Zopa, the UK based peer to peer lending company, is shutting down their US branch due as a result of toughening conditions that are currently being experienced by the US economy. Zopa provides loan services in the UK, as well as in Italy and Japan through a pure P2P style marketplace. Borrowers would request loans, and then the individual lenders would contribute as much or as little as they wanted to, towards the request. Then when enough funding has been collected, the loan is finally put together and granted. As the borrower pays back the loan, interest earned goes back to the lenders. This micro lending model has made the system popular in the UK and the Italy, and Zopa is soon to open a branch in Japan following the same model.
With the opening of the United States branch, Zopa found that they could not launch the same kind of lending system due to regulatory issues. In order to provide their service, they have teamed up with credit unions in order to provide these lending services. Lenders would park money in CDs with the credit unions, and this would allow their money to sit before borrowers request the money. This would enable the borrowers and the lenders to enjoy the same sort of interest rate benefits as the European users. The regulatory restrictions that were placed upon Zopa would ironically cause the same conditions leading to the closing of Zopa’s United States branch, however.
The same regulations behind the restriction of Zopa’s services are a part of the US economic crisis that has cause interest rates to skyrocket and the economy to experience a great deal of turmoil in the process. With less and less benefit being offered to lenders and borrowers, Zopa was forced to close down the United States branch. US lenders and borrowers will not be completely put out, however. Zopa is directing its current and future US customers to deal directly with the credit unions that it had partnered with.
Despite rumors, the credit unions had not reduced the amount of loans created. Rather, the credit unions has increased the number of loans made as traditional US bank and lending institutes have reduced their volume. Credit unions are not susceptible to the financial woes of Wall Street, and as such are making as many loans as before, if not more for making up the reduction that is a result of the economic crisis. For this reason, Zopa is glad to be able to provide US customers with a viable option that can provide a great service.
Existing customers will be gradually migrated to the partnered credit unions. Individual borrowers and lenders will still enjoy the same interest rates, customer service and federal insurance for CDs made. Payment schedule will also be identical, only payments will transfer over to the credit unions. This transition is made easy since in the US, loans were setup already with the credit unions.
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1 comment so far ↓
who, two interesting news items today. As a lender, I wasn’t a fan of the US version of Zopa because I don’t
think it offered lenders enough. I can get CD rates anywhere.
Credit unions don’t seem to be having a bad time necessarily. We had one credit union in my area get taken over by the Fed early on (a couple months ago) due to bad mortgages around the same time New Century and those lots closed down. But others, having not made the types of loans that many banks made, are actually in decent shape right now. One is offering 7% intro 1 yr cd accounts.
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