Peer-to-peer lender in move to protect loans

Peer-to-peer lending is one of several alternative sources of finance that have grown up as banks ration credit in response to tougher capital rules and the economic slowdown. The sector’s rapid growth has prompted regulators to look at how best to ensure that individuals are aware of the risks and protected.

Zopa, through which £300m has been lent since it was launched in 2005, said its safeguard measure would reimburse lenders’ money on new loans, including interest, if a borrower defaulted.

The site has a default rate of less than 1 per cent, but co-founder and chief executive Giles Andrews said the change had been driven by feedback from the site’s users.

“Our users were asking if we could make it even safer. We have eight years of track record and the best performing personal loan book in the UK, but there is still a lingering question and, as we become more mainstream, that security issue becomes more important,” he said.

The Zopa Safeguard, a fund held in trust by a not-for-profit organisation, will be financed with part of the fee paid by borrowers to use the site.

If defaults exceed the total in the fund, lenders could still have to take a loss on their money. But Zopa said it could accurately predict the level of default and would monitor the fund daily.