DRN-6279220

The complaint Miss C complains Zopa Bank Limited (Zopa) failed to carry out thorough enough affordability checks before it approved three separate loans for her. What happened Miss C says Zopa approved three loans for her, Loan 1 (L1) £5,000 in May 2023, Loan 2 (L2) £15,000 in February 2024 and Loan 3 (L3) £15,000 in November 2024. Miss C says if Zopa had carried out a more detailed credit assessment it would have seen she had a long history of persistent debt and her credit file showed a heavy reliance on borrowing and repeated refinancing. Miss C says she was heavily reliant on credit to meet her day to day expenses and was gambling and borrowing from her family to keep afloat financially. Miss C feels Zopa should have seen from her credit file the pattern of her borrowing and reliance on credit and a more detailed income and expenditure would have shown the loans were unaffordable. Miss C wants Zopa to refund all interest and charges and remove any adverse entries from her credit file. Zopa says it follows strict lending rules and completes a credit assessment before it lends. Zopa says before each loan was approved it gathered information from credit reference agencies (CRA’s), other authorised industry standard sources such as the Office for National Statistics (ONS) and open banking to verify income and affordability. Zopa says in addition, it also used information that Miss C declared on her application forms. Zopa says these checks showed that there was no adverse information on Miss C’s credit file that was of concern and each loan was for the purpose of debt consolidation. Zopa says from its calculations it showed Miss C could afford the monthly loan payments on each occasion and the checks it undertook were reasonable and proportionate. Miss C wasn’t happy with Zopa’s response and referred the matter to this service. The investigator looked at all the available information but didn’t uphold this complaint. The investigator pointed out there are no set list of checks lenders like Zopa must undertake but these should be borrower focussed. The investigator says at the time of approval, all three loans showed a negative net disposable income after meeting the new loan costs. But as these loans were for consolidation purposes, the savings freed up from this would have left Miss C with sufficient disposable income to meet her day to day living costs. The investigator pointed out that Miss C’s credit file showed no negative issues and her accounts had been well managed. So on all three loans, the investigator felt the checks Zopa had carried out were reasonable and proportionate and its decision to lend for those loans was fair. Miss C didn’t agree with the investigator’s view and asked for the matter to be referred to an ombudsman for a final decision.

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I sent both sides a provisional decision, where I said: I’ve considered all the available evidence and arguments to decide what’s fair and reasonable in the circumstances of this complaint. Having done so, I will be provisionally upholding this complaint and I will explain how I have come to my decision. I was sorry to hear of the financial issues Miss C is facing and this must be a difficult time for her. When looking at this complaint I will consider if the financial affordability checks Zopa carried out were sufficient before it approved the three loans. Miss C’s complaint centres around her view Zopa shouldn’t have approved any of the three loans, as on each occasion she was already showing signs of persistent debt over a long period of time and was heavily reliant on credit card borrowing, to cover her day to day living expenses. Miss C feels this should have been clear from the credit data available to Zopa and none of the three loans were affordable. Miss C makes the point at the time of the loans being approved, she was reliant on funding from family members and the new loans simply added to her financial problems. Zopa says it carried out comprehensive financial checks before approving the loans and those checks showed the loans were affordable at the time. Zopa have pointed out there were no obvious signs of financial stress from the checks it had carried out, using industry standard sources and felt it made a fair decision to lend. Zopa have made the point the loans were for consolidation purposes and its affordability assessment is calculated based on the customer not consolidating any funds, but the customer is expected to use the loan to consolidate and improve their financial circumstances. While I understand the points Zopa make, I am not fully persuaded by the arguments made and I will go on to explain why. Both Miss C and Zopa have provided this service with comprehensive details of the course of events here and while that has proved helpful, I won’t be commenting on every point made as I don’t feel it’s necessary in order to come to a full and impartial decision here. That’s not to say I haven’t considered everything that’s been said – I have. But it’s just that I don’t need to comment on each individual point here in order to reach a decision on what’s fair and reasonable. As the investigator has pointed out there are no set list of checks lenders like Zopa must carry out before approving credit facilities, but these should be borrower focused taking into account the amount, type, term and cost of any borrowing. I should say here it’s not for me to tell Zopa what those checks must consist of, or from what sources those checks should come from. The first thing to say here is while Miss C has made the point she was borrowing from family members at the time the loans were approved, that’s not something I would expect Zopa to have been aware of at the time it carried out its financial due diligence. What is important here is whether or not at the time each loan was approved the payments looked affordable and sustainable, and this is where I have an issue. Having looked at the financial information I have come to the following affordability assessments:

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Loan 1 £5,000 approved May 2023. I can see the credit files shows no obvious signs of financial stress but there was external borrowing totalling £30,020 made up of credit cards, overdrafts and loan accounts. Using the data provided by Zopa and Miss C’s application, her financial position was as follows: Net monthly income £3,001. Expenditure: rent £225, existing debt payments £1,803, essential expenditure £725 (Zopa’s own DI threshold calculation), new loan repayment £275. Leaving a net disposable monthly income of minus £27. Loan 2 £15,000 approved February 2024. I can see the credit files shows no obvious signs of financial stress but there was external borrowing totalling £34,319 made up of credit cards and loan accounts. Using the data provided by Zopa and Miss C’s application, her financial position was as follows: Net monthly income £3,221 Expenditure: rent £225, existing debt payments £1,896, essential expenditure £725 (Zopa’s own DI threshold calculation), new loan repayment £768. Leaving a net disposable monthly income of minus £393, but after allowing for loan 1 having been repaid, meant the new net monthly disposable income was minus £118. Loan 3 £15,000 approved November 2024. I can see the credit files shows no obvious signs of financial stress but there was external borrowing now totalling £54,192 made up of credit cards and loan accounts. Using the data provided by Zopa and Miss C’s application, her financial position was as follows: Net monthly income £3,380 Expenditure: rent £225, existing debt payments £1,888, essential expenditure £725 (Zopa’s own DI threshold calculation), new loan repayment £781. Leaving a net disposable monthly income of minus £239. So here for all three loans, after calculating for the new loan repayments this showed a negative net disposable income figure on each occasion. So although I accept Zopa’s point about potential savings to be made by refinancing some existing debt, that was never calculated by them as part of its assessment. So it’s fair to say Zopa couldn’t have been certain the monies would be used for that purpose, unless that was a strict condition of the loan and monitored by them. Zopa have also made the point to this service, the loans were approved on the basis of the customer not consolidating any other debt, so with that principal in mind the loans were in fact unaffordable from the outset. What is also apparent from the information on Miss C’s credit file, rather than her debt consolidating after loans were approved, in fact her debt had on each occasion increased.

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In May 2023 Miss C’s external debt stood at around £30,000 but in February 2024 this had increased to £34,000, even though the intention of L1 was to clear existing borrowing at that time. So here it would be reasonable to expect that figure to have remained about the same less any payments made, but in fact the borrowing had increased by around £4,000 suggesting Miss C was in fact continuing to borrow. It’s also worth saying that in November 2024 when L3 was approved, Miss C’s borrowing had increased by around £20,000 in less than nine months. This would suggest again the previous loan hadn’t been used for consolidation, and that should have been a red flag to Zopa, given the purpose of the credit it had previously provided. So given that, when loans 2 and 3 were approved I am of the opinion Zopa should have taken this into consideration, before providing further credit to Miss C or at least questioned this with her. So on balance, I am satisfied Zopa should have taken further steps to question Miss C’s affordability given the negative income position before all three loans were approved and the issues surrounding why her debt was increasing even after debt consolidation. I provisionally instruct Zopa to refund all interest and charges on all three loan accounts and once the loans have been repaid, to then remove any negative entries on Miss C’s credit file. I would also ask Zopa if after the rework of the loan accounts, there is still an outstanding balance to then arrange an affordable repayment plan with Miss C. I’ve also considered whether Zopa acted unfairly or unreasonably in some other way given what Miss C has complained about, including whether its relationship with her might have been unfair under s.140A Consumer Credit Act 1974. However, because I am upholding this complaint for the reasons I have already explained, I don’t think I need to make a finding on this. I believe the redress I have suggested results in fair compensation for Miss C in the circumstances of her complaint. While Zopa will be disappointed with my decision, I feel this is a fair outcome here. Both Miss C and Zopa responded to my provisional decision, so the case has been passed back to me to make a final decision. 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 originally gave both Miss C and Zopa until 1 April 2026 to accept or reject my provisional decision. While Miss C accepted my provisional decision Zopa did not, and it asked for the deadline to be extended to allow it more time to provide additional information for me to consider. Zopa have now provided me with further commentary as to why it disagrees with my provisional decision, which I will now address. Zopa’s argument here is that all three loans were provided for the purpose of debt consolidation and it has provided its own calculations to show that post consolidation of debts, Miss C would have made savings and she had decent levels of net disposable income available. While I understand the points made here, it’s worth mentioning that the debt consolidation savings Zopa says Miss C made, are a retrospective look at what happened post loan

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drawdown, rather than Zopa demanding this as a condition of any borrowing. So what I’m saying here is at the time the lending decision was taken by Zopa, it wouldn’t have been aware of what loans, overdrafts or credit cards were specifically being repaid as part of its affordability assessment. More importantly Zopa suggest the loans were for consolidation purposes, so it was reasonable to base its affordability assessments on that happening. That is where I have an issue and in fact Zopa in an email to this service dated 9 January 2026 made clear the following: “The loans are calculated based on the customer current financial position, not using them to consolidate, so even if the customer did not consolidate any of their existing debts then the loan would be affordable” But from the information I have seen, that wasn’t the case here and as I explained in my provisional decision, pre consolidation the loans were not affordable. Zopa have provided its own assessment of affordability, allowing for certain debts to be repaid from each consolidation exercise, but even on their own calculations before any consolidation of existing borrowings, the new loans were not affordable. Which is contra to its own lending affordability statement mentioned above. It’s also worth saying that when the first consolidation loan was agreed in May 2023, Miss C had external debts of around £30,000 made up of loans, overdrafts and credit cards, so her debt to income was fairly high with her existing debt repayments representing around 60% of her net monthly income. That coupled with the fact without a consolidation exercise being actioned the new loan wasn’t affordable, demanded in my mind further financial due diligence to ensure consolidation was the correct path for Miss C to take. If at that point Zopa had asked for further information from Miss C, it would have seen from her bank statements that for the three months leading up to the consolidation loan approval, Miss C had five direct debits returned unpaid for fairly modest sums. It would also see that Miss C was reliant on her overdraft facility. I am satisfied that armed with such information, Zopa in all likelihood would have come to a different conclusion and at the very least required a detailed income and expenditure profile to ensure Miss C wasn’t masking a bigger financial issue – but that didn’t happen here so I am satisfied its decision to lend was flawed. It’s reasonable to say that based on that Zopa in all likelihood wouldn’t have provided loans 2 and 3. That said when looking at loan 2 which was approved only around nine months later, again to consolidate debts including loan 1, Miss C’s external borrowing had increased by around £4,000. So even allowing for the fact Miss C would have made capital repayments over the preceding nine months to reduce her debt, it suggests in fact she continued to borrow post the consolidation exercise and that should have been questioned by Zopa. When the third round of consolidation of debts were approved in November 2024 another nine months later, from the information I have seen Miss C’s unsecured external borrowing had risen to around £54,000, an increase of around £20,000, which should have been concerning given the purpose of the previous loans approved. Zopa have previously stated loan 3 was used to repay loan 2, but that wasn’t the case as

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both loan 2 and loan 3 remain outstanding. While the loans may have been used in part to clear existing debts and perhaps Zopa’s intention was to improve Miss C’s financial position, it isn’t clear that happened here given Miss C continued to borrow post the consolidation exercise. It seems from what I have seen Miss C was in a cycle of debt she was struggling to maintain and if Zopa had based its affordability assessment in the way it explained to this service in January 2026, it may well have come to a different lending decision for the reasons I have stated previously. As directed by the FCA it’s important that lenders lending decisions are “borrower focused” and from what I have seen, more could have been done by Zopa to understand Miss C’s true financial position for the reasons I have already explained. So with that in mind while Zopa will be disappointed with my decision, I see no reason to change or add to my provisional decision and so my final decision remains the same. I’ve also considered whether Zopa acted unfairly or unreasonably in some other way given what Miss C has complained about, including whether its relationship with her might have been unfair under s.140A Consumer Credit Act 1974. However, because I am upholding this complaint for the reasons I have already explained, I don’t think I need to make a finding on this. I believe the redress I have suggested results in fair compensation for Miss C in the circumstances of her complaint. Putting things right I instruct Zopa Bank Limited to rework the loan accounts removing all interest fees and charges that have been applied to loans 1,2 and 3 referred to above. If the rework results in a credit balance, this should be refunded to Miss C along with 8% simple interest per year* calculated from the date of each overpayment to the date of settlement. Zopa Bank Limited should also remove all adverse information regarding this account from Miss C’s credit file. Or, if after the rework there is still an outstanding balance, Zopa Bank Limited should arrange an affordable payment plan with Miss C for the remaining amount taking back the debt if sold to a third party. Once Miss C has cleared the balance, any adverse information in relation to the loan accounts should be removed from her credit file. *HM Revenue & Customs requires Zopa Bank Limited to deduct tax from any award of interest. It must give Miss C a certificate showing how much tax has been taken off if she asks for one. My final decision My final decision is that I uphold this complaint. Under the rules of the Financial Ombudsman Service, I’m required to ask Miss C to accept or reject my decision before 25 May 2026. Barry White Ombudsman

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