The Commerce Commission has filed civil proceedings against Harmoney in the High Court at Auckland seeking a declaration the peer-to-peer lender's platform fee charged to borrowers breaches the Credit Contracts and Consumer Finance Act, and orders to compensate borrowers who have paid this fee.
"The Commission alleges that Harmoney and Harmoney Investor Trustee Limited [the trustee for Harmoney's investors] have breached the Credit Contracts and Consumer Finance Act 2003 (CCCFA) which prohibits lenders from charging unreasonable credit fees. The Commission alleges that Harmoney’s platform fee is a credit fee under the CCCFA and is unreasonable [Harmoney disagrees]. The Commission is seeking a declaration that the companies have breached the Act, as well as orders to compensate affected borrowers," the watchdog said in a statement issued late on Friday.
"As the case is before the Court, the Commission cannot comment further at this time."
In its own statement Harmoney said it expected the Commerce Commission action.
"Harmoney also confirms the concern being addressed is the same concern raised by the Commission relating to clarity of the law for fees charged by peer-to- peer lending platforms and the application of the CCCFA to those fees. Harmoney will not be offering further comment on this while legal proceedings are underway," the company said.
Harmoney has previously argued its fees aren't caught by the CCCFA because it's an intermediary, facilitating borrowing and lending between other parties, rather than undertaking the lending itself.
Harmoney's platform fee is an up-front, one-off $500 fee for borrowers that's added to the loan amount approved. This type of platform fee was introduced in December 2015. Prior to that, as detailed here, Harmoney set the fee at a percentage of the amount borrowed. Initially the platform fee ranged from between 2% and 6% of the loan amount, based on the loan's risk grade. Then the shift was made to a one-off fee of $375, subsequently increased to $500.
Since "going live" in September 2014 as New Zealand's first licensed peer-to-peer lender, Harmoney says it has matched borrowers and lenders for unsecured loans totaling $548 million. The biggest area of lending has been debt consolidation, followed by home renovations, travel and used cars.
Borrowers are charged interest rates ranging from 6.99% per annum to 29.99% based on the individual borrower’s credit assessment according to Harmoney’s credit scorecard. Borrowers can get loans of up to $70,000 for three or five year terms.
Harmoney's March year financial statements filed with the Companies Office earlier this month, show its annual loss falling $7.7 million, or 55%, to $6.4 million from $14.2 million the previous year. The company has now reached accumulated losses of $26.9 million.
In its March year Harmoney's revenue rose $5.4 million to a fraction over $14 million, and annual expenses fell $2.1 million to just under $21 million. Platform fees comprised $5.4 million of Harmoney's $14 million annual revenue. Key expenses were marketing and employee costs. Although both were down year-on-year, they still reached $6.95 million and $6.3 million, respectively.
Below is background provided by the Commerce Commission
Since its incorporation in May 2014, Harmoney has charged borrowers a ‘platform fee’ that is added to all loans funded through its platform.
In August 2016, the Commission asked the High Court at Auckland a number of legal questions to clarify how the CCCFA applies to the platform fee and to consumer loans entered into on Harmoney’s platform. In May 2017, the High Court struck out two of the Commission’s questions. The Court is due to consider arguments about the remaining three questions in October 2017.
If the Court finds the platform fee is a credit fee, the CCCFA requires the fee to be reasonable and only cover the lender’s transaction-specific costs, as confirmed in the Supreme Court’s MTF/Sportzone ruling.
The Commission filed these proceedings to ensure that if the fee is a credit fee and is unreasonable, all affected borrowers can be compensated.
A copy of the application to the Court setting out the Commission’s questions is available in the consumer credit section of our website.
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