Collection process overview

Collection & Recovery

We have received numerous questions about the changes to the collection process that we introduced earlier this year. In order to address those, we have compiled a detailed overview of the collection process for both delinquent and charged-off loans.

Process overview

Bondora has developed a standardized, largely automated collection process that is used across all markets with only minor differences. The process is continued until the full overdue amount is covered or the claim is (partially) written off by a local court.

Days from/to paymentActivity
-7Email and text message with upcoming payment details
-1Email with upcoming payment details
0Customer makes a SEPA payment from their bank account to the Company’s bank account. The payment is matched to their account either using a unique reference number the customer added or the customers IBAN account number.
+1Email with a “soft” payment reminder.
+7 (recurring every 7 days until charge-off)Email, text message and automated calls requesting customer to take immediate action to repay the debt or to contact us in order to find a solution
+14 (recurring every 14 days until charge-off)Letter by post requesting customer to take immediate action to repay the debt or to contact us in order to find a solution
+61 (AND overdue amount greater or equal to 2 monthly payments)Email notifying the customer of start of legal action if the customer shall not pay within 2 weeks as of the notification. Customer details will be published with the local credit bureau.
+75 (AND overdue amount greater or equal to 2 monthly payments)Charge off. Email notifying the customer of start of legal action.
+75 to +90Case handed over to a local debt collection agency (DCA). Cases are split between multiple DCAs.
+90 to +180DCA 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.
+180 to +270Claim is returned to Bondora and handed over to a second DCA in case the first DCA is not successful in agreeing on a new schedule and receiving at least one payment from the debtor. Each DCA will have to meet the same performance targets.
Alternatively in case the DCA is able to collect a payment or agree on a schedule, the claim is kept at the original DCA who needs to collect an amount equivalent to three monthly payments of the original schedule per each quarter.
+270In case the second DCA is also 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 country and the local court. 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.

Loan modification policy

Bondora offers borrowers to extend repayment period (to a maximum of 60 months) if the customer is facing financial difficulties or simply wants to reduce their monthly payment. Interest, penalties and other secondary claims are never reduced, and the outstanding interest and penalty debt are put into the next scheduled payment.

Bondora also offers principal grace (maximum 12 months) to the customers with interest continued to be paid during this period.

Loan charge-off policy

Loans are charged off after an account has been overdue for more than 60 days and the amount overdue is larger than two monthly payments. This policy is defined in the loan agreements and is the most aggressive policy allowed by law in most of the jurisdictions in order to allow DCAs to quickly start recovery actions.

Collection channels

Collection of delinquent accounts is handled in-house according to the process set out above (please see “Process overview”).

The post charge-off collection process is handled by Debt Collection Agencies (DCAs) active in our loan markets. As of September, 2015 there are multiple DCAs in each market, each managing a portfolio of roughly equal size.

  • Estonia: 4 companies
  • Spain: 3 companies
  • Finland: 2 companies
  • Slovakia: 1 company

We have carefully selected a mix of partners in all markets which include local smaller unsecured consumer credit focused debt collection agencies, as well as large international receivables management companies. There is no data yet to determine if the size (small vs. large) and scope (one market focus vs. multi-national) of the firm has an effect on the performance of the post charge-off recovery process.

The list will DCA partners will continue to grow and change, as more DCAs are tested over 90-day debt collection cycles described above.

Cost related to collection

The costs related to servicing and collection of delinquent loans are covered by Bondora and charged to the borrower.

Costs related to post charge-off collections are deducted by the DCAs from the amounts collected. The current fees differ per country and DCA with limited uniform pricing. DCAs are evaluated on net cashbacks (collected amount less collection costs) and only DCAs with best metrics will eventually be kept. The range of fees are shown below:

SpainFinlandEstoniaSlovakia
Success fee on recovered principal8-35%8%0-35%8%
Success fee on recovered interest8-35%8%0-65%8%

The legal collection costs average between 100 to 500 euro per delinquent case depending on the size of the loan and jurisdiction.

Collecting on borrower’s security interest, collateral or assets

All loans issued on the marketplace are unsecured. However, Bailiffs have rights to freeze debtor’s assets and bank accounts and deduct payments from debtor’s bank accounts to cover their debt. In addition, assets of the debtor can be liquidated, regardless if they were set up as collateral or not, as part of a bankruptcy process.

Borrower bankruptcy

Bankruptcy process is only initiated if bailiff has not been able to collect the debt after freezing the customer’s assets and accounts whilst the customer still has marketable assets. Bondora will either initiate the bankruptcy process on its own or join an existing bankruptcy filing.

We have had less than 10 bankruptcy cases over the duration of 5 years. Personal bankruptcy is not common in continental Europe as getting out of debt will take up to 7 years depending on the country. Therefore customers 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 customers without marketable assets.


55 responses to “Collection process overview”

  1. What to say… Success fee in Estonia is huge bad surprise for me, collection cost no ton debtor is another bad surprise. Rest is may be not so bad.

    • Hello, Andrej!

      Passing the collection cost over to the borrower is either already prohibited by the local regulators, or will be prohibited in the nearest future, and we have to comply with the law. The regulators are stepping in to protect the borrowers from some of the predatory practices used by some lenders.

    • Can you please name the EU Directive that prohibits or will prohibit to pass on Collection Costs onto the borrower?

      I only aware of DIRECTIVE 2011/7/EU for late payments and in it is allowed to pass on collection costs into the borrower.

  2. I have a logic problem here: You wrote the aboved decribed process is continued until either the overdue amount is recovered (good) or the local court has written off the claim against the borrower (Bad). You also wrote that not all loans will go to court. Does that mean that all loans that will not go to court may hang in recovery process forever? – Stage 5 can never be reached? This way investors can never offset these losses against income as there is no legal decision if the claim against the borrower is valid but unrecoverable. Please explain.

    How will Bondora handle overdue on auxiliary claims such as borrower failed to pay the managment fee? If there is a recovery coming in how will this amount be distributed between Bondora and the investors?

    Will this process apply to all loans or just to the newly issued?

    • Hello!

      Before going to court we will use a DCA #1 to collect the defaulted loan and the DCA is given 90 days to collect (days 90 – 180). If the DCA #1 is not successful, then we take over the loan and use the services of another DCA (DCA #2) for another 90 days (days 180 – 270). If both attempts do not lead to a successful collection, we will go to court, if going to court is justified (i.e. debtor has assets, debtor restored employment, etc.).

      The recovered amount is distributed in the following order: a) principal, b) management fee, c) interest. Thus, we will collect the management fee only in case the full amount of principal is fully recovered.

    • What happens to the loans where DCAs were not sucessfull and going to court is not justfied? Will they be forever in Stage 4 without any activity? It should be clear to you that without a court decision it is not possible for an investor to offset a unrecoverable loan against income.

      How will Bondora keep us investors updated on the progress of recovery?

      will your recovery process apply to all loans or to those issued from Sept 15 onwards?

    • Hello!

      Unfortunately I don’t know how the State Revenue Service treats defaulted loans in your country. However, the instance of loan default is defined by the laws, not by us, as the initial lender, or the court making a ruling on defaulted loan case. I can only recommend to check with your SRS the way they treat defaulted loan cases and why they require a court decision.

      You can use the “Recovery Statistics” report to track the performance of the DCAs. Thus, all loans passed to the DCAs will stay under Stage 1, and in case DCAs are not successful and we turn to court, the status will change to the Stage 2.

      The new process applies to all loans that have defaulted after June 8, 2015.

    • Sorry, but now I don’t understand waht you (bondora) are doing.

      “The new process applies to all loans that have defaulted after June 8, 2015.”

      In https://www.bondora.com/blog/platform-update-new-legal-structure-comes-into-force-tonight/

      So only new signed loans are affected by the changes?
      Reply

      Jevgenijs Kazanins Post Author
      September 7, 2015 at 23:03

      Hello!

      You are correct, the bankruptcy-remote structure affects new loans only.

      So you do changes on loans sold before? Maybe from 2013 but defaulting now?

      I can’t believe that.

    • Hello!

      The new legal structure came into force on September 7, 2015, as it was written in our blog post: https://www.bondora.com/blog/platform-update-new-legal-structure-comes-into-force-tonight/

      All loans issued past September 7, 2015 are issued under the new structure.

      The collection process change occurred in early June, which was also covered in our blog: https://www.bondora.com/blog/extending-collection-and-recovery/

      All loans that defaulted after June 8, 2015, irrespectively of when those were issued, are being collected using the new collection process.

  3. You wrote “Costs related to post charge-off collections are deducted by the DCAs from the amounts collected.”

    In other words this means that these costs will be covered by the investors. Is that correct?
    Thank you for your answer.

    • Hello!

      That’s correct. We are prohibited by laws to pass over the collection cost to debtors by the respective regulators.

  4. Hello Jay,
    thank you for this throrough description of recovery process. Can you please just briefly compare that to previous model? Do I understand it correctly that previously charged-off loans were passed immediately to bailiff? And the change is that currently DCAs are engaged in first 270 days? In case they are not succesfull is there any cost associated?
    Thank you very much,
    Carlos

    • Hello, Carlos!

      The difference to the previous process is that after 90 days of non-payment we attempt to collect using DCAs, while previously we turned to courts right away. We will involve up to two DCAs and each of them are given 90 days to collect (DCA #1: days 90 – 180, DCA #2: days 180 – 270). In case none of them collect the due amount, we turn to court.

      The reasoning behind the change is that we expect higher net collection by involving DCAs before engaging in a lengthy and irreversible process of collecting through courts.

      All DCAs are involved on the success fee basis; thus, there will be no costs in case of unsuccessful collection attempts.

  5. I don’t understand why the cost of collection process is not even in part to be paid by the borrower. So even if the borrower will pay the whole amount maybe a couple of weeks after default (what happened before!) the lender will only get back 92%. This change is not an improvement for the lenders. It’s only an improement for bondora.
    And as shown in the latest newsletter – up to 49% loss by default – the winners are the DCAs.
    Oh yes, we have made some experiences with thos in 2013/14. Very bad collection quote.

    • Hello!

      Passing the collection costs is either already prohibited or will be prohibited soon by the regulators. The regulator in this case sides with borrowers to protect them from aggressive practices used by some lenders.

    • I can’t believe that. OK you are not allow to take penelties AND collection costs. But every low will that the party that breaks a contract will be responable for the costs.
      And you write “principal first”. OK that would be fine. So it’s guaranteed that at least all principal will be paid back (if the DCA collects enough) and there are no fees until all principal is paid back?

    • the agency is paid a success fee based on the collected amount, and all net proceeds (collected amount less the agency fee) are first used to repay the principal until either a) the principal is repaid in full or b) the borrower settled the claim.

    • Lets make an example: the claim is 1000 Euro and the defaulted borrower is willing to repay the full amount. The collection fee is 100 Euro + 8% above that. This equals to 1000- 100 – 900*8% = 828 Euro recovery for the investor. Can you confirm that this is how recovery will be distributed between DCA and investor?

    • Hello! In case a borrower repays EUR 1,000 (and assuming 8% success fee charged by the DCA), EUR 920 will be distributed to investors.

      In case DCAs are not successful at collecting and we turn to court, the net payout will depend on the court decision:

      1) In case the court rules that the borrower has to cover legal cost (i.e. let’s assume EUR 100 in legal cost, and EUR 1000 in due amount), then the borrower will have to pay EUR 1100, which would result in the net payout to investors of EUR 1000.

      2) In case the court rules that the lender cannot pass the legal cost to the borrower (again, let’s assume EUR 100 in legal cost, and EUR 1000 in due amount), then the borrower will have to pay EUR 1000, which would result in the net payout to investors of EUR 900.

  6. What about loans in stage 5 that don’t have any principal dept but do have accrued interest and late charges – are these depts actively collected still?

    • Hello, Kristjan!

      Yes, those loans are being collected, but they are not part of the new collection process (thus, collected directly through courts).

  7. Who decides which loans go to court or not? – I have plenty that are over 500 days old with absolutely no progress/recovery/payment but all the previous updates have been removed – why? Bondora threw away lots of investors money in Spain & Slovakia whilst developing the new credit model, very little has been recovered or ever will be, do you not feel an apology is in order? To simply wash your hands of the process & walk away is disgraceful behaviour.

    • Hello!

      We attempt to collect every defaulted loan, but cannot influence the speed of court decisions or actions by bailiffs.

  8. Whole it means that if loan is under 1000Eur there is total loss and no recovery. Having in mind all costs of collection. As it told – just DCA wins. I think Bondora must be last in queue to get recovered money – it will be most right.

    • Bondora said i would be 100 to 500 Euro per loan and Bondora also mentioned that they will make the coection fees transparent on their side. I hope that they hold onto that.

    • Hello, Andrej!

      There are two different types of fees:
      1) Success fee paid to the DCAs in case they are successful in recovering the debt;
      2) Court fees that are paid in case DCAs are not successful at recovery and we have to turn to court.

      All DCAs work on a success fee basis; thus, if they don’t recover the debt, there are no fees to be paid to them.

  9. Why Estonia has so high success fee compared to ESP and SLO???
    Estonia has shown the best recovery rates. It just seems like trying to fill DCA pockets with investors money!

    • Hello, Mart!

      In Estonia we are testing 4 DCAs to understand if higher collection fees offered by some of them will result in higher recovery. However, all of the DCAs will be evaluated based on the net payout (amount collected less the fees).

    • Hello, Tauri!

      It is too early to make any conclusions whatsoever at this point, as not a single defaulted case when through a 90 day trial period with a DCA (we give each DCA 90 days to attempt the recovery).

  10. Hello!
    Are there any loan recovery statistics? (e.g. How many of the default loans are recovered, previous grouped by bondora rating)
    Thank you!

    • Thomas, look in Bondora’s forum under Lending and look for general Bondora statistics. There you find the answer.

    • Hello, Thomas!

      You can see the “Recovery Statistics” report for your portfolio under “My Investments” -> “Statistics”, or you can use the Loan Dataset if you want to get a more detailed overview.

    • Hello, Tauri!

      We do use European Payment Orders as the first action; however, when a customer objects the claim we have to file with the civil court (previously we did it on the default event, now this will be done if none of the two DCAs are successful at collecting).

      In addition, EPOs have limits on the maximum claim and the limits vary across countries; thus, in some cases we have to turn to the civil court right away.

  11. Thanks, Jevgenijs for this post. I still would like to know three things:
    1. Is Bondora going to adjust its management fees downward (or for example reduce the spread on the secondary market) to account for reduction in its costs because of Bondora’s decision not to engage in legal debt collection process in most future cases?
    2. You say that “The difference to the previous process is that after 90 days of non-payment we attempt to collect using DCAs, while previously we turned to courts right away. ” Did you really turn to courts in all cases? If you did, I do not understand how is it possible that DCAs will be more successful in debt collection than courts? Sure, legal process can be lengthy, but in my understanding in every case where DCA will be successful in debt recovery court will be successful as well and in some additional cases court will recover money where DCA cannot, simply because courts are more powerful entities than DCAs.
    So I want a simple answer here: what is percentage of 90+ days overdue cases under old procedures that have outstanding legal claims against them filed by Bondora? (preferentially tabulated by each market). If it is not close to 100%, then why?
    3. What is responsibility of Bondora for the assignment of wrong credit rating? If for example the percent of defaulted loans in some rating category is significantly larger than predicted by its risk assessment model, then Bondora is mistaken in each rating assignment to at least some of the loans in that category and should be responsible for faulty analytics and for giving investors the wrong information about risk and ROI of that particular class of investments. Currently all the risk is shouldered by investors but evaluated and assigned by Bondora. I think Bondora should be responsible for its analytics and cover the difference to investors if actual default rate is significantly larger than the default rate predicted and advertised by Bondora.

    • Hello, Denis!

      1) We have considerably lowered our management fee recently (August) to make Bondora loans more affordable to the borrowers. At the same time we have kept the interest rates to Investors intact.

      2) At this point we have 3752 active default cases (“active” meaning the borrower has defaulted and has not yet settled the due amount). We have filed 2 726 court cases and 1 624 of those cases are already with bailiffs. The remaining default cases were passed to the DCAs in accordance with the new recovery process.

      3) At this point we see that the default rates for the risk-priced loans are in line with the expectations and are even lower than expected for the prime segments.

  12. Jevgenijs thankyou for your explanation.

    I have been lending through your platform for just over 2 years on the understanding that the cost of collection of loans in default would be covered by Bondora and not charged to investors. Whilst I can understand that the very high default rate of the loans issued by the platform has made this expensive for Bondora, I would not be willing to invest under these changed conditions.

    Will you please confirm that these collection charges will not be applied to previously issued loans which will default in future.

    • So is it in accordance with FCA regulation or even legal for Bondora to impose a retrospective change to the lenders terms and conditions?

    • We believe that we acted in the best interests of investors attempting to address the concerns about the recovery rates of the defaulted loans. We have done a thorough due diligence of the DCA partners and expect an increase in the net payback to investors.

    • Jevgenijs you have not addressed the point that Bondora is now imposing the cost of collection on the investors, whereas previously that was the responsibility of Bondora.

      This may be acceptable for loans made in future but is not for existing loans which may well default over the next 5 years.

    • Bondora also claimed to have done a good analysis of slovakian, spanish and finish market, but those screwed up..

      If you change T/C for existing contracts, some clever mind will take this to court.

    • Hello, James!

      The key metric here is the net payout to investors (recovered amount less the fees), and we expect it to be higher under the new process.

  13. Jevgenijs,

    It may be necessary to update the recovery process overview and incorperate all clarifications.

  14. As a lender….. Now, I expect an increase in the percentage attached to the loans in order to offset the incorporation of an additional fee related to recovery. For example, if I receive an additional 2% on each loan, it would offset the loss I will incur during the recovery process. Perhaps the percentage needs to be 5%. I am sure smarter investers can suggest what the procentage should be to Bondora (or I am starting to call it rubberBandora).

    NB! I am aware that Bondora does not always listen to investers; but, in this instance if Bondora does not react, many investers will pull out. Don’t put your head in the sand with this issue Bondora. I can already see the demise of Bondora if this issue is not quickly resolved.

  15. Jevgenijs Kazanins: The key metric here is the net payout to investors (recovered amount less the fees), and we expect it to be higher under the new process.

    Startup business is a fast business. Bondora is fast. Bondora sees fast results (measured in months) using DCAs.
    Unfortunately loan business has long tails. And because of that the statistics should be made using years as periods not months.

    I think most agree that the one who pays to DCA would eventually end paying to bailiff also.
    Yes, DCA probably brings some of the monies home more quickly, but investors are charged a fee for this pleasure.

    Whether A-X EUR now is better than A EUR in future….Depends.. But i am quite sure that you did not use whole life cycle of loan for making decicion.

    Anyhow applying this new process to old loans is very slippery road…

  16. ESTONIA
    SUCCESS FEE ON RECOVERED PRINCIPAL 0-35%
    SUCCESS FEE ON RECOVERED INTEREST 0-65%

    if u use this REDICOLOUS rules as u wrote “The new process applies to all loans that have defaulted after June 8, 2015” this will against the Terms and Conditions as i agree, cuz no one
    can change the Rules before i accetpt it! and i think this will illegal cuz i dont accept it before
    i lost my minde!

  17. They can’t take any money from investors because in agreements (agreements that was signed before the new rules) is written clearly that borrower pays all fees! I stopped investing in Bondora about ~2 months ago because i don’t accept the new rules. Don’t know what is written in new agreements. I’m Estonian and here is copy/paste from agreement:

    14.8. Laenuvõtja kannab kõik sissenõutavaks muutunud nõuete makseviivitusest tingitud sissenõudmisega kaasnevad vajalikud ja mõistlikud kulud, s.h. Laenuandja kulud õigusabile, inkassoteenuse osutajale ning kohtumenetlusele, s.h. maksekäsu kiirmenetlusele.

    If Bondora doesn’t follow the agreements that was signed before then it’s illegal and it causes problems for them.