happy with the procedures put in place to grade the borrowers in risk bands and in the abilities of the collection agency to collect and persue bad debts.

To put this in perspective, by recycling the initial money lent, ie I have never withdrawn the loan repayments, I have lent out over £50K in 6 years and the bad debts have been less than £250, most of which were in their riskiest "Young" band, ie students.

At the end of the day, this is an investment activity and one that I'm perfectly happy with, both as regards the risk and where my money ends up. This is clearly not for you and, from your last comment, I doubt you'd be comfortable with a tin box under your bed.  What I object to is someone who clearly has no knowledge of a subject posting a "warning" about it.

That's me done

Thanks (2)
30th Jul 2012 11:10

During a tel con with Zopa I was told application had been been made to be included in the compensation scheme.If it wasnt important why would they want to do this?

Zopa quote returns of 5% over the last 12 months on their website.Dont forget interest rates have declined over the last 6 years and the economy was bouyant.

Warnings about lack of inclusion in the DCS are in the financial press.






Thanks (0)
30th Jul 2012 14:54

A return to the old days...

It seems to me that Zopa is operating as banks used to do and as accountants are supposed - ie "know your client". Sounds like Lenders make an assessment of what risk level they are prepared to accept and what type of borrower they will lend to. If the risk is too much then they presumably won't lend.

I seem to recall that once upon a time that was how banks (and building societies) operated - until thje DCS came along and socialised the losses. And if you didn't think the bank was "safe" with your money, you put it elsewhere.

Unlike uktaxpal, I suspect Captain Mainwaring would be comfortable nvesting with Zopa. If this is where DCS has led us, then small chance of a future recovery.


Thanks (2)
31st Jul 2012 10:49

Interesting debate

Well, if someone as knowledgable and respected as Paul is so positive about it, I can't think of a better recommendation. 

I used to work for a bank many moons ago, and remember the days when people decided whether to lend, and not the computer.  Peer-to peer seems to follow those old fashioned principles.  (And we answered the phone ourselves  and knew our customers by name.  I could go on.)


Thanks (2)

Thanks accountsdragon

You hit the nail on the head, it was the complete cut-off with humans that I experienced with various banks (especially Barclays) years ago that started me looking for for alternatives.

I hasten to add that I'm not authorised to give investment advice (either by a regulatory body or my own knowledge) but, regardless of the return I get, I've finally managed to get practically every thing I own with organisations that seem to care about the good (or lack of bad) they can do with my money.

As I've written elsewhere I switched my business banking to The Reliance last year and am still surprised when I call or email that I get straight through to a human sitting in their office who sounds "normal" and doesn't try and sell me something.

Thanks (1)



Whats the tax angle on this? I have a couple of clients who do have flirted with this but only for small sums, so it isn't going to touch the sides on the tax return but I would be interested to know:

1. Does BR interest get deducted at source, or is it all earned gross?

2. How are bad debts and other charges dealt with? Ie are they deducted from the interest earned for tax purposes?

3. When is the tax point? Presumably as earned?

4. Do you get a nice little annual report from the agents?

Be good to know as its probably only a matter of time until one of these lands on my desk with several thousand leant out.



Thanks (1)

Paid gross

Interest is paid gross and you get an annual statement as back up for your tax return.  Bad debts are not an expense and so are excluded but ZOPA are lobbying to get HMRC to change their minds.

Here's a link to their FAQ on the subject.

Thanks (1)


thanks Paul,  I did think the bad debts would be an issue unless there was a specific provision otherwise which no doubt would open a yawning tax loophole!

Thanks (1)
01st Aug 2012 07:35

If HMRC staff can engineer repayments to their associates then the  a similar fraud could be carried out in PTP lending and if it does lenders will be left high and dry.

Time to take the rose couloured spectacles off?

Thanks (0)
By aalogan
01st Aug 2012 12:54

More Peer to Peer

I've also dipped my toe in the water with ZOPA and have been pleasantly surprised by the positive results - interest does get paid, there are some bad debts and I've been able to withdraw significant amounts of my money without any hassle.

I like the fact that it is people lending to people!

Another interesting development is 'Bank of Dave' - Burnley Savings and Loans - a local peer to peer set-up in Burnley, combining perr to peer lending with a local touch. How many more of these could be set up around the country?

Thanks (1)
10th Oct 2012 22:11

Investment Opportunity

Hi aalogan,

Do you have any interest in investing in residential property deals for 6-8 months, receiving a return of 10% pa? If so let me know.

Thanks (0)
01st Aug 2012 13:02

An alternative to Zopa

If you have the money you could consider lending individually or as part of a consortium for bridging finance, etc.

I know that banks are running scared of lending - plenty of examples where there is, say, 50%+ equity in a property and the borrower has a good, stable job but maybe doesn't quite fit the underwriter's criteria, so the underwriters say no.  

These people need short term finance e.g. buying a property for development/own use, but don't want to sell their property until they can move in, saving rent/hassle of moving twice.  They are willing to pay approximately 1% per month gross, secured on the properties, with very low risk involved.  So this is a possible alternative to Zopa for bigger amounts.

Thanks (1)
01st Aug 2012 16:14

well done on 7% and a useful service to business

is 8% enough YES unless you are exceedingly greedy

Thanks (1)


As others have posted there's a similar facility to ZOPA for busineses called Funding Circle in which credit checked businesses advertise the sort of funding they need and then investors jump in to offer to lend at various rates.  As with ZOPA the risk is spread in that you can lend lots of small sums to lots of borrowers.  From my point of view I like the idea that you can also pick the sort of businesses you lend to.

Then, for any money that you might consider donating to an overseas charity for developing world benefit, how about lending it direct to local micro businesses at 0% interest rates?  In this way you can donate over & over with the same money.  It's and,again, the joy is that you lend to an individual, developing the kind of business that you think is beneficial or valuable.

Thanks (1)
01st Aug 2012 17:17


I think that PTP lending is a great idea and although the original question was legitimate it has been soundly addressed by Paul Scholes.

But just one doubt remains in my mind.  Although there doesn't seem to be any financial risk  with PTP (forget the credit risk of the underlying loan) the whole business model of PTP is web-based so if the operator did go bust then once the website stops working wouldn't it become impossible for the lender to know where he/she is?

This would apply equally to any cloud-based business, though I am an enthusiastic cloud user so I don't wish to be negative.

Just a thought.

Thanks (1)
02nd Aug 2012 16:37

the gainsayers
Just must have their say

Thanks (1)
02nd Aug 2012 21:22

If it walks like a duck,quacks like a duck and looks like a duck its Donald Duck!

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02nd Aug 2012 21:37

uktaxpal, are you in business?  This is called financial disintermediation.  Nobody would suggest  that investing 100% of your savings through Zoopla was sensible but as part of a balanced portfolio it can be sensible for some investors.

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03rd Aug 2012 09:07

There is no DSCS protection.

There is no FSCS protection

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06th Aug 2012 10:20

If it walks like a duck?


If it walks like a duck,quacks like a duck and looks like a duck its a cartoon character?

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06th Aug 2012 14:11

is uktaxpal

a quack?

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Only if they are being built for social housing

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