Our investors have continuously been interested in the topic of Bondora’s collection and recovery. So as a continuation of yesterday’s post we decided to give you more details about our current setup of servicing, collection and recovery and also what to expect in the near future.
HOW HAS SERVICING, COLLECTION AND RECOVERY PROCESS DEVELOPED IN RECENT MONTHS?
In March we informed you about substantial changes to our collection and recovery process. Since then our loan servicing, collections and recovery department has been continuously fine-tuning the process. Today we would like to go through the improvements made since March as well as changes that we’ll be introducing in the near-term. We would also like to take a step back and explain the full process again in depth.
KEY IMPROVEMENTS TO THE SERVICING, COLLECTION AND RECOVERY PROCESS
- Mandatory repayments over SEPA Direct Debit were rolled out in Finland and Spain in May. Process was later stopped in Finland as the SEPA Direct Debit had low coverage but in Spain it is working well.
- Only the best performing debt collection agencies were kept in each country.
- Legal cases are being filed against loans that had gone through the collection stage in Estonia. Old cases are expected to be filed by end of the summer and thereafter it will be an on-going process.
UPCOMING MAJOR DEVELOPMENTS
- Experian credit bureau will also be implemented in Spain, similarly to Estonia, to notify debtors on our behalf. In Estonia this notification has a strong impact to the pre-default collection rate.
- Legal litigation in Finland will be started automatically when loan defaults as we have now developed an API to process the legal cases. The technology will be rolled out over the next month and thereafter all old cases will be filed and new cases will be filed automatically.
- Legal litigation will also be started in Spain for cases that have gone through collection. We expect to file the cases during August and thereafter set up a recurring process.
- Different alternatives to file cases against Slovak delinquent portfolio are being explored. We will aim to process the entire portfolio by end of Q3.
HOW ARE LOANS SERVICED BY BONDORA?
Bondora AS (Bondora) provides (or procure the provision of) servicing, loan administration, collection and recovery services in respect of the loans originated by Bondora and later sold through the Bondora.com marketplace platform (managed by Bondora Capital OÜ). The servicing is made through a bank account in the name of Bondora, but segregated from its assets, that will receive SEPA Credit and Direct Debit Transfer payments from borrowers as well as payments from third party payment gateways.
Bondora has established a bank account in its own name but for the benefit of the investors (and Bondora Capital) and directs borrowers to pay interest and principal repayments into that account. The funds on the dedicated account are not be co-mingled with Bondora’s assets.
Investors get daily, loan-level performance and payment information in respect of the loans they own via Bondora.com.
WHAT HAPPENS IF LOAN REPAYMENTS ARE NOT MADE ON TIME?
Bondora´s collection strategy focuses on efficiency, time, quality and customer satisfaction. Bondora´s philosophy is to strive for successful debt collection by being responsive to its borrowers’ changing financial circumstances yet having largely automated standard operating procedures. The ultimate goal is to restore as large percentage of the planned cash flow as possible whilst maintaining a strong reputation. This strategy has resulted in relatively high recoveries on defaulted loans.
|Year of default||Scheduled principal payments post date of default till date||Actual principal received post date of default till date||Percent of cash flow restored|
|2014||1,492,300 EUR||703,810 EUR||47%|
|2015||1,630,353 EUR||943,390 EUR||58%|
|2016||63,302 EUR||26,006 EUR||41%|
Payments are handled via either SEPA Credit Transfer, SEPA Direct Debit Transfer or online payment gateways. The standard servicing process is continued until the outstanding balance is recovered, the amount awarded by a court repaid or the amount agreed in settlement repaid. Any claim reductions (gaps between claim balances calculated by our system and the amount the customer is supposed to pay under a settlement or court order) are shown as write-offs in your account reports. It is unlikely that a loan will be discharged in a legal process, as personal bankruptcy typically does not allow debtors to walk away from their loans, including unsecured consumer loans.
|Stage||Days from/to payment||Process|
|Cuurent account||-7||Email and text message with upcoming payment details or a SEPA direct debit payment call.|
|-1||Email with upcoming payment details.|
|0||Borrower makes a SEPA payment from their bank account to Bondora´s bank account or SEPA direct debit payment arrives. The payment is matched to their account either using a unique reference number the borrower added or the borrower´s IBAN account number.|
|Delinquent account||+1 to +7||Daily email, text message, postal letter and automated calls requesting borrower to take immediate action to repay the debt or to contact us in order to find a solution.|
|+8||Case handed over to debt collection agents (external, in-house or both in parallel) for collections.|
|+60||Debt collection agents hand the case back in case they have not been successful in restoring payments.
Email notifying the borrower of charge-off and start of legal action if the borrower shall not pay within 2 weeks from the date of notification.
|Account default||+74||Account is considered in default after it has been overdue for more than 74 days and the amount overdue is larger than two monthly payments. Email notifying the borrower of start of legal action.
Borrower details will be published with the local credit bureau.
|+75||FINLAND: legal litigation will be started in the local court. The process takes typically 4 months until a verdict is made.
SPAIN and ESTONIA: Case handed back to a local debt collection agency. Debt collection agencies are used in Spain and Estonia first as local courts are considerably less reliable and higher cost than in Finland.
|+75 to +165||Debt collection agency attempts to collect the debt and agree on a new payment schedule with the debtor. The monthly payment in the schedule needs to be at least equal to the monthly payment of the original schedule.|
|+166 to +200||FINLAND: The case is handed over to a local bailiff after a court makes a decision. The speed of recovery will thereafter depend on the income/assets of the debtor and their other debts. Bailiffs have rights to freeze debtor’s assets and accounts and deduct payments from debtor’s bank accounts to cover their debt.
Assets can be liquidated, regardless if they were set up as collateral or not, as part of a bankruptcy process.
SPAIN and ESTONIA: In case the DCA is unsuccessful, but potential recovery through a court procedure is high (e.g. customer does not have many debts and has assets) then a court case will be filed with the local court. Court process takes between 4-12 months depending on the local court and debt amount. The case is handed over to a local bailiff after a court makes a decision. The speed of recovery will thereafter depend on the income/assets of the debtor and their other debts. Alternatively in case the success of a court process is low the claim is passed from one DCA to another until payments are recovered.
WHAT ARE THE COLLECTION AND RECOVERY COSTS?
Collection and recovery costs are not paid separately, but deducted from the gross cash flow recovered in connection with the servicing of the delinquent portfolio. Currently this cost on average is 15% of cash flow received in respect of delinquent loans but it may change in the future. There are no costs charged if no payments are collected. These costs are shown as write-offs in your account reports.
The collection and recovery costs are deducted from the cash flow received in respect of delinquent loans. The remaining amount is transferred to the investors within one business day of the date of receipt of the relevant amount of cash flow generated by the delinquent loans, including payments on account of principal, payments on account of interest, and all other proceeds of any other legal or insolvency proceeding or recovery. The transfer may take longer if cash is received without proper documentation or references.
WHEN AND HOW ARE EXISTING LOAN AGREEMENTS MODIFIED?
All borrowers have the statutory right to:
- withdraw from the loan agreement within 14 days from the loan issue date;
- repay the loan early; or
- repay part of the loan early.
The borrower is required to pay interest for the time the principal was outstanding, regardless if they repay the loan early or withdraw from it. In case they withdraw from the loan agreement, the contract fee paid to Bondora will be refunded.
Borrowers using B Secure are able to adjust their repayment schedules to:
- take up a principal payment holiday;
- make the length of the loan schedule shorter or longer; or
- change the monthly payment date.
The borrower has to have made at least 1 full monthly payment according to their active schedule before being able to modify it again. In case the borrower has unpaid fees, interests or other debts at the time of making changes to the repayment schedule (either changing the monthly payment, taking the payment holiday or changing length of your repayment schedule), they must pay all overdue amounts with the first payment of the new, modified repayment schedule.
Loan modifications are all borrower-initiated and executed through their self-service portal. Loan modifications are allowed in order to be able to adapt to borrowers changing financial circumstances as well as to avoid defaults. In case a borrower defaults then local courts or bailiffs can enforce loan modifications that are considerably less lender-friendly than modifications agreed with the borrowers directly.
HOW ARE BANKRUPTCY PROCEEDINGS STARTED?
Bankruptcy process is only initiated if bailiff has not been able to collect the debt after freezing the borrower’s assets and accounts whilst the borrower still has marketable assets. Bondora will either initiate the bankruptcy process on its own or join an existing bankruptcy filing. Borrowers may also file to start bankruptcy proceedings.
Bondora has had only a limited number of bankruptcy cases over the duration of 5 years. Personal bankruptcy is not common in continental Europe as discharging debt will take up to 7 years depending on the country. Therefore, borrowers with marketable assets and recovery potential typically repay debt under a new payment plan rather than opt for a bankruptcy process. Bankruptcy process would not yield any additional benefits against borrowers without marketable assets.
HOW QUICKLY ARE PAYMENTS PROCESSED?
Bondora banks with Swedish SEB’s Estonian subsidiary SEB Pank AS. Bondora has an automated payment gateway with SEB Pank AS to receive credit payment details and issue debit payment instructions. Bondora processes incoming payments automatically if the payment has a reference number or is coming from an IBAN account registered on the borrower’s account. A small number of payments are reconciled once a day manually if there was no reference number and the payment arrived from an unknown IBAN account.
Every SEPA credit transfer customer delivers to their bank before the cut-off time of 14.30 hrs. CET is guaranteed to be processed within one business day.
SEPA credit transfers delivered before 15.00 hrs. CET will be processed on a best efforts basis. These payments will be debited from borrower’s account the same day, but sometimes they cannot be sent to Bondora’s bank the same day. If so, they will be sent on the next business day.
Bondora uses authorized payment service providers to process its SEPA Direct Debit mandates. Debiting the borrower will take 5 business days and the payment order must be created 3 days before that (6 days in case of first collection with SEPA CORE).
WHAT DOES IT ALL MEAN FOR ME?
Loan servicing, collection and recovery is an on-going process that develops in time. There are continuous tests being made to identify the most effective and efficient process for each customer segment and country. Changes in legislation and technology often create new boundaries whilst also opening up new opportunities. Bondora will aim to continue improving its processes to adapt with the changing environment as well as investor demand.