Partially upheld: irresponsible lending complaint against Zopa Bank Ltd

Decision detail

Summary

Mr T complained that Zopa acted irresponsibly in lending to him across three loans between August 2022 and April 2025. The ombudsman found Loan One (£34,000) and Loan Two (£12,000) were responsibly lent based on available evidence at those times, but upheld the complaint regarding Loan Three (£2,500). By the time of Loan Three, Mr T's unsecured debt had increased substantially to a debt-to-income ratio of 75.95%, he was utilising 80% of available credit card limits, had a new credit card at 95% utilisation, and displayed compulsive spending patterns including gambling activity. The ombudsman determined Zopa should have recognised Mr T was financially vulnerable and over-reliant on credit, borrowing to service existing debt, and therefore acted irresponsibly in lending further. Zopa was ordered to remove interest and charges from Loan Three, refund overpayments with interest, and remove adverse credit file information.

The Ombudsman's reasoning

The ombudsman applied a borrower-focused affordability test, considering not just whether Mr T could technically afford repayments but whether repayment would cause him financial harm or adverse consequences. For Loans One and Two, despite warning signs, the evidence was insufficient to demonstrate unsustainability given Mr T's healthy income and good repayment history. However, by Loan Three, the cumulative evidence showed Mr T was reliant on credit, borrowing to service existing borrowing, with compulsive spending patterns and high credit utilisation. The ombudsman rejected Zopa's argument that a good repayment history and sufficient disposable income alone demonstrated the lending was appropriate, finding that the pattern of behaviour indicated Mr T was financially vulnerable and unable to sustainably repay.

How this compares

Source

Read the original decision on the Financial Ombudsman Service website