I see it as a positive too. Looking forward to getting a little bit of cash for my charged-off loans - I wonder when we will see some money coming in?
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I see it as further Negative.
HM were NOT actively doing it before this. ( 14 loans have been written off = NO Collections ever )
Now they are willing to have a Dutch Auction to Sell off Bad Debt to a 3rd party.
To me this is HM just washing their hands even more vigorously of the Investors Interest. ( Literally plus Capital!! )
@Myles > My take from the HM Email was that HM were getting out of Debt Collections and just going to Outsource the Debt ( ie Sell the failed loan ) and that is all total sum of funds that will be recovered ( the Sale Fee ) any further recovered funds by the 3rd party company become THEIR PROFITS!
I can't see where there is any suggestion that Harmoney is "getting out of Debt Collections", their current process is to hand off to a third party after 120 days, they are now just adding in the process of selling off that debt for a partial return on those that they see as unlikely to return dollars to investors. If it costs Harmoney more to pursue a debt than it's worth, then there is no point in pursuing it - investors will see no return from it... Of course the 3rd party needs to make a profit!? - the overall result should be that investors see some return rather than none...
I guess it is possible for a minority.
For the average retail investor on 33% marginal tax, and not in the business of lending, with an average before tax RAR of 13% that would equate to an after tax return of about 8% as effective tax would be more than 33% on the Harmoney supplied before tax RAR. You need to allow for the tax effect as a result of the RAR reflecting the average 20% of gross interest being eaten up as a capital loss (charge offs.)
i think outsourcing collection to a good quality specialist collector could be good if it allows Harmoney to concentrate on improving the quality of its lending.
You can always look for a negative in anything Harmoney does, but if you feel that way you probably should not invest with them. As I have previously posted I have not seen much action on following up charged-off loans in the past, so if we are going to get a few shekels for what I had considered lost money up until now, well it sounds good to me. I don't understand why anyone would think that Harmoney will not continue to chase the easy pickings (i.e. pre charge-off arrears). Nothing in their email to lenders suggested that.
I suggest that Harmoney investors need to carefully consider what the tax acts say about lending losses. Section DB31 states that a person is allowed a deduction for a bad debt written off in an income year. There are limitations but it seems to me that Harmoney investors are generally entitled to claim loss deductions under sub sections 2 and 3. Don't take my view as gospel, but have a good think about matters before accepting that you aren't entitled. If you are deriving taxable income from your activities, are you not "in business"?
On another note, I don't recall ever seeing stats on what percentage of loan charge offs has been recovered by collection action. If anyone can point me to such info I'd appreciate it, as it seems there is a lot of speculation about what Harmoney may or may not be doing, but no data available to assess the recent email advice.
Definitely seek advice.
I agree there could be a good point that if you invest in many fractionalised notes through Harmoney that you could be said to be "in business". However there has been no ruling on this point and Harmoney is not bothering to seek a ruling, claiming that all their depositors have "different circumstances." There has been no general ruling as to how charge-offs should be treated, irrespective of the individual investors being "in business" or not.
If you use Harmoney's auto-invest to invest in Harmoney notes are you in a business?
If you log into the website several times a day to invest in notes are you in business?
Investors on the Harmoney platform are covered by the financial arrangement rules but may or may not "be in business"
It would be great to have clarity and for all P2P investors to be covered by the same rules as to deductibility of fees and charge-offs. A real peer-to-peer scenario? However NZ has not made such a ruling.
When all those finance companies collapsed, many small portfolio depositors ended up with bad debts which ended up not being deductible for tax purposes.
DYOR.