Harmoney fees scrutinised

Harmoney is in discussion with the consumer watchdog over the fees it charges to borrowers.

In July 2014 Harmoney became the first licensed peer-to-peer lender, allowing it to operate a personal loan marketplace for people to borrow from investors.

But more than a year after its license was issued, the Commerce Commission is investigating concerns over Harmoney’s ‘‘platform fee’’, which for some borrowers can top $1000.

This is much higher than the establishment fees banks charge for a personal loan.

A commission spokesman said: ‘‘We are currently looking at whether peer-to-peer lenders are covered by the fees provisions in the Credit Contracts and Consumer Finance Act (CCCFA)’’.

‘‘We have been working with peer-to-peer platforms to understand how their business model operates and have requested further information from them.’’

Harmoney said it was in discussion with the commission.

But the company said that its platform fee could not be compared to a personal loan establishment fee charged by a bank which paid the reasonable costs of setting a loan up, with the lender then making profits on the interest it charged borrowers.

Instead, the platform fee was the revenue that Harmoney earned for running its loans marketplace.

Chief operating officer Brad Hagstrom said: ‘‘ We don’t take interest revenue, so the platform fee covers the cost of having that loan on the book from start to finish. It is not an establishment fee.’’

The issue appears to be whether Harmoney’s platform fee is a fee that is regulated by the CCCFA.

The Act prohibits ‘‘unreasonable’’ lending fees, including establishment fees.

On its webpage Harmoney says the platform fee is a one-off upfront fee. Harmoney also charges a fee of between 2 per cent and 6 per cent of the loan amount, depending on how risky the loan is.

Borrowers graded on a risk scale from A to F, with A being the lowest risk.

Lower risk borrowers pay lower interest rates than banks generally charge for their personal loans, while riskier borrowers pay more.

A-graded borrowers pay a 2 to 3 per cent platform fee and those with E and F-grades pay the full 6 per cent. The minimum fee is $300.

A B-graded borrower, who is charged 4 to 5 per cent will pay between $400 and $500 to borrow $10,000.

Banks generally charge about $250 in personal loan establishment fees.

A top-up of a Harmoney loan incurs a second platform fee, discounted by 50 per cent, with a minimum fee of $150. Banks tend to charge about $150 for a loan topup.

Hagstrom said higher-risk borrowers were expected to cost Harmoney more to administer over the lifetime of the loan, which is why they paid a higher platform fee.

Rob Campbell, chairman of Harmoney, said: ‘‘This process is a discussion between the regulatory authorities and those operating in the market’’. Harmony operates within the the law and its licence, Campbell said. ‘‘The structure is directly comparable to other similar operators in other countries,’’ he said.

Harmoney general manager Monica Mathis said before launching Harmoney had received substantial legal advice on its platform fee. The Financial Markets Authority, which granted Harmoney its licence, had known about the fee when it granted that licence, she said.

Harmoney acknowledged that if no agreement with the commission could be found, then the issue could head to court.

We have been working with peer-to-peer platforms to understand how their business model operates and have requested further information. A Commerce Commission spokesman