ComCom takes Harmoney to court

The Commerce Commission has filed charges against peer-to-peer lender Harmoney over one of its marketing campaigns.

The corporate watchdog filed six Fair Trading Act charges in the Auckland District Court against the company, alleging it misled consumers into believing they had been pre-approved for a personal loan.

This relates to 27 versions of a pre-approval letter sent to more than 500,000 New Zealanders, across a range of demographics, between October 2014 and April 2015, the commission says.

The commission alleges the letters misled recipients by saying they had been pre-approved to borrow money from Harmoney. The letters stated in order to find out how much money the recipient had been approved for, they needed to visit Harmoney’s website.

However, recipients of the letter then had to go through the normal application process of lodging a loan request and passing the approval process, at which point their loan request was presented to potential lenders through Harmoney’s platform, the commission says.

The ComCom says Harmoney has co-operated with the investigation and has indicated it intends to plead guilty to the charges.

A seperate statement from Harmoney acknowledges the information given to the recipients of the marketing material – who were pre-selected through a credit screening process – did not make it clear there was still a credit process to go through. 

"Once Harmoney was made aware of the issue it took immediate action, stopping the campaign completely and ensuring a more robust process in the sign off of marketing campaigns."

Separate fee investigation continues

These Fair Trading Act charges are unrelated to another investigation into Harmoney’s lending transactions under the Credit Contracts and Consumer Finance Act. The commission says it intends to provide an update on this shortly.

The p2p lender’s fee structure came under fire earlier this year, with the commission investigating whether its fees are fair or not.

Some investors complained Harmoney’s fee structure – investors were charged a 1.25% service fee when interest or capital is repaid – encouraged it to deliberately churn the loans to line its pockets, by offering reliable borrowers the chance to take out a larger loan, then closing the first loan to write another.

The company has since changed its fee structure to get rid of the service fee, although overall fees charged to lenders increased.

It also had to call in police to investigate fraudulent loans, after lenders  – usually small investors – lost money.

Harmoney, the first p2p lender to be licensed in New Zealand, recently released results for its first full year of operation to March 31, generating $8.6 million of revenue but widening its loss to $14.2 million. It had made a loss of $6.3 million in the seven months through to March 31, 2015.

Harmoney's biggest expense was $8.1 million on marketing, followed by $6.3 million on employee costs and $2.1 million on information technology expenses. 

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