P2P lender Harmoney changes key fee against backdrop of 'active' Commerce Commission investigation

By Gareth Vaughan

Against a backdrop of the Commerce Commission looking into whether fees charged by peer-to-peer (P2P) lenders are covered by the fees provisions of the Credit Contracts & Consumer Finance Act (CCCFA), Harmoney has effectively lowered its "platform fee" charged to borrowers.

Previously the platform fee ranged from between 2% and 6% of the loan amount, based on the loan's risk grade. Now it's a flat, one-off fee of $375. The change appears to have been made this week without fanfare.

Commerce Commission chairman Mark Berry last month said the regulator aimed to have its review of P2P lenders' fees completed by year's end. Interest.co.nz revealed the Commerce Commission's probe in early August.

P2P lenders facilitate borrowing and lending via their online platforms between other parties rather than actually taking part in the lending or borrowing themselves. All Harmoney investors' funds, when they aren't on loan to borrowers, are held in the name of a trustee being the New Zealand Guardian Trust (Harmoney) Trustee Ltd. The Trustee uses investor funds to make and hold loans as bare trustee for the participating investors.

In response to a series of questions from interest.co.nz on the fee change, a Harmoney spokeswoman simply said, "As a new technology company that is operating successfully in a burgeoning online marketplace, Harmoney is constantly evolving and finding ways to disrupt traditional lending. As part of a commercial review of our operations, we have therefore decreased the platform fee charged to borrowers, and a fixed fee now applies to all loans."

Reasonable fee

The CCCFA only applies where a lender charges a fee, which has to be a reasonable fee. Interest.co.nz understands one area of concern the Commerce Commission may have had is a view that Harmoney's trustee is charging the fee, and therefore under the technical provisions of the CCCFA could be deemed to be linked to the lender. 

Harmoney facilitates unsecured personal loans ranging in size from $1,000 to $35,000. Having launched in September 2014, Harmoney earlier this year reported $1.88 million of revenue for the 11 months to March with $1.85 million of this stemming from platform fees. One of the questions put to Harmoney by interest.co.nz today that it hasn't responded to was what, if any, implications are there for Harmoney's business model, and profitability target, in the fees change? 

In September this year Harmoney founder and co-CEO Neil Roberts said, "We're absolutely confident of our position regarding fees (and) no one is suggesting we've not done the right thing."

Previously Harmoney charged an up-front, one-off platform fee to borrowers ranging from 2% to 6% of the loan amount depending on the risk grade of their loan, with a minimum fee set at $300. The fee was rounded up or down to the nearest $25 and added to the loan amount. A discount of 50% applied to the standard platform fee for a top up loan, albeit with a minimum fee of $150.

Now Harmoney's website says it charges an upfront, one-off platform fee to borrowers of $375. This is added to the loan amount and is charged on advancement of the loan. The same $375 fee now also applies to top up loans.

Harmoney's other fees have been left unchanged. Borrowers also potentially face a $15 dishonour fee if their repayment is dishonoured, and overdue fees if a payment's missed and the account goes into arrears. This fee is $30 per month if the payment's overdue for up to 60 days, and $75 a month if the account has been overdue for more than 60 days. There is, however, a five day grace period on charging of the fee. Borrowers may also face legal fees if enforcement action against them is required.

Investors, meanwhile, are charged a service fee equivalent to 1.25% of the principal and interest payments collected on each $25 note they invest in. The service fee is deducted from repayments into the investor account with the fee paid to Harmoney for managing borrower repayments and administering the account on behalf of investors.

Commerce Commission's investigation 'active'

Asked a series of questions by interest.co.nz today a Commerce Commission spokeswoman would only say, "We are continuing to look at how peer-to-peer lenders, including Harmoney, are covered by the fees provisions in the Credit Contracts and Consumer Finance Act. The timeframe for our investigation will depend on developments in the industry, but we expect to be able to provide a further update early next year. As this is an active investigation we are unable to comment further."

Three other P2P lenders have been licensed by the Financial Markets Authority subsequent to Harmoney. They are Squirrel Money, LendMe and Lending Crowd. So far only Squirrel Money and LendMe are operating.

Squirrel charges flat establishment fees for borrowers of $250 for an unsecured loan and $500 for a secured loan. Squirrel facilitates loans ranging from $3,000 to $70,000. LendMe's platform fees range from 2% to 7% of the loan amount based on the loan's risk grade. LendMe facilitates secured lending of between $25,000 and $2 million.

Lending Crowd owner Wayne Croad has said people who borrow via Lending Crowd are likely to face a one-off platform fee of $300, or a yet to be determined percentage of the amount borrowed. Lending Crowd plans to facilitate secured loans of between $2,000 and $200,000.

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