How does Harmoney handle collections?
As the operator of the lending platform, we take the debt collection process very seriously. Harmoney's own in-house collections team manages any delinquent accounts.
We follow Responsible Lending principles and an industry defined process, to proactively contact borrowers who have repayment defaults, via SMS, email, and telephone to attempt to get them back on track. We manage these delinquent accounts through our own in house collections team. By utilising two teams, we are able to ensure maximum performance and results.
If we are unable to collect the debt from the borrower within 120 days, the loan moves into a "charged off" status. In some cases, loans may not be charged off at 120 days if there is a reasonable likelihood of payments being made. If any payments are made after a loan becomes charged off, the funds are transferred to the Lenders, as they still hold a beneficial interest in the loan.
What is the collections process?
We proactively start communicating with borrowers 5 days prior to the due date for a repayment. Many of our borrowers use direct debit to make their repayments, but for those who don't, these reminders help to ensure repayments are made on time.
We understand that there will always be unexpected life events that can create disruptions and sometimes payments get missed. In the first 5 days Harmoney will contact the delinquent Borrower via:
- Email (first written notice)
During this time, a member of the Harmoney Collections team will be assigned to manage the delinquent Borrower.
Over this time period, further attempts will be made by the Collections team to contact the borrower and arrange for immediate repayment. During this period a second written notice will be sent to the delinquent borrower informing them of the consequences of late repayments.
It is at this point that Harmoney will consider sharing the repayment delinquency with New Zealand’s Credit Bureau as part of CCR.
Over this time period, further attempts will be made by the Collections team to contact the borrower and arrange for immediate repayment. During this period a third written notice will be sent to the delinquent borrower informing them of the consequences of late repayments, including, but not limited to:
- Written Letter of Notice
Notice of adverse credit may also be passed to New Zealand's Credit Bureaus at this point.
The borrower is informed that they are now in breach of their repayment obligations under their Harmoney contract, and that Harmoney reserves the right to commence legal action. Further to this, a 'Notice of Demand' is issued to the Borrower.
If no attempt at resolution is made by the Borrower, the case is handed to our Recovery Team. However, at this point the aim is to continue with an attempt to collect the debt, and the Collections team will continue to work with the delinquent Borrower to reach an amicable solution.
A second written 'Notice of demand' is issued, as well as numerous further attempts at resolution.
This is the final opportunity for the Borrower to resolve the situation prior to further collections steps being taken. Failure to make payment at this stage may result in consideration of commencement of legal action, and the lodgement of a default on the Borrower's Credit file with New Zealand's Credit Bureau.
This stage represents the last possible stage for a borrower to make repayment before legal action is considered.If no attempt at remediation is made, the loan will move into a 'Charged Off' state, and the case handed over to an outsourced recoveries team.
If borrowers find themselves unable to reasonably keep up their loan repayments due to unexpected life event, they can apply for Unforeseen Hardship relief.
Unforeseen Hardship can happen due to illness or injury, a major life event (e.g. death of a loved one, divorce, loss of employment), or another reasonable cause.
Once Harmoney receives an application, including all supporting documentation, the hardship team will assess the application and make a decision on whether or not to approve the application for Unforeseen Hardship. If the application is successful one of the following will happen:
- The borrower may receive an extension to the term of their loan – this will reduce the amount they pay with each repayment, but increase the number of repayments;
- The borrower may have some of their repayments postponed for a set time; or
- The borrower may get a combination of the two – i.e. an extension of the loan term, and a a postponement of some repayments for a set period of time.
Not all applications will be successful, and there is stipulated criteria that a borrower must comply with in order to be granted relief on the grounds of Unforeseen Hardship.
Ultimately, it’s important to remember that borrowers who have their contracts varied, because of Unforeseen Hardship will still repay their loan in full – it may just take longer than initially expected.
First month delinquencies
First payment delinquencies can be common in lending, as borrowers attempt to arrange repayments around their monthly pay schedules, and establish a direct debit. This is typically because borrowers are so focused on completing their loan application, rather than thinking about the date for debiting of their loan repayments to come out. In these cases, the borrower is contacted by our Collections team and a new repayment schedule is established. The account will typically move back into "current" within a week.
What is a 'charged off' loan?
A charged off status indicates that a borrower has defaulted on their loan, usually due to bankruptcy, sickness, job loss, death, or other unforeseen circumstances. Typically, this means that we’ve exhausted our collections efforts and there’s a low statistical likelihood that we’ll be able to collect any funds from the Borrower; resulting in a capital loss for Lenders.
Once the loan is charged off, there may still be some chance of recovery of the outstanding debt via Debt Recovery; you would see this as a loan payment against the existing loan.
Debt recovery and debt sales
An important part of Harmoney’s collection and loss mitigation strategy is ensuring we are able to recover debt, both while it is still in arrears (pre-120 days) as well as when it has deemed to be charged off (post 120 days).
Accordingly, as part of Harmoney’s collections process, we have investigated a number of debt recovery professionals who are experienced in purchasing debt, and would be able to offer Harmoney’s lenders a return on their charged off debt – i.e. a percentage of every dollar charged off.
In addition, Harmoney has also engaged with a specialist debt recoveries broker to ensure a 360 degree view on debt recovery options.
Debt recovery is generally done post charge-off by selling a portfolio to an external agency via a ‘debt sale’.
What is a ‘debt sale’?
These companies purchase delinquent or charged-off loans for a reduced amount of the face value of the debt. The debt purchaser can then collect on its own.
Depending on the age, type and size of the portfolio, a debt purchaser typically pays between 2 and 20 percent of the face value of the debt. Accounts that come directly from the original creditor, without having been placed with a collection agency, have the highest value, with prices decreasing based on the number of agencies that have previously attempted to collect the debt.
Harmoney’s approach on behalf of its lenders
To help lenders regain maximum cents in the dollar, Harmoney has selected appropriate partners to work with and will be focusing on an early payment of cents in the dollar rather than a strung out approach over a 3-5 year period.
- Ensure appropriate internal policies and procedures are developed and implemented to govern debt sale arrangements consistently;
- Perform appropriate due diligence when selecting a debt purchaser;
- Ensure debt sale arrangements with debt purchaser cover all important considerations (including duties and obligations of the parties, particularly provisions for compliance, confidentiality, privacy and information security; a termination plan; and minimum service-level agreements;
- Offer the debt for consideration to multiple parties to obtain the best price;
- Provide accurate and comprehensive information regarding each debt sold, at the time of sale.
It is also important to note that a debt cannot be sold if:
- Debt is otherwise settled or in the process of settlement;
- Debt of deceased account holders;
- Debt of borrowers that have sought or are seeking bankruptcy protection;
- Debt of account holders currently in litigation with the institution; have a hardship application pending or are subject to a payment arrangement and;
- Debt incurred as a result of fraudulent activity.
Benefits for Lenders?
- Recover principal quickly rather than a drip feed over time;
- Funds are transferred to Lender on completion of the sale for further investment or cash withdrawal;
- Increased RAR as net charge-offs are reduced on a net basis by the recovered amount.
Debt recovery FAQs
Do investors get 100% of the sale price of the debt?
The cost of the debt sale transaction (broker costs) are deducted from sale amount and the remaining proceeds are paid against the loan using the standard payment hierarchy. This means collections fees are paid first, followed by interest owing and then principal. Investors receive their share of the principal and interest paid against the loan.
Under the CCCFA (Credit Contracts and Consumer Finance Act) the collections fees charged to the borrower account must reflect the real cost incurred by Harmoney for conducting the activity.
How do I know Harmoney is getting the best price for the debt?
To ensure a fair process and fair that lenders are receiving a market rate for the debt, Harmoney has implemented the process outlined above in the section ‘The debt sale process’.
Why has there not been a debt sale until now?
There have been two debt sales since November 2017. The debt sold were single loans with institutional investors. This enabled Harmoney to test the process and the market before loans with multiple investors were sold.
How often will debt sales happen moving forward?
Harmoney plans to implement a ‘forward flow’ agreement with a debt purchaser so that debt is sold on a regular basis soon after charge off to maximise the sale price of the debt.
Can I elect for loans in my portfolio to be sold?
No. The process is managed by Harmoney on your behalf. It will identify which loans qualify for the debt sale process.
What impact do debt sales have on my account?
Funds received from a debt sale will increase your Cash Available and show as a principal or interest recovery in your account. The loan status of sold loans will change from ‘Charged off’ to ‘Debt Sale’. The debt sale loans will still be included in the charged off amount and the funds received from the debt sale will show as recoveries and reduce the net charged off amount.
Does Harmoney earn income on debt sales?
Harmoney may recover the collections costs that have been charged against borrowers account. See the question above ‘Do investors get 100% of the sale price of the debt?’.