Zopa scraps Safeguard

[Rooky102]

http://blog.zopa.com/2017/05/25/introdu ... zopa-core/

"Core will offer initial target returns of 3.9%, and will not be covered by the Safeguard fund. Classic and Access will not be available for investors currently on the waiting list or future investors, however current investors with loans in Access or Classic can continue to lend through these products until 1st December, 2017 when they will be retired."

I guess it's the only way they can get the interest rate up to a decent level for investors (of which there apparently are too many already).
'Target' of 3.9% and no Safeguard; does anyone find this attractive?

[GJHarney]

We initially introduced Safeguard in 2013 to deal with a tax anomaly that unfairly penalised peer-to-peer lenders. The fund was designed to ensure that investors only paid taxes on the net income they received from Zopa borrowers: and not bad debt. In 2015 the tax laws were updated enabling investors to claim for relief on losses from bad debt. As a result, the primary reason for Safeguard was removed.

From memory I don't think that was the reason that was stated for safeguard at all, in fact I don't remember discussions that linked safeguard to the tax issue (this was when Zopa still allowed their own forum so I'm sure I would have remembered that kind of debate). No, the reason was always to try and ensure as much safety when it came to bad debt as possible, although it did lower headline returns somewhat.

The Zopa explanation leaves a lot of unanswered questions doesn't it? What about future bad debt - if we are heading for another economic blip (which I suspect we are) given the record levels of personal debt in the UK what does Zopa believe will be the risks to its default rates?

Also, what is going to happen to the pot of money (that may be huge by now) that is in the existing safeguard separated fund and once all the safeguard loans have been repaid after x years? The proper thing to do would be to distribute it as a special bonus wouldn't it, although I suspect that it will just go into the pockets of what comes across as the increasingly greedy, remote and corporate suits behind Zopa these days.

[ModernMicawber]

This thread made me have another look at Zopa's website; the news that they had gained FCA Authorisation and were launching an ISA had passed me by. I was an early (small) investor, but sold out a few years ago for reasons that escape me now.

It's certainly a very different proposition now than in the days of lending a tenner to Trevor in East Grinstead to part-finance his Vauxhall Corsa.

I do think that for investors that already have a brokerage account, the Funding Circle fund - which I have held since not long after launch - might be more convenient than opening another ISA, though I realise the loan book isn't directly comparable.

[toofast2live]

I seem to remember it was about the eligibility of bad debt for tax relief. I vividly recall not being able to lend at 10% because with anticipated bad debt of 4%, the 6% left became 2% (6% les tax at 40% on 10%). C and D markets were not viable for HR taxpayers. I remember leaping for joy when my money flew out at 6% gross, 3.6% after tax.

Safeguard, or Provision Fund over at RS simply gives a thin veneer of safety and therefore drives down rates for lenders as at RS, by sucking in the "dumb money".

I prefer higher rates with no SG, and achieve average returns using maximum diversification.

I agree the FC IT is an ideal way to access p2p within a S&S ISA

[dspp]

So how long until there is a mis-selling scandal re P2P lending ?

[AbsoFool]

I was also an early investor and was disappointed when Safeguard was set up (with no opt out) thus reducing interest rates. I've been withdrawing my money as loans were repaid ever since its introduction..

I also fear that [our] Safeguard fund will disappear into the administrators' pockets!

[toofast2live]

So how long until there is a mis-selling scandal re P2P lending ?

Or miss-buying! Best 1 year fix from a BS, 1.7%. The financial illiterates on RS, desperate for money, are offering one year money at 1.8%, plus charges for early withdrawal.

It is exploitation of the ignorant - and leaves a nasty taste in the mouth.