Zopa Bank Ltd · DRN-6204430

The complaint Mr C complains Zopa Bank Ltd irresponsibly lent to him. What happened Zopa provided Mr C with a total of four loans. I will refer to these as Loans 1, 2, 3 and 4. In September 2025, Mr C complained to Zopa about its decision to lend to him. His reasons for doing so are familiar to both parties, so I don’t intend to repeat them in detail here. But, in short, Mr C said (amongst other things) that “the affordability assessments conducted [by Zopa] were clearly inadequate and…Zopa failed to meet their regularly obligations under the Consumer Credit sourcebook (CONC)”. Mr C went on to say that adequate checks would have revealed “high levels of existing debt, recuring shortfalls in income vs outgoings and signs of financial distress, including use of overdrafts, borrowing from multiple lenders and reliance on credit to cover basic living costs”. Later that month Zopa issued a final response in which it upheld Mr C’s complaint in part. In short, Zopa did not think it had acted unfairly when it agreed to provide Loan 1 because it carried out reasonable and proportionate checks prior to agreeing to lend and the output from those checks would not have given it cause for concern. But Zopa did not think it should have provided Loans 2-4. Unhappy with this, Mr C referred the complaint to our service. One of our investigators reviewed Mr C’s complaint and, in November 2025, they issued their opinion. In short, the investigator did not think Zopa had treated Mr C unfairly when it provided Loan 1. Further the investigator thought the proposed settlement with regards to Loans 2-4 was fair. So, the investigator did not recommend that the complaint be upheld. Mr C didn’t agree with the investigator’s findings and so the complaint was passed to me to review afresh. In February 2026, I issued a provisional decision in which I upheld the complaint. Here is what I had to say: I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I’ve also had regard to the regulator’s rules and guidance on responsible lending (set out in CONC) which lenders, such as Zopa, need to abide by. I won’t set these out in detail here, but the Financial Ombudsman Service has set out its general approach to complaints about irresponsible and unaffordable lending on its website. And, having taken all of this into account along with everything else I need to consider, I think this complaint should be upheld. I’ll explain why. Loan 1

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Zopa provided Mr C with Loan 1 in February 2023. The loan was for £19,600 and it was due to be repaid through 48 monthly repayments of £558.45. The total amount to be repaid by the end of the loan term, including interest and fees, was £26,805.39. The purpose of the loan was recorded as ‘debt consolidation’. It is my understanding that Mr C maintained monthly repayments until March 2025 at which point the account fell into arrears. The account was subsequently defaulted in October 2025. Prior to agreeing to lend, Zopa needed to take reasonable steps to ensure that it didn’t lend irresponsibly. In practice this means that it should have carried out proportionate checks to make sure Mr C could repay the loan repayments when they fell due and without the need to borrow further. These checks weren’t prescriptive, but could take into account a number of different things such as how much was being lent, the repayment amounts and the consumer’s income and expenditure. So, in keeping with the information on the Financial Ombudsman Service’s website, I think there are a number of overarching questions I need to consider when deciding a fair and reasonable outcome given the circumstances of this complaint: 1. Did Zopa carry out reasonable and proportionate checks to satisfy itself that Mr C was likely to have been able to repay the borrowing in a sustainable way? i. If Zopa carried out such checks, did it lend to Mr C responsibly using the information it had? Or ii. If Zopa didn’t carry out such checks, would appropriate checks have demonstrated that Mr C was unlikely to have been able to repay the borrowing in a sustainable way? 2. If relevant, did Mr C lose out as a result of Zopa’s decision to lend to him? 3. Did Zopa act unfairly or unreasonably in some other way? Did Zopa carry out reasonable and proportionate checks? There are many factors that could be relevant when determining how detailed proportionate checks should have been. And while much will depend on the circumstances in question, the more obvious factors include – though aren’t necessarily limited to: • The type of credit Mr C was applying for along with the size, length and cost of the borrowing; and • Mr C’s financial circumstances – which included his financial history and outlook along with his situation as it was, including signs of vulnerability and/or financial difficulty. And generally speaking, I think reasonable and proportionate checks ought to have been more thorough: • The lower an applicant’s income because it could be more difficult to make the repayments as a result;

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• The higher the amount repayable because it could be more difficult to meet a higher repayment, especially from a lower level of income; and • The longer the loan term, because the total cost of the credit was likely to have been greater given the longer time over which repayments have to be made. As a result, the circumstances in which it was reasonable to conclude that a less detailed affordability assessment was proportionate strike me as being more likely to be limited to applicants whose financial situation was stable and whose borrowing was relatively insignificant and short-lived – especially in the early stages of a lending relationship. I’ve carefully considered all of the arguments, evidence and information provided in this context and what this all means for Mr C’s complaint. Prior to agreeing to lend, Mr C was asked to provide details about his circumstances, including his employment status and income. Mr C declared he was employed full-time with a gross annual income of £120,000. It’s not generally considered sufficient to solely rely on the consumers declared income. Indeed, CONC 5.2a.15(2) says: The firm must take reasonable steps to determine the amount, or make a reasonable estimate, of the customer’s current income. And CONC 5.2A.16(3) says: “…it is not generally sufficient to rely solely on a statement of current income made by the customer without independent evidence (for example, in the form of information supplied by a credit reference agency or documentation of a third party supplied by the third party or by the customer). In this case, Zopa verified this figure by obtaining Mr C’s most recent monthly payslip. This evidenced the gross annual income declared by Mr C in his application was accurate and, therefore, his net monthly income was around £5,821. Zopa also obtained Mr C’s most recent monthly bank statement which further verified receipt of this income in addition to Child Benefit thereby bringing his net monthly income to around £5,9001. Mr C was also asked for details of his monthly housing costs which he declared to be £440. To verify this information, Zopa carried out a credit search which showed Mr C’s monthly mortgage costs were £428. Zopa has said it used data from the Office of National Statistics (ONS) to calculate approximate expenditure on items such as food, clothing and utilities. I can’t see that we have been provided with the figures Zopa relied on here. But, for reasons I’ll come on to, I don’t think I need this information to reach a fair and reasonable answer. CONC 5.2A.19(G)(1) says: “For the purpose of considering the customer’s non-discretionary expenditure…the firm may take into account statistical data unless it knows or has reasonable cause to suspect that the customer’s non-discretionary expenditure is significantly higher than that described in the data or that the data are unlikely to be reasonably representative of the customer’s situation”. I haven’t seen anything in the information Zopa had available to it which suggested that this statistical data was unlikely to be broadly representative of Mr C’s non-discretionary expenditure. So, I’m satisfied Zopa acted fairly – and in-line with its obligations under CONC 1 Here I have excluded sporadic receipts from other sources as these are unlikely to be considered reliable streams of income.

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- when it used statistical data to determine Mr C’s non-discretionary expenditure this during its affordability assessment With all of that being the case, whilst acknowledging this was not an insignificant loan, I think Zopa carried out reasonable and proportionate checks prior to agreeing to lend. However, whilst I think Zopa proceeded with a proportionate amount of information, as I’ve said before, it then had to evaluate it because it still had to reasonably assess whether Mr C could afford to meet the repayments in a sustainable way. Did Zopa lend to Mr C responsibly using the information it had? Based on the information it gathered, Zopa was satisfied that the repayments for this loan should’ve been affordable for Mr C on a simple pounds and pence basis. I’ve turned to look at the results from the credit check Zopa carried out. The results suggested there was no indication of any defaults, insolvencies or any other public records – such as County Court Judgments – about which Zopa had been informed. Further, the results did not reveal any evidence of recent arrears or late payments on any of his existing credit commitments. The results did, however, show Mr C had a total unsecured indebtedness of £86,612 spread across 23 revolving credit facilities and three fixed credit facilities. In addition, Mr C owed £48,504 on a hire-purchase agreement, as well as a mortgage. Zopa’s own calculations (which assumed a 5% repayment towards his revolving credit facilities) indicated Mr C was committing £4,615.05 per month towards his existing credit commitments - including his hire-purchase repayments but excluding his mortgage repayments. This figure rises to £5,043.05 once Mr C’s mortgage repayments are also taken into consideration. This figure - £5,043.05 - represents around 85% of Mr C’s take home pay each month. And this is before normal living costs – such as food, transport and clothes – are taken into consideration, let alone monthly repayments towards the borrowing in question (£588). What’s more, Mr C was utilising a significant percentage (around 82%) of his existing revolving credit facilities and, according to the credit report Zopa obtained, he was actually overlimit on one of his credit card accounts and within a few pounds of the limit on several others. So, regardless of what the ONS data suggested Mr C’s living costs were, I think the information available ought to have alerted Zopa to the fact that Mr C was overindebted to the point where further borrowing was likely to be unaffordable – and almost certainly unsustainable - for him without the risk of adverse financial consequences. I have thought carefully about the fact Mr C told Zopa the loan was for debt consolidation, but that does not change my conclusion here. I can’t see that Zopa knew which debts Mr C planned to settle. However, regardless of that and even if it had, I can’t see that this loan would allow him to reduce his monthly spend on credit to a level such that Zopa would have the assurances it needed that Mr C would be able to sustainably repay this loan. The loan would only allow him to clear less than a quarter of his active debt, so I think it’s most likely he would have remained under financial pressure. In summary, I think the information available to Zopa at the time suggested Mr C was unlikely to be able to repay this loan without borrowing to repay or suffering some other adverse financial consequence. Indeed, I note Mr C went on to default on this loan.

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It follows I am provisionally minded to find that Zopa was wrong to lend Loan 1 to Mr C. Before I set out how I think Zopa should put things right, I will firstly address Zopa’s proposed resolution with regards to Loans 2-4. Loans 2-4 In response to Mr C’s complaint, Zopa agreed that it had been wrong to lend loans 2-4. To put things right, it agreed to remove interest applied to the accounts and ensure Mr C only repays the capital balance. It is my understanding that a capital balance remains outstanding from these loans once interest is removed and repayments Mr C has already made are taken into consideration. Therefore, Zopa offered to set up an affordable repayment plan with Mr C to repay these sums. Zopa also said it would remove these loans from Mr C’s credit file. Our well-established approach to cases like this is to direct the business to refund the interest and charges to the consumer as the best way of putting them back in the position they would have been. This is because this strikes the balance between ensuring that the business who made a mistake doesn’t profit from that mistake and ensuring the consumer isn’t unduly enriched. Mr C, has benefitted from taking the loans out. He’s had the use of the funds which he wouldn’t have done had he not applied for the loans and had it not been (albeit irresponsibly) granted. And I think it is fair that this be repaid. There could be circumstances under which I would direct the full balance of the debt to be written off to restore fairness. But those circumstances would be rare and exceptional. I understand and accept that Mr C was in a difficult financial situation at the time the loans were granted. But I have not seen evidence to suggest that his circumstances were so exceptional as to warrant departing from our well-established approach in this case. Having carefully considered everything that has been said by both parties, I think the offer put forward by Zopa in relation to Loans 2-4 is fair and reasonable in the circumstances. I do not recommend any further award. So, in summary, I uphold Mr C’s complaint regarding Loan 1. In reaching this conclusion, I’ve also considered whether the relationship might have been unfair under Section140A of the Consumer Credit Act 1974. However, I’m satisfied the redress I have directed below results in fair compensation for Mr C in the circumstances of his complaint. I’m satisfied, based on what I’ve seen, that no additional award would be appropriate in this case. I’ll now turn to how I think Zopa should put things right with regards to Loan 1. Putting things right I am unclear as to whether Zopa has sold the debt (from Loan 1) to a third party, although the evidence doesn’t suggest that is the case. But if it has, it should first try to buy it back but if this is not possible it must work with the new owner to achieve the same impact as the steps set out below: • Deduct the repayments Mr C made from the amount of money Mr C received as a result of having been given the loan.

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• If this results in Mr C having paid more than he received, any overpayments should be refunded along with 8% simple interest* (calculated from the date the overpayments were made until the date of settlement). Zopa should also remove all adverse information regarding this loan from Mr C’s credit file. • Or, if any capital balance remains outstanding, then Zopa should agree an affordable payment plan with Mr C. Once Mr C has cleared the balance, any adverse information in relation to this loan should be removed from his credit file. I invited both parties to respond to what I had to say before I finalise my determination. Responses to my provisional decision Mr C accepted my provisional decision with no further submissions. Zopa did not agree. In doing so, it provided detailed reasons why. I would like to thank Zopa for taking the time to do so. Whilst I’ve carefully considered everything Zopa has said, I won’t repeat it all here. No discourtesy is intended by this; it simply reflects our role as an informal dispute resolution service. Instead, I’ll provide a summary: • At the time of the application, Zopa carried out a full and proportionate affordability assessment, including verification of income, credit bureau search and reasonable estimation of non-discretionary living expenses based on ONS data. • Its affordability assessment confirmed that Mr C’s disposable income was such that it satisfied Zopa’s affordability and risk criteria. • The credit file did not show evidence of adverse information (such as CCJs or missed payments) but, instead, showed a stable repayment history. And whilst Mr C’s indebtedness was high this must be considered alongside his high verified income. • The assumption in the provisional decision that Mr C was committing 85% of his net monthly income to existing credit commitments relies on a 5% credit card repayment assumption which is not reflective of the contractual minimum payments, which can be much lower. • Zopa accepts that this loan would not have cleared his existing debts, it notes the relevant consideration is whether the resulting repayment structure is manageable alongside residual commitments. • The subsequent deterioration of the account some two years following inception does not demonstrate that the original lending was irresponsible or that adverse outcomes were reasonably foreseeable at that time. What I’ve decided – and why I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. I’ve also carefully thought about what Zopa had to say in response to my provisional decision. Having done so, I remain of view that this complaint should be upheld. I’ll explain why. However, before I do, I will not make reference to Loans 2-4 again here. I say this because neither party has disputed my conclusions with respect to these loans. Instead, I’ll focus

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solely on Loan 1. I agree that Zopa carried out reasonable and proportionate checks prior to agreeing to lend. Further, I agree that the credit file did not show obvious signs of financial stress and strain – such as a CCJ or active arrears. And I accept that, having carried out these checks, Zopa was satisfied the lending was affordable for Mr C. But, in the circumstances of this case, I do not think Zopa acted fairly when it approved this lending. Zopa is right to say that Mr C’s high level of indebtedness must be taken in the context of his high (and verified) income. I have borne this mind. But, in this case, Zopa’s own calculations estimated Mr C was committing around 85% of his net monthly income each month towards his existing credit commitments. Notwithstanding Mr C had a high income, I think this was problematic and indicative of someone who would struggle to sustainably repay further borrowing. Zopa says that, in its affordability assessment, it used a repayment figure of 5% on Mr C’s revolving credit balances and it is likely his minimum contractual repayments were lower than this and, therefore, it “may overstate practical repayment pressure”. This may be the case but, in my view, Zopa’s decision to use a repayment rate of 5% was appropriate as this allows for repayment of interest and capital and to ensure there is no risk of a consumer falling into persistent debt. But, for completeness, if I were to assume Zopa instead used a minimum monthly repayment of, for example 3%, in its affordability assessment, by my calculation that would leave Mr C paying around £3,765 per month towards his existing credit commitments (inclusive of revolving, fixed and secured lending). This still represents around 64% of his net monthly income before the lending in question is taken into account. Notwithstanding his high level of income, I think any consumer with just 36% of their net monthly income available to cover food, car running costs, insurance, and other essential spending, as well as any unforeseen event, is likely to find further borrowing unsustainable. So, whilst I think Zopa acted fairly by using a repayment figure of 5%, even I were to accept that Zopa overestimated Mr C’s repayments towards his revolving credit commitments, I remain of the view that it was wrong to approve the lending in question. With regards to Zopa’s point about debt consolidation, I don’t have a great deal to add to what I said in my provisional decision. I am simply not persuaded that this loan would enable Mr C to reduce his monthly spend on credit to a level such that Zopa would have the assurances it needed that Mr C would be able to sustainably repay this loan noting the loan in question would only allow him to clear less than a quarter of his active debt. With all of that being the case, I uphold Mr C’s complaint regarding Loan 1. And I think the offer put forward by Zopa in relation to Loans 2-4 is fair and reasonable in the circumstances. I do not recommend any further award with respect to Loans 2-4. In reaching this conclusion, I’ve also considered whether the relationship might have been unfair under Section140A of the Consumer Credit Act 1974. However, I’m satisfied the redress I have directed below results in fair compensation for Mr C in the circumstances of his complaint. I’m satisfied, based on what I’ve seen, that no additional award would be appropriate in this case.

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Putting things right I remain unclear as to whether Zopa has sold the debt (from Loan 1) to a third party, although the evidence doesn’t suggest that is the case. But if it has, it should first try to buy it back but if this is not possible it must work with the new owner to achieve the same impact as the steps set out below: • Deduct the repayments Mr C made from the amount of money Mr C received as a result of having been given the loan. • If this results in Mr C having paid more than he received, any overpayments should be refunded along with 8% simple interest* (calculated from the date the overpayments were made until the date of settlement). Zopa should also remove all adverse information regarding this loan from Mr C’s credit file. • Or, if any capital balance remains outstanding, then Zopa should agree an affordable payment plan with Mr C. Once Mr C has cleared the balance, any adverse information in relation to this loan should be removed from his credit file. *HM Revenue & Customs may require Zopa to take off tax from this interest. If it does, Zopa must give Mr C a certificate showing how much tax it’s taken off if he asks for one. If it intends to apply the refund to reduce an outstanding balance, it must do so after deducting the tax. My final decision For the reasons I’ve set out here and in my provisional decision, my final decision is that I uphold Mr C’s complaint about Zopa Bank Limited and I direct it to settle matters in the way I’ve set out above. Under the rules of the Financial Ombudsman Service, I’m required to ask Mr C to accept or reject my decision before 3 April 2026. Ross Phillips Ombudsman

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