Signing Hundreds of Contracts Online Made Easy.

June 30, 2006

Anyone remotely familiar with the consumer credit legislation could be forgiven for having nightmares about how two people might conclude a single consumer credit agreement to the satisfaction of the courts, let alone 500 in a single session.


Yet that is exactly what will be required at Zopa, the world’s first person-to-person lending and borrowing exchange,[1] when it switches from “non-commercial”[2] to “regulated”[3] credit agreements in July 2006.


Since its launch in March 2005, Zopa has been open only to people who are creditworthy borrowers and those with spare cash who won’t be lending in the course of a business. The amount that anyone can lend to others is also limited to £25,000 in order to prevent any member developing the system, repetition or continuity required to operate a “business” in lending to others at Zopa.


But Zopa has now attracted over 75,000 members, has produced market leading personal loan rates,[4] and average returns of 6.75% on money lent, before tax.[5] Pleased with their experience to date, increasing numbers of lenders say they would be prepared to apply for a consumer credit licence and lend more than £25,000 to others if Zopa allowed it. To meet this demand, Zopa has invested in the legal work and system changes necessary to produce fully regulated consumer credit agreements.[6] To keep it simple, and make the market as open as possible, the paperwork will be fully compliant even in cases where the lender is not lending in the course of a business and the loan remains “non-commercial”.


The reason Zopa members agree so many contracts at one go is simply the result of Zopa’s proprietary risk-diversification process.[7] Each amount of money offered by a Zopa lender is split among at least 50 borrowers, making it extremely unlikely the lender would lose the loan principal. To appeal to those wishing to trial the system, it was originally designed to enable a person to lend a minimum of £500 (now as little as £10 for some promotional activities). So the offer and acceptance process produces a direct loan contract between each lender and borrower for every £10 that is lent. With the average UK personal loan totalling £8,000 over three years, Zopa lenders and borrowers could be entering an average of 800 contracts at a time.


The regulations governing the form of consumer credit agreements generally[8] are incredibly pernickety, being the product of an intense war of words that has raged amongst financial institutions, the DTI, the OFT, consumer groups, MPs and lawyers since before the Consumer Credit Act 1974 was first enacted. But the recent amendments that enable a document “to be signed by an electronic communication” [9] are actually well suited to an Internet-only environment like Zopa.


At the heart of the requirements is that, to enforce a loan contract, the person collecting the loan must ultimately be able to prove a logical association between the fact that a specific person clicked in the relevant signature or tick-box, and the record that shows the particular click occurred. The challenge for Zopa is to give both the lender and the borrower the opportunity to read and understand the terms of each credit agreement, but minimise the tedium associated with signing hundreds of very similar documents. For the borrower, this is further complicated by the requirements that (a) she be given notice of certain information about each lender before signing the contract (a “DMR notice”, in the trade),[10] and, (b) in the event that she decides to take optional payment protection insurance, to both tick a box on the credit agreement, then sign to accept that the loan includes the amount of the premium[11]. 


Zopa has enabled all this by employing a scrolling-signature bar that a member can use to automate the signing and/or ticking process required by each notice or contract, with the option of individually signing each document if that is preferred. The cursor can be dragged more quickly or slowly at the member’s option. The member can stop the process and open signed and unsigned agreements as she wishes. The process can take under 20 seconds or up to 20 minutes – and possibly longer. Any session in which electronic notice acknowledgement or signing must occur begins with the opportunity to review the standard terms that are part of every credit agreement; and cannot be completed unless every single box is ticked or signed. A pdf containing all notices and contracts that have been signed is made available to the member in her My Zopa account interface, and can also be downloaded, printed and stored by the member.


While the consumer credit regulations were clearly drafted to cater specifically for how financial institutions do things, Zopa has demonstrated that there is a way to enable real people to finance each other’s dreams on their own terms.


Simon Deane-Johns is Zopa’s General Counsel, and Tim Parlett is Zopa’s Chief Technology Officer. (e-mail:;

[2] “…a consumer credit agreement or a consumer hire agreement not made by the creditor or owner in the course of a business carried on by him”: Consumer Credit Act 1974, s 189(1).

[3] ie documented in the manner prescribed under s 61 of the 1974 Act (as set out in The Consumer Credit (Agreements) Regulations 1983 (the Agreements Regulations).

[4] £5,000 can be borrowed over three years in the Zopa A market at 5.3% APR typical as at 12 June 2006.

[5] To date, bad debt has been virtually zero – currently running at less than 0.05%.

[6] Salans have advised Zopa on the introduction of regulated CCA agreements; Lovells have advised on Zopa’s eligibility rules, user terms and conditions and general loan terms; BJSS, the financial services software development firm, has built the Zopa system and made the consumer credit changes, to Zopa’s specification.

[7] Zopa has filed for several US patents, covering various elements of its systems, including the signing of multiple documents in one session.

[8] The Agreements Regulations; the Consumer Credit Act 1974 (Electronic Communications) Order 2004; the Financial Services (Distance Marketing) Regulations 2004.

[9] Guidance Notes to the ECO.

[10] Under the Financial Services (Distance Marketing) Regulations 2004.

[11] Regulation (2)(7)(a)(ii) of the Agreements Regulations. Zopa loans can be repaid early at any time for no extra charge, and any payment protection insurance can also be terminated early with a refund of all the premium that covers the unexpired portion of the policy period, unless a claim has been made.