Disharmoney

This past week's subscription to The NBR was covered by Tim Hunter's excellent piece on the regulatory mess facing peer-to-peer lender Harmoney.

The Financial Markets Authority seems fine with Harmoney. But the Commerce Commission is suing it because it can't figure out who is the lender (the peer-lenders, or Harmoney), and whether Harmoney's fee-structure is then consistent with a pile of other regulations or not.

A regulator could scarcely be more destructive without procuring a giant wasps’ nest, agitating it vigorously and releasing it into the previously calm interior of its victim’s compact Parnell office space.

The problem comes of stupid legislative drafting saying that a credit fee cannot be "unreasonable", but that doesn't define unreasonable. And so it gets more confusing:

It sounds like bland bureaucratic nitpicking but it isn’t because, under the CCCFA, a credit fee must not be “unreasonable” – and according to the Supreme Court’s May decision in a case involving the commission and retailer Sportzone, that means it can be set to recover only the costs specific to a lending transaction.

For an online provider like Harmoney, whose business is based on trying to make the cost of each transaction close to zero, the consequences of that restriction would be significant.

But is it a credit fee?

Under the CCCFA, a credit fee is charged by a lender to a borrower but, if Harmoney is an intermediary, it can’t be a lender, right?

Not according to the Ministry for Business, Innovation and etc because compliance with the CCCFA requires the lender to be identified to the borrower, and Harmoney couldn’t identify its lenders in that way, so set up a trust to take the money from individual lenders and act as the named lender.

It doesn't get better from there. FMA seems to have the more sensible position, and scraps with the Ministry and Commerce Commission about it; Harmoney's stuck in the middle. Hunter suggests it could all have been solved by clearer regulation just requiring lenders to disclose the APR: the annual percent interest rate equivalent inclusive of all fees.

File under: Not the outside of the asylum.