Under the Financial Markets Conduct Act 2013 (Act) and the Regulations under the Act, Harmoney is required to provide a disclosure statement in respect of its licensed peer-to-peer lending service to retail investors who are investing using Harmoney's service. This document is Harmoney’s disclosure statement.
This disclosure statement is dated 9 June 2016.
This document is a summary only, and therefore reference should be made to the Harmoney website at www.harmoney.com (Website) which sets out the detailed terms on which Harmoney provides a peer-to-peer lending service (and associated services) in New Zealand.
Licensing and registration
Harmoney is licensed under the Act by the Financial Markets Authority to provide a peer-to-peer lending service in New Zealand.
Harmoney is also registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 to provide a broking service.
What is the service which Harmoney provides?
Harmoney provides a peer-to-peer lending service, under which individuals may seek loans, (some of which may include Payment Protect) which loans may be funded by retail investors and/or wholesale investors through the Website. Harmoney may also provide or make available ancillary services to its peer-to-peer lending service, such as credit checking.
Full details of the terms on which Harmoney provides its peer-to-peer lending service, and of the terms that apply to loans and optional services arranged or provided through the Website, are set out in the following documents, which are available on the Website:
- Investor Agreement
- Borrower Agreement
- form of Loan Contract
- Additional Loan Contract Terms for Payment Protect
- Fair Dealing Policy
- Conflict of Interest Policy.
How do potential investors apply for and obtain access to the Harmoney service?
Investors can be either individuals or corporate entities.
Any person wishing to access and use the Harmoney service as an Investor must complete the Investor application process set out on the Website, which requires the person to:
- provide details about themselves (including full name and contact details, IRD number, New Zealand bank account number);
- provide suitable documentary evidence of their identity;
- agree to the terms of the Investor Agreement.
Harmoney can refuse to accept any person as an Investor if that person:
- has not completed the registration process to Harmoney's satisfaction; or
- does not satisfy the eligibility criteria for being an Investor (as set out below).
Harmoney’s eligibility criteria for registering a person as an Investor are as follows:
- The person must satisfy Harmoney's “know your customer” requirements.
- In addition, if the person is an individual, he or she must:
- be a New Zealand resident (which Harmoney will verify through the person having a New Zealand residential address and a bank account with a registered New Zealand bank); and
- be 18 years of age or older when registering.
Harmoney may terminate (or in some circumstances, suspend) a person’s status as an Investor at any time in accordance with the Investor Agreement.
How do potential borrowers apply for and obtain access to the Harmoney service?
Only individuals can be Borrowers.
Any person wishing to access and use the Harmoney service as a Borrower must complete the Borrower application process set out on the Website, which requires the person to:
- provide details about themselves (including full name and contact details, IRD number, New Zealand bank account number);
- provide suitable documentary evidence of their identity;
- agree to the terms of the Borrower Agreement.
Harmoney can refuse to accept any person as a Borrower if that person has not completed the registration process to Harmoney's satisfaction, or does not satisfy the eligibility criteria for being a Borrower (as set out below).
Harmoney’s eligibility criteria for registering any person as a Borrower are that the potential Borrower:
- must be an individual (that is, not a company, partnership, incorporated society, trust or other legal entity);
- must be a New Zealand resident, which Harmoney will verify through the person having a New Zealand residential address and a bank account with a registered New Zealand bank;
- must be 18 years of age or older when registering as a Borrower; and
- must have an acceptable credit record, as determined by Harmoney at its discretion.
Harmoney will apply its Fair Dealing Policy set out on its Website when considering any application by a person to be a Borrower.
Harmoney may terminate (or in some circumstances, suspend) a person’s status as a Borrower at any time in accordance with the Borrower Agreement.
How are loans made using the Harmoney service?
Investment through Trustee
Investors can invest in loans, in multiples of $25. All funds being invested in a particular loan by Investors will be pooled. A trustee (Trustee) will then use the pooled funds to make and hold the loan, as bare trustee for the participating Investors.
Accordingly, each Investor who has invested in a loan will have a beneficial interest in that loan and in the underlying loan contract, in proportion to the amount that Investor invested in that loan. That beneficial interest entitles the Investor to a proportionate share of:
- the principal amount lent to and repaid by the Borrower; and
- any returns on that loan (including any interest on that loan paid by the Borrower).
The Trustee must account to the Investor for that Investor's share of the money received from the Borrower (net of permitted deductions) as set out in the Investor Agreement.
The Trustee is currently Harmoney Investor Trustee Limited.
A person who has successfully registered as a Borrower may apply for a loan. The Borrower’s loan application will include:
- the amount sought
- the repayment term sought (which may be either 36 or 60 months)
- the purpose of the loan
- whether the Borrower wants Payment Protect cover for the loan, and if so what level of cover is sought.
Harmoney will then generate a proprietary credit score for the Borrower. Harmoney will use that credit score and the financial data provided by the Borrower to determine the Borrower's loan affordability and the maximum amount and term for the proposed loan to the Borrower, together with the applicable interest rate. The Borrower may then select the loan amount and term from the information provided by Harmoney. Following this selection by the Borrower, the loan listing will be listed by Harmoney on the Website.
Details of the Borrower’s requested loan will be listed on the Website. Only persons who are registered Investors will be able to view the complete details of that loan, which will include:
- the amount sought (and if applicable, any lesser amount the Borrower is prepare to accept)
- the interest rate which will be payable on the loan
- the monthly repayments on the loan
- the purpose of the loan
- whether the Borrower has selected Payment Protect for the loan.
The Borrower’s actual name and personal identifying details will not be made available to Investors in the loan listing, or at any other time.
A loan listing will be displayed on the Website until the earlier of 14 days from the date it is listed and the date on which the loan has been fully funded. “Fully funded” means that Investors have placed orders for the full loan amount or (if applicable) the lesser amount the Borrower is prepared to accept, as specified in the loan listing.
A person who has successfully registered as an Investor will be able to access details of all loans which are accepted by Harmoney for listing on the Website, except those loans which have been randomly selected by Harmoney as being available to be funded by wholesale investors only.
Investors may make an offer to fund a portion of any loan, by placing an order through the Website. The Investor must have sufficient funding in the Investor Account with Harmoney in order to cover that offer. Any order, once made, is a legally binding offer and cannot be revoked by the Investor.
If a loan is fully funded (as defined above) through orders from Investors within the 14-day listing period, a loan contract will be formed between the Borrower, the Trustee (as bare trustee for the Investors who are funding) and Harmoney (as agent for the Trustee), under which the Borrower agrees to repay the loan amount plus interest at the specified interest rate, over the term of the loan.
Under the Investor Agreement, the Trustee (as directed by each Investor) appoints Harmoney to settle the loan and to provide collection services in respect of the loan. The Trustee (as bare trustee for the Investors) will pay certain fees to Harmoney for providing those services. Those fees will be deducted from the payments the Trustee receives from the Borrowers. The Trustee will then hold the balance of those payments for the Investors in accordance with their proportionate shares.
Even though there will be a loan contract between the Borrower and the Trustee (for the benefit of each Investor who has funded that loan):
- the actual identity of the Borrower and the Investors who have funded the loan to the Borrower will not be made known to each other unless required by law (only Harmoney will hold these details); and
- the Investors will not be able to enforce the Borrower’s payment obligations directly against the Borrower; only Harmoney (acting as the Trustee's agent) will be entitled to take any enforcement action against the Borrower.
Any loans which are made through the Harmoney service are not guaranteed by Harmoney. There is no guarantee that any Investor will recover any or all of the amount advanced to any Borrower and/or any interest on that amount advanced.
Both Investors and Borrowers will be able to access details about their loans on the Website. Harmoney will not provide printed statements, but Investors and Borrowers will be able to print loan summaries from the Website.
Borrowers are able to opt into a service called Payment Protect (for a fee). If a loan is covered by Payment Protect, certain repayments that fall due after certain events occur will be waived (as set out in the Payment Protect terms available on the Website). Payment Protect is offered with different levels of cover, depending on the particular Borrower's requirements. If Payment Protect applies to a loan, additional terms are added to the loan contract setting out the waiver arrangement.
Investors who fund a loan that has Payment Protect bear the risk that the loan repayments may be waived. However, they are rewarded for the extra risk with an additional fee that the Borrower pays over the term of the loan and that accrues interest; together, this results in a higher yield to the Investor. This is because the fee the Borrower must pay for Payment Protect cover is added to the loan amount –and therefore the monthly loan repayments are higher relative to the amount actually invested by the participating Investors. However, Investors should be conscious that this capitalisation carries a risk: if the Borrower's monthly repayments are waived, they may not recover their interest in the unpaid Payment Protect fee for that particular loan in full or at all.
Another risk is the Borrower may fully prepay the Loan and be entitled to a proportionate rebate equivalent to the capitalised Payment Protect Fee for the remaining term of the Loan. As a result, the Investors (through the Trustee)will not receive the increased monthly interest payments for the remainder of the term of the Loan; and may not receive a portion of the principal it would have otherwise have expected in relation to the Payment Protect fee.
Under the Investor Agreement, the Trustee (as directed by each Investor) appoints Harmoney to arrange, enter into, and manage the Payment Protect arrangement. Harmoney will receive a sales commission and a management fee for those services, as discussed under “What charges are payable by Investors”.
Harmoney may approve wholesale investors to invest using the Harmoney service. The terms on which any wholesale investor may invest (including as to fees payable to Harmoney in connection with a loan or related optional service) will be as agreed with Harmoney. A wholesale investor's investments will fund loans in a manner similar to any other Investor using the Harmoney service, except that loans may be randomly selected by Harmoney in order to a meet a wholesale investor's criteria.
How is money provided by Investors dealt with by Harmoney?
Harmoney will hold an Investor Account with ASB Bank, into which Harmoney will deposit all funds it receives from investors for investment in loans. Any money paid to Harmoney by an Investor will be received by Harmoney into the Investor Account for the benefit of that Investor.
If an Investor makes an offer to fund all or part of a loan, the amount which has been offered by that Investor will be “locked'” in the Investor Account until the offer is accepted (by the relevant loan being fully funded) or the loan listing expires. On settlement of a loan, the Investor's funds will be transferred by Harmoney to an Advance Account, which is a trust account held by the Trustee with ASB Bank. Those funds will be aggregated with the funds of other Investors who are investing in that loan and whose funds are similarly held in the Advance Account. Harmoney (acting as the Trustee's agent) will then use the aggregated loan amount to settle the loan. Additionally, Harmoney will at settlement, transfer the Payment Protect Fees from the Advance Account into Harmoney’s fee account.
A Borrower will make loan repayments to the Collections Account, which is a trust account held by the Trustee for the benefit of all Investors who are invested in loans (to the extent of their entitlements) and which Harmoney transacts on the Trustee's behalf. Any recoveries made from a Borrower will similarly be paid into the Collections Account. Harmoney will: (i) deduct any required tax withholdings, as well as the fees which the Trustee (for the Investors) must pay Harmoney for Harmoney's services in relation to the loan; and (ii) then transfer each Investor's proportionate share of the balance of the amounts received from the Collections Account to the Investor Account for that Investor's benefit (where it will be available for reinvestment in other loans or for repayment to the Investor, depending on the Investor's instructions to Harmoney).
An Investor may withdraw any available amounts from its Investor Account at any time (subject to any banking restrictions and any loan offers which are outstanding at that time).
Harmoney and the Trustee are each registered under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 to provide a broking service, and are required to comply with that Act in respect of dealing with Investors’ and Borrowers’ money.
What checks and assessments are made by Harmoney in relation to Borrowers?
Harmoney will carry out credit checks and identity verification steps in respect of persons who wish to be registered with Harmoney as a Borrower. Details of these checks are set out on the Website.
Harmoney makes an assessment of the affordability of a loan for a potential Borrower based on the verified financial data provided by the potential Borrower, including income, expenses and debt servicing information.
It is important to note that a credit score attributed by Harmoney to a Borrower in respect of a loan:
- represents Harmoney's subjective interpretation of the information which has been provided to Harmoney by the Borrower and other information which has been obtained by Harmoney itself or through third party credit report providers;
- does not guarantee that the Borrower will in fact be able to (or will) repay all or part of any loan or all or part of any interest charged on that loan; and
- is a reflection of the information available to Harmoney at the relevant time and will not be updated by Harmoney during the term of any loan.
What happens if the Borrowers get into arrears?
The following key steps are taken by Harmoney (as agent for the Trustee) to ensure effective collection of debts.
- All Borrowers are required to agree to a direct debit authority as part of signing up for a loan. Borrowers can update their direct debit authority at anytime online or by contacting Harmoney directly.
- A succinct and regimented debt collection procedure is systemised. Harmoney’s platform methodically tracks and monitors all arrears transactions through the arrears lifecycle, to ensure appropriate action is taken at the right time.
- Arrears reporting is updated daily and monitored by Harmoney senior management.
- Regular internal reviews are undertaken by Harmoneyto ensure that procedures are followed and are effective.
- Harmoney applies the use of automated technologies including e-mail and 2 way SMS to maintain contact with Borrowers, to ensure efficiency and effectiveness is achieved in managing loans.
- Automated workflow tools direct collections activity, ensuring that items are actioned as per the collections plan.
- Harmoney also applies propensity modelling to the debt collection process to ensure that the applied arrears treatment with each Borrower is efficient. This means that more resource can be applied to the Borrowers that require it.
What will happen if Harmoney goes into liquidation or fails to carry out its collection activities?
If Harmoney goes into liquidation or ceases to hold its licence to provide a peer-to-peer lending service in New Zealand for a period of 5 business days, a back-up servicer has been contracted to carry out collection services in respect of the loan portfolio, and will collect repayments from Borrowers and make payments to Investors as the Trustee's replacement agent.
What disclosures are made in respect of any loan?
Harmoney will make a formal loan disclosure to the Borrower in compliance with the requirements set out in the Credit Contracts and Consumer Finance Act 2003 when Harmoney notifies the Borrower that its loan has been fully funded. The loan contract will be formed immediately after that loan disclosure has been provided to the Borrower.
What charges are payable by Borrowers?
Harmoney will charge Borrowers a platform fee for using the Harmoney service. The platform fee is due under the Borrower Agreement, and is paid at settlement, by way of a deduction from the principal amount of the loan prior to the balance of the loan amount being advanced to (or for the benefit of) the Borrower.
Borrowers may be liable to pay overdue fees or dishonour fees where loan repayments are late or dishonoured.
If enforcement action is required against a Borrower, any legal and associated third party costs incurred will be charged to the Borrower's account. The costs charged are due in the Borrower's next payment.
If a Borrower takes out Payment Protect, he or she must pay the Trustee a separate fee for that cover. The Payment Protect fee will be calculated as a percentage of the loan amount (as set out on the Website), and will be capitalised. If a Borrower who has taken out Payment Protect repays the loan in full early, he or she will be entitled to a proportionate rebate of the Payment Protect fee. This rebate will be calculated in accordance with a statutory formula.
A Borrower who has taken out Payment Protect will be responsible for certain costs, such as the costs of a medical examination required by Harmoney if the examination shows that he or she does not qualify for a waiver being claimed. If the Borrower does not pay those costs, Harmoney can pay them and add them to the loan.
A list of the current fees charged to Borrowers is available on the Website. The amounts (or calculation methods) and the types of fees charged in connection with the Harmoney service or under loan contracts are subject to modification from time to time in accordance with the Borrower Agreement and the Loan Contract (as applicable).
What fees are charged to Investors?
Harmoney will charge Investors, either a Lender Fee or Service Fee as applicable.
The Lender Fee is charged only on interest received, on a percentage based tiered structure that recognises the Principal amount Retail Investors have outstanding on the platform. The Lender Fee will be paid as a deduction from the interest component of loan repayments received from the Borrower, and will hold the balance of the loan repayments for the benefit of the Investors. Harmoney is not entitled to payment of the Lender Fees except out of the interest component of loan repayments actually recovered from the Borrower and as further described on the Website.
The Service fee is calculated as a percentage of the amount of each loan repayment (principal and interest) made by a Borrower. The Trustee (as trustee for the Investors) will pay the Service Fee e to Harmoney as a deduction from the loan repayments received from the Borrower, and will hold the balance of the loan repayments for the benefit of the participating Investors. Harmoney is not entitled to payment of the Service Fee except out of loan repayments actually recovered from the Borrower and as further described on the Website.
If Harmoney has to take steps to recover a loan which is in arrears, Harmoney will charge a collections fee. Harmoney's collections fee will be equal to the overdue and dishonour fees recovered from the Borrower (so that the collections fee will not be a net cost to the Investors). The Trustee (as trustee for the Investors) will pay the collections fee to Harmoney as a deduction from the overdue and dishonour fees received. Harmoney is not entitled to payment of the collections fees except out of overdue and dishonour fees actually recovered from the Borrower.
If a Borrower takes out Payment Protect, Harmoney will charge a sales commission for arranging the Payment Protect as well as a management fee for administering it. The sales commission and management fee are each calculated as a percentage of the Payment Protect fee, and are payable by the Investors (through the Trustee) on drawdown of the loan (with the Investors then having the ability to recoup that expense from the higher monthly payments made by the Borrower). If a Borrower who has taken out Payment Protect repays the loan in full early, Harmoney will refund the Trustee (for the benefit of the participating Investors) a proportion of the management fee and (if the prepayment was due to a refinancing through the Harmoney service) of the sales commission Harmoney received.
If a Borrower who has Payment Protect does not pay costs for which he or she is responsible under the Payment Protect terms, Harmoney may meet those costs. In that case, an amount equivalent to the costs Harmoney paid will be added to the loan balance. The Trustee (as trustee for the Investors) will then refund Harmoney's costs when the Borrower repays the amount added to the loan. Neither the Trustee nor the Investors have any liability to refund Harmoney's costs except out of the additional payment actually recovered from the Borrower. (In this way, the costs repayment is channelled from the Borrower to Harmoney, and the Investors do not bear those costs.)
A list of the current fees charged to Investors is available on the Website. The amounts (or calculation methods) and the types of fees charged are subject to modification from time to time in accordance with the Investor Agreement.
Can Harmoney (and its related companies) use the Harmoney service?
Harmoney, its related companies, and their directors, shareholders and employees are not entitled to use the Harmoney service as Borrowers.
Harmoney, its related companies, and any of their directors, shareholders, employees and advisers (in their own capacities) may use the Harmoney service as Investors at any time, subject to compliance with the Harmoney Conflicts of Interests Policy set out on the Website. Although Harmoney has the ability to be an Investor, it does not invest in loans arranged through its platform.
Harmoney and its related companies may be paid a commission or other financial benefit by any person in connection with any loan or the Harmoney service.
What interests does Harmoney have which may materially adversely impact on Harmoney’s ability to have fair, orderly and transparent systems and processes?
There are no relevant interests.
Monitoring of compliance by the Borrower with its obligations and enforcement on default
Under the Investor Agreement, Harmoney is appointed as the Trustee's agent to receive repayments of principal and interest from the Borrower and to seek to recover any amounts owing where the Borrower is in default of its repayment obligations.
Importantly, an Investor does not have any right to pursue a Borrower directly where a default has arisen or at any other time.
For more details about the scope of these obligations, see the Investor Agreement on the Website.
Complaints and dispute resolution
If you have a query or complaint about any aspect of Harmoney’s services, please contact Harmoney at the contact details set out above.
Harmoney is a member of the Financial Services Complaints Limited dispute resolution scheme. You may refer any dispute as to the provision of the Service by Harmoney to that dispute resolution service, details of which are available at http://www.fscl.org.nz/.
The Trustee is a member of the Financial Services Complaints Limited dispute resolution scheme. You may refer any dispute as to the performance by the Trustee of its obligations to that dispute resolution service, details of which are available at http://www.fscl.org.nz/.
Provision of information and contact details
You may contact us at any time as set out below to obtain at no charge an electronic copy of your Investor Agreement, this Disclosure Statement, and any other documents which relate to the licensed peer-to-peer lending service provided by Harmoney.
You will be able to obtain print-outs of your transaction information through the Website (Harmoney does not provide copies of transaction information).
If you have any questions, you can contact Harmoney as follows:
- by email at email@example.com
- by calling the Harmoney helpdesk on 0800 HARMONEY or 0800 427 666
- by writing to Harmoney the address on the Website.