Effective from 8 May 2018
Harmoney Limited (Harmoney) is required under the Financial Markets Conduct Act 2013 (Act) to provide a disclosure statement in respect of its licensed peer-to-peer lending service to retail and wholesale investors who are investing using Harmoney’s service. This document is Harmoney’s disclosure statement.
Licensing and registration
Harmoney is licensed under the Act by the Financial Markets Authority (FMA) 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 peer-to-peer lending service and a broking service.
What is the service which Harmoney provides?
Harmoney provides a peer-to-peer lending service, under which individuals may seek loans to be funded by retail investors and/or wholesale investors through this service (the Peer-to-Peer Service). Some of the loans may include an optional service, such as the repayment waiver feature noted under “Payment Protect” below. 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 by Harmoney are available on the Harmoney website at www.harmoney.co.nz.
Harmoney also operates a separate Wholesale Funding Model, where individuals may have their loans funded by wholesale investors. When Borrowers apply for a loan on Harmoney’s website they are automatically allocated to be funded through either the Peer-to-Peer Service or the Wholesale Funding Model. Borrowers are not treated any differently based on whether their loans are funded from either funding source. The Wholesale Funding Model is explained in more detail under ‘Wholesale Investors’ below.
What are the key risks of using this service?
Participating in peer-to-peer loans through Harmoney’s service has the potential to provide Investors with greater returns, but may also carry a higher level of risk and provide for less liquidity than traditional investments, such as bank deposits and investment-grade bonds. It may therefore not be suitable for all investors.
Accordingly, prospective investors should assess for themselves whether investing through Harmoney’s peer-to-peer lending service is suitable for them in light of their particular financial circumstances and goals and should if necessary obtain independent financial advice.
Some of the key risks of lending on Harmoney’s peer-to-peer platform which investors should consider carefully before investing include:
|Credit risk|| |
Borrowers who are lent Investors’ funds may delay making their repayments or default on loans. The sole recourse for repayment is to the Borrower. There is no security for the loan and no person guaranteeing the loan. Where a Borrower fails to make payments Investors will not receive part or all of their principal and interest payments that are due to them.
Harmoney has robust systems to determine the suitability of a Borrower and his or her ability to afford loan repayments. Harmoney may take debt recovery steps, which may or may not recover any funds. Harmoney may also sell loans to a collection agency or third party. If it does so, Investors will receive a proportionate share of the net loan sale proceeds.
|Borrower risk|| |
Investors may be affected by differences in the creditworthiness of Borrowers in the event of late payment or default. In addition, a Borrower’s creditworthiness may change over time, reducing potentially their ability to repay a loan. Harmoney’s assessment of a Borrower’s creditworthiness for a loan is made as at the date of their loan application. If a Borrower does not repay their loan Harmoney will take debt recovery steps and may sell loans to a collections agency or third party, as outlined above.
|Liquidity risk|| |
Investors may suffer loss from other events through their inability to sell a loan investment or demand early repayment (should they need their funds early). Harmoney’s licence terms do not permit secondary trading of investments and Investors cannot demand early repayment of a loan. Only Harmoney is entitled to require Borrowers to repay the total amount outstanding on a loan if Borrowers breach their loan contract.
Investors are only able to withdraw or reinvest their funds if they have funds available in their Investor account. Investor funds may also need to remain on loan beyond the initial term if the Borrower(s) to whom their funds are lent have not repaid their loan(s) in full when they fall due.
|Fraud risk|| |
Harmoney has a thorough and robust credit assessment process to guard against fraudulent applications. There is, however, a risk that Borrowers may be fraudulent, with no intention to repay.
Borrowers may be the victims of identity theft, in which case the person receiving the money has misappropriated the details of the person whose identity has been used to apply for the loan.
Borrowers may also fabricate their expenses, liabilities, or income. In such cases, they may be unable to afford to repay a loan and may default on their loan obligations. It may also mean that Harmoney assigns a risk grade which does not accurately reflect the Borrower’s risk and therefore that Borrower’s ability to meet his or her loan obligations.
|Fraud source conflict risk|| |
Harmoney sources funds for loans from investments made by Investors through its peer-to-peer platform. In addition, certain wholesale investors may also invest in loans through Harmoney Nominees Limited (acting as a trustee for those wholesale investors). When Borrowers apply for a loan on Harmoney’s website, they are automatically allocated to be funded through the peer-to-peer platform or the Wholesale Funding Model in accordance with Harmoney’s Loan Allocation Policy.
Harmoney manages the potential conflict that could arise between obtaining funds from these two different funding sources by maintaining an allocation model where loans are funded from both sources. This policy is designed to ensure funds are allocated to loans without regard to whether the funds were sourced from the peer-to-peer platform or the wholesale funding model (described under ‘Harmoney’s Loan Allocation Policy’ below).
|Loan availability risk|| |
There may be insufficient new loans available at any time on the peer-to-peer marketplace that meet an Investor’s criteria for investing, and consequently the Investor’s available cash (being the cash it deposits in the Investor Account for investment, together with any repaid principal and interest held for it in the Investor Account for reinvestment) may not be able to be invested.
|Early repayment risk|| |
A Borrower can repay his or her loan at any time. Should a Borrower decide to repay early, then an Investor will not receive the total interest income that would have been earned had the loan run to its full initial term. Current experience shows that a substantial proportion of loans are repaid before maturity.
|Concentration risk|| |
Investors who do not diversify their investment across loans and risk grades could face exposure to a concentration of Borrowers of the same type. Having a spread of investments across various Borrowers and risk grades should provide an Investor some protection from a Borrower default.
|Operational risk|| |
Harmoney regularly monitors and updates its internal systems to seek to gain efficiencies and improve service standards and experiences. However, there is a risk of financial loss and/or damage to Harmoney’s reputation if there is a failure of Harmoney’s information technology systems, internal processes, people, or operating systems. This could also arise from external factors such as failure of a supplier to provide a service at agreed service levels or an unforeseen disaster. Should any of those events occur, this could have an adverse effect on Harmoney’s financial performance and on the performance of loans.
|Regulated loan risks|| |
Borrowers generally have protections under the Credit Contracts and Consumer Finance Act 2003 (CCCFA). Investments in loans may be affected if a Borrower exercises certain rights under the CCCFA, including seeking a repayment variation due to hardship (which may affect the length of time taken to repay their loan).
|Macro risks|| |
There are several factors that may affect Harmoney’s Peer-to- Peer Service over which it has little control. These include an economic recession, political turmoil, changes in interest rates, natural disasters, and terrorist attacks, some of which may affect a Borrower’s ability to make loan repayments.
Harmoney regularly monitors local and global economic and business conditions in order to identify and assess any potential risks that may affect Harmoney’s business operations. However, economic conditions are not always predictable, and significant changes in the New Zealand economy could have an impact on Harmoney’s business and the performance of loans.
|Cybersecurity risk|| |
Harmoney is an online web-based business. As such, Harmoney relies heavily on information technology and computer based- systems that could be a target for illegal hackers. Harmoney is very aware of this risk and therefore has security measures and systems in place that are designed to ensure the system’s security. A security breach is a possibility and should this occur it may materially affect Harmoney’s ability to operate and to provide access to loan information and loan recoveries.
|Legislative and regulatory risk|| |
Failure by Harmoney to comply with (or changes in) laws, codes of conduct and policies could result in loss of Harmoney’s peer- to-peer licence, in legal action, and in financial loss.
|Risks with Payment Protect|| |
Investors who fund a loan that has Payment Protect have the potential to earn a greater return on it, but also face additional risks, as detailed under “Payment Protect” below.
The information in this Disclosure Statement should not be taken as financial advice and is intended to provide information only, without considering an Investor’s investment objectives, financial circumstances or specific needs. Other risks may exist in addition to those identified above. Investors should consider the risks in light of their personal circumstances and, if necessary, seek independent financial advice before deciding whether to invest.
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 Peer-to-Peer Service as a retail 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; and
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 registration and application process set out on the Website, which requires the person to:
- provide details about themselves (including full name and contact details and New Zealand bank account number);
- provide suitable documentary evidence of their identity;
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 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 customer service terms.
How are loans made using the Harmoney Peer-to-Peer 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
- income and expenses
- assets and liabilities
- whether the Borrower wants Payment Protect cover for the loan, and if so what level of cover is sought.
Harmoney will 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, requesting a loan for that amount and for that term.
Submitting Loans to the Peer-to-Peer marketplace
Details of loans requested by Borrower that are allocated to the peer-to-peer marketplace will be listed on the Website. Only persons who are registered Investors will be able to view the complete details of that loan submission, 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 in the loan submission, or at any other time.
A loan listing will be displayed on the Website for consideration for 14 days or until the loan has been fully funded (whichever occurs first). “Fully funded” means that orders have been placed for the full loan amount or (if applicable) the lesser amount the Borrower is prepared to accept, as specified in the loan submission.
Harmoney may allocate certain loans sought by Borrowers to wholesale investors for funding either via the peer-to-peer marketplace or through the Wholesale Funding Model marketplace as discussed under ‘Wholesale Investors’ below.
A person who has successfully registered as an Investor will be able to access the Website to view submitted loans.
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.
Investors can see and assess individual loan submissions prior to placing orders on them. They also have the option of placing orders through the Website’s auto-lend function (based on the investment criteria and subject to the investment limits they have specified), as described in the Investor Agreement.
Once a loan is fully funded (as defined above), a loan contract will be formed between the Borrower and the Trustee (as bare trustee for the Investors who are funding the loan), 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 Peer-to-Peer 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 and a specified event occurs, the Borrower will not be liable to make certain repayments under the loan (being the monthly payments that would otherwise have fallen due after the Borrower provided written notice of the relevant event to Harmoney as agent for the Trustee, subject to applicable cover limits). The specified events covered by Payment Protect and the different levels of cover are set out on the Website. If Payment Protect applies to a loan, additional terms are added to the loan contract setting out the waiver arrangement.
If a Borrower notifies Harmoney (as agent for the Trustee) that an event for which the Borrower has cover has occurred, Harmoney will suspend direct debiting the Borrower’s bank account for further monthly repayments while Harmoney assesses the waiver application. Consequently, there may be some delay before Investors receive payments in respect of which a Borrower unsuccessfully applies for a waiver.
Investors who fund a loan that has Payment Protect bear the risk that the Borrower may cease to be liable for certain loan repayments. However, for the extra risk they receive an additional fee that the Borrower pays over the term of the loan, and that fee 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 ceases to be liable for monthly repayments, they may not recover their interest in the unpaid Payment Protect fee for that particular loan in full or at all.
Another risk arises if a Borrower decides to repay the loan in full early. If that happens, the Borrower is entitled to a proportionate rebate of the Payment Protect fee (which will have been capitalised into the loan principal, as noted above). The rebate amount will be deducted from the loan balance, giving the final repayment amount the Borrower has to pay. As a result, the Investors (through the Trustee) will not receive all the additional principal they would 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 uses two funding models in order to make loans to Borrowers. These are:
- the Peer-to-Peer Service, where Borrower loans are funded from investments by retail and wholesale investors through its peer-to peer marketplace; and
- a wholesale funding model, where Borrower loans are funded from investments by wholesale investors (Wholesale Funding Model).
Borrowers are treated the same regardless of whether their loans are funded from the Peer- to-Peer Service or the Wholesale Funding Model. Loans are allocated for funding from either source in accordance with Harmoney’s Loan Allocation Policy described below.
Retail investors who invest via the Peer-to-Peer Service will be treated equally from a loan investment availability perspective. Loans will be made available to both classes of investor under the Peer-to-Peer Service as set out in the “How does Harmoney manage its marketplace” section below.
Wholesale Investors under the Peer-to-Peer Service
Harmoney may approve wholesale Investors to invest in loans through the Harmoney Peer- to-Peer Service. The terms on which a wholesale Investor may invest (including as to fees payable by the wholesale Investor in connection with a loan or related optional service) will be as agreed with Harmoney. Wholesale Investors may participate in funding loans similar to any other retail Investor using the Harmoney Peer-to-Peer Service.
Wholesale and retail Investors fund loans through the Harmoney Peer-to-Peer Service on a fractionalised basis. Loans funded via the Peer-to-Peer Service are made by Harmoney Investor Trustee Limited, which acts as a bare trustee for all the investors who fund the loan (see ‘Investment by Trustee’ above). Borrowers are liable to the Trustee and will deal only with the Trustee (through Harmoney acting as its agent) not with the underlying investors.
Wholesale Investors under the Wholesale Funding Model
Under the Wholesale Funding Model, loans are made by Harmoney Nominee Limited (the Nominee), which acts as a bare trustee for all of the wholesale Investors who choose to fund loans through the Nominee. The Wholesale Funding Model is not available for retail investors and is separate and distinct from the Peer-to-Peer Service described in this Disclosure Statement.
Loans are allocated for funding via funds sourced from the Wholesale Funding Model in accordance with Harmoney’s Loan Allocation Policy described below. This means that a certain percentage of loans will be randomly allocated for funding from that source.
How does Harmoney manage its marketplace?
Harmoney endeavours to manage loan flow so that each marketplace will show a representative proportion of the overall risk spread of Borrowers approved to list (subject to the exclusions below), so that Investors to whom loans or participations in loans are allocated do not have any undue preference. Not all loans that are approved for submission to the marketplace are shown in the marketplace, for the reasons listed below.
Loan submissions not shown on the Website relate to:
- a new product, service, or feature
- change in risk underwriting process, or policy
- loan flow into the marketplace
- loans funded 100% through the auto-lend option.
Further information on Harmoney’s marketplace management is set out on the Website.
Harmoney’s Loan Allocation Policy
Harmoney’s loan allocation policy is designed to allocate loans between the wholesale and retail investor marketplaces on a fair, reasonable and equitable basis to ensure that each marketplace receives a representation of the overall risk grade of Borrowers approved to submit their loan (Loan Allocation Policy).
Harmoney sets a loan allocation percentage for each marketplace. Harmoney does not select specific loans to be allocated to either marketplace. Harmoney may, from time to time where it receives high loan application volumes or a higher proportion of funds from wholesale or retail Investors, allocate a greater proportion of loans to be funded from either the Peer-to-Peer Service or Wholesale Funding Model. Harmoney’s Loan Allocation Policy seeks to ensure that over time there is a representative sample of loan applications available in each marketplace.
How is money provided by Investors dealt with by Harmoney?
Harmoney holds 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 submission 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 may of its own accord transfer such amounts back to the Investor.
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.
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 a Borrower gets 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 any time 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 Harmoney to 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.
If a Borrower makes a successful application for undue hardship, the loan contract will be varied to provide relief to the Borrower as set out under the Credit Contracts and Consumer Finance Act 2003.
If a Borrower to whom Investor funds are lent defaults on a loan, and Harmoney is unable to recover the outstanding debt owing, Harmoney may assign the defaulted loan to a third party, such as a collections agency, for an amount it is able to negotiate. Once a loan has been sold to a collections agency, Investors may not benefit from any recoveries that may then be made from that Borrower, but Investors will receive their proportionate share of the net loan sale proceeds.
See further the section “The Collections Process” on the Website.
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 interest is payable by Borrowers?
A Borrower is charged interest on the amount he or she owes, calculated as a percentage of the loan amount (as set out on the Website).
If a Borrower repays a loan or any portion of it early, the prepaid amount will not bear further interest. Similarly, if a Borrower repays a loan and that loan is rewritten, the original loan will have been repaid in full with no further interest earned on it. As a result, the Investors (through the Trustee) will not receive interest on the prepaid or rewritten amount as the loan has been repaid.
What charges are payable by Borrowers?
Harmoney will charge Borrowers an establishment fee for using the Harmoney service. The establishment fee is due under the Customer Service Terms, 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 are liable to pay monthly account fees on their loan accounts, as well as 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 Customer Service Terms and the Loan Contract (as applicable).
What fees are charged to Investors?
Fees for loan administration and collection services – retail Investors
Harmoney will receive two types of fees for the administration and collection services it provides to the Trustee for the benefit of a retail Investor in respect of a loan:
- Harmoney will charge a retail Investor (through the Trustee) a fee (“Lender Fee”), being a percentage of that Investor’s share of the interest amounts Harmoney recovers. The Lender Fee will be calculated on the basis of a percentage-based tiered structure that recognises the principal amount which the particular Investor has outstanding on the platform. It will be paid as a deduction from the interest component of loan repayments recovered. Harmoney is not entitled to payment of the Lender Fee except out of the interest component of loan repayments it actually recovers.
- Additionally, Harmoney will be paid a fee (“Loan Administration Fee”) that is equal to the retail Investor’s share of all fees and charges payable by the Borrower under the loan (not being fees for optional services such as the Payment Protect Fee) – eg of all account maintenance fees and any overdue fees and dishonour fees the Borrower must pay. Harmoney is not entitled to be paid the Loan Administration Fee except out of the fees and charges it actually recovers from the Borrower. In practical effect, the Loan Administration Fee is not a net cost to retail Investors (through the Trustee).
Fees for loan administration and collection services – wholesale Investors
Harmoney will charge a wholesale Investor the fees from time to time agreed between Harmoney and the wholesale Investor.
Fees for Payment Protect services
If a Borrower takes out Payment Protect, Harmoney will charge Investors 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 retail 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.
What other financial benefits may Harmoney receive?
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 Peer-to-Peer Service.
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 Peer-to-Peer Service as Borrowers.
Harmoney, its related companies, and any of their directors, shareholders, employees and advisers (in their own capacities) may use the Harmoney Peer-to-Peer 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 the Peer-to-Peer Service. Harmoney may invest in loans via the Wholesale Funding Model from time to time through Harmoney Nominees Limited.
What interests does Harmoney have which may materially adversely impact on Harmoney’s ability to have fair, orderly and transparent systems and processes?
Harmoney makes every attempt to align interests of all stakeholders including shareholders, employees, Investors, and Borrowers. Conflicts of interests are pro-actively sought out and wherever possible Harmoney will attempt to align interests. Where this is not possible Harmoney looks to ensure the following:
- That the conflict is clearly disclosed in a timely fashion and wherever possible on our website and in documentation.
- Harmoney systems and processes are designed to ensure that operations continue in a fair and orderly way pro-actively managing any conflict of interest to a set of agreed principles or within a committee charter.
- Wherever possible Harmoney looks to separate compliance roles including managing conflicts from those other roles focused on revenue.
Potential conflicts for retail Investors
Known potential conflicts for retail Investors that Harmoney manages include:
|Assessing, grading and pricing of Loans|| |
Harmoney recognises that a conflict may arise when it assesses, grades and prices loans, between its interest in earning revenue from fees (such as Investor fees) and the Investors’ interest in ensuring that all loans are assessed, graded and priced accurately.
Harmoney manages this conflict by ensuring that all Borrower loan applications are assessed objectively using robust systems and processes in line with its Credit Policy. Harmoney also notes that the ultimate performance of loans is based on the Borrowers meeting their repayment obligations.
|Investment in loans|| |
Harmoney considers there may be a conflict where it invests, or arranges, for a related party of Harmoney to invest, in loans through the Wholesale Funding Model. Harmoney manages this conflict by: (i) ensuring that loans are allocated to the Peer-to- Peer Service or Wholesale Funding Model marketplaces to ensure that each marketplace receives a representation of the overall risk grade of Borrowers approved to submit their loan; and (ii) ensuring that loans are treated equally regardless of their source of funding.
|Repeat Borrowers|| |
Harmoney considers there may be a conflict between interests of Investors and Borrowers from its goal to retain good quality Borrowers by offering refinancing options and Investors’ interest in continuing to earn interest on the original loans offered to those Borrowers. For example, if Harmoney offers a repeat Borrower refinanced credit to repay their existing loan, the Investors who fund that loan will be repaid early (and thereby lose the opportunity to continue to earn revenue over the full life of that loan). Harmoney manages this conflict through controls that set limits on refinancing loans.
|Allocation of Lending Capital between retail and wholesale Investors|| |
Harmoney considers there may be a conflict between the differing revenue amounts it earns from retail Investors and wholesale Investors investing in loans via both the peer-to-peer and wholesale funding models. Harmoney seeks to manage this conflict by (i) ensuring that loans are allocated on a quantitative/volume basis rather than a qualitative/quality basis in accordance with its Loan Allocation Policy; and (ii) not including any preference over any other wholesale or retail Investor for credit quality.
|Loan volume allocation to wholesale investors|| |
Harmoney has contractual obligations with wholesale Investors who may have either an expectation or a contractual right to a certain volume of loans. These arrangements are entered into in return for wholesale Investors providing liquidity to the platform. Harmoney seeks to manage this potential conflict by applying the Loan Allocation Policy, which requires that loan allocation does not prefer one investor over others for credit quality.
|Specific loans allocated to wholesale Investors|| |
Harmoney may occasionally offer selected loans to wholesale Investors as part of its marketplace management role, e.g. if it is testing new features and services, including new products, or where it is testing changes to its risk underwriting policy or process. Harmoney may choose to test these changes exclusively with wholesale Investors.
Harmoney considers this may create a conflict of interest because selected loans will not be made available to retail Investors to invest in. Harmoney manages this potential conflict by ensuring that any such decision to test changes with wholesale Investors and offer selected loans to them is made in accordance with its Loan Allocation Policy, which is designed to ensure that loans are allocated between wholesale and retail Investors on a fair, reasonable and objective basis (see ‘Harmoney’s Loan Allocation Policy’ above).
|Shareholders investing on the platform|| |
Harmoney considers a conflict may arise if shareholders invest on the platform. Harmoney manages this potential conflict by ensuring that shareholder investments in loans are not treated any differently from investments made by others and ensuring that the majority of directors of Harmoney Corp Limited are independent.
Monitoring of compliance by the Borrower with its obligations and recovery 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.
The recovery action Harmoney can take includes:
- appointing a collections agency;
- suing the Borrower;
- entering into settlements; and
- selling a loan that has been “charged off”. A loan is charged off if it is in default and Harmoney considers that it is not recoverable (which generally happens once the loan has been overdue for 120 days). Investors authorise the Trustee to assign loans for this purpose.
Importantly, an Investor does not have any right to pursue a Borrower directly where a default has arisen or at any other time. Only Harmoney can take this action.
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 firstname.lastname@example.org
- by calling the Harmoney helpdesk on 0800 HARMONEY or 0800 427 666
- by writing to Harmoney the address on the Website.