If this code was complied with I am not sure we would have very many finance companies in operation because they would not have enough customers
to survive.
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Just doing a little more research on the linked story and having read the 'actual' facts of the case, it appears Harmoney bent over backward to help solve the issue and fall in line with what was expected!
Seems like a responsible business, trying to do the right thing to me?
Oh i wasn't suggesting that it was inappropriate. It just provides quite a difficult threshold to pass before granting a loan.
The code is 64 pages. I only invest in loans that I think based on the limited information we are given would have a reasonable chance of
being in compliance with the spirit of code.
The following gives a pretty good idea of the requirements however and is directly from the act.
- (3) The lender responsibilities are that a lender must, in relation to an agreement with a borrower,—
- “(a) make reasonable inquiries, before entering into the agreement, so as to be satisfied that it is likely that—
- “(i) the credit or finance provided under the agreement will meet the borrower's requirements and objectives; and
- “(ii) the borrower will make the payments under the agreement without suffering substantial hardship; and
- “(b) assist the borrower to reach an informed decision as to whether or not to enter into the agreement and to be reasonably aware of the full implications of entering into the agreement, including by ensuring that—
- “(i) any advertising is not, or is not likely to be, misleading, deceptive, or confusing to borrowers; and
- “(ii) the terms of the agreement are expressed in plain language in a clear, concise, and intelligible manner; and
- “(iii) any information provided by the lender to the borrower is not presented in a manner that is, or is likely to be, misleading, deceptive, or confusing; and
- “(c) assist the borrower to reach informed decisions in all subsequent dealings in relation to the agreement, including by ensuring that—
- “(i) any variation to the agreement is expressed in plain language in a clear, concise, and intelligible manner; and
- “(ii) any information provided by the lender to the borrower after the agreement has been entered into is not presented in a manner that is, or is likely to be, misleading, deceptive, or confusing; and
- “(d) treat the borrower and their property (or property in their possession) reasonably and in an ethical manner, including—
- “(i) when breaches of the agreement have occurred or may occur or when other problems arise:
- “(ii) when a debtor under a consumer credit contract suffers unforeseen hardship (see section 55):
- “(iii) during a repossession process (including by taking all reasonable steps to ensure that goods and property are not damaged during the process, that repossessed goods are adequately stored and protected, and that the right to enter premises is not exercised in an unreasonable manner); and
- “(e) ensure, in the case of an agreement to which Part 5 applies, that—
- “(i) the agreement is not oppressive:
- “(ii) the lender does not exercise a right or power conferred by the agreement in an oppressive manner:
- “(iii) the lender does not induce the borrower to enter into the agreement by oppressive means; and
- “(f) meet all the lender's legal obligations to the borrower, including under this Act, the Fair Trading Act 1986, the Consumer Guarantees Act 1993, the Financial Service Providers (Registration and Dispute Resolution) Act 2008, and the Financial Advisers Act 2008, which include—
- “(i) obligations in relation to disclosure, credit fees, unforeseen hardship applications, and credit repossession under this Act; and
- “(ii) prohibitions on false or misleading representations and unfair contract terms under the Fair Trading Act 1986; and
- “(iii) the guarantee that the service of providing credit and any other services will be carried out with reasonable care and skill under the Consumer Guarantees Act 1993.
I am not sure how you can "assist the borrower to reach an informed decision as to whether or not to enter into the agreement " with respect to a consumer loan to purchase a car for 10k at 38.25 % with repayments of 1/4 of the persons income for example.
Not what you originally were suggesting, i.e. not sure we would have very many finance companies in operation, but the above is not 'against' the code, provided the borrower has been made aware - it is still their choice to take on a ridiculous interest rate, but if that's all they can get then that's a decision for them, not the lender. Unless there is some reason that they cannot repay the loan.
When I purchased my first car I paid around 1/2 my salary towards a loan (around 11% back then I think...), I would do it again. Living at home for half the year, good permanent employment, reasonable income, a car was a requirement for me...
If you look at the process that Harmoney go through for borrowers, it matches the requirements. Though I agree that I've seen some loans that look questionable as to whether the borrower can 'afford' them, but we don't have the complete picture...
At least the P2P Companies are fundamentally NOT Market traders and trading markets.
So not subject to Stock Market or Currency crashes.
I'm thinking ( as our deposits are all lent out ) the worse that may happen is scores of Fictitious loans get written and the proceeds are misappropriated.
Any other ideas how this all could go wrong ( apart from the obvious of genuine write offs )
If write-offs got really bad (like the finance company scale losses) it would be associated with a massive economic turmoil and other asset classes would be affected, possibly to a greater extent given gearing.
If Harmony went bust the book could be sold to or collected by any number of finance companies.
Biggest risk of total loss would be a catastrophic computer failure like a virus which wiped all records including backups and other sources for a forensic reconstruction - hard to see that happening outside of a disaster movie but of course we diversify just in case!
I have made an analysis of my Auto-lend loans, the majority were taken between October and December last year.These loans are only 5-7 months old now and 12.63% of my A/Ls' are in arrears. (Grade range A5-D3) Yet all my other active loans, minus the A/Ls', taken over the last 2 years manually are only 3.32% of the total in arrears. Half of these are in the E and F grades.
This leads me to think that there is one Auto-lend filter that can never be made available- "gut-feeling"; when I view a loan manually, as well as a financial evaluation I also get an overall impression or "gut-feeling" as to whether I should take the loan or not. I reckon I have been quite successful with limited arrears and defaults in A_D grades.
So has anyone had any luck getting money recovered on defaulting loans?
Just want to check out that Harmoney's collection service isn't some sham marketing.
Ive had no successful collections albeit from a smaller sample of 5 loans on 2.2k of lending.
Here are some ideas that spring to mind:
- Lending money is easy; it's getting it back that is the tricky part - and that is only seriously tested during a downturn. It sounds like Harmoney is not recovering much of it now during a booming economy, it will probably be a lot worse during a slow economy.
- Harmoney's methodology to assess the borrowers and deciding whether or not these borrowers should be put through the platform for funding.
- Harmoney has not been through a full credit cycle so it's difficult to assess the experience of the management team.
- It's unclear what the full ramifications would be if Harmoney went out of business.
- Change their loans underwriting model in order to increase their volume of loans.
- Their continued ability to identify fraud by borrowers.
- Unreliable forecasts of ROI and default rates.