Follow-up on the Collection Process overview

Our latest blogpost on collection process received a lot of attention. We gathered together the most hot comments and highlighted the answers in a separate post.

  1. Why is the success fee % so high in Estonia?

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).

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

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.

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

Investors 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.

  1. Can you please briefly compare the new process to the previous model?

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.

  1. Why the collection process cost are not paid by the borrower?

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.

  1. Will you guarantee that 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.

  1. Is Bondora going to adjust its management fees downward to account for reduction in its costs?

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.

  1. Are there any loan recovery statistics?

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.

Comments are closed.

47 thoughts on “Follow-up on the Collection Process overview”

  1. Tatjana, You wanted me to indicate question that remained unanswered. Here they are:

    (1) Success fee:
    Why is the success fee in Estonia 35% although it is the market that shows the highest recovery? As the the estonian market shows strong recovery, it is not reasonable that DCA have the highest sucess fees in this market. It would have made sense to me if Spain and Finland had higher sucess fees as recovery appears to be harder in these markets. Therefore, I may believe that you promised 35% to DCA in Estonia in order to compensate for low sucess fees in Spain or Finland. – I know that you want to gain experience if higher success fee result in higher net payout to the investor. Really? Why then in a market that shows strong recovery? Please make agreements about sucess fees with your OWN money out of your own pocket. The full recovery amount belongs to the investor!.

    (2) Regarding compensation for debt collection on Finnish loans – for Finnish loans up to 210 Euro of collection fees can be allocated onto the borrower. See bullet point 2: http://www.kkv.fi/en/facts-and-advice/payment-bills-debt-collection/delayed-payment-and-collection/recovery-costs-and-debt-collection-process/ Please check if the finnish Competition and Consumer Authority consumer protection board is wrong and please state where I can find the legal base for not charging compensation for debt collection to finnish borrowers.

    (3) Debt Collection fees in new T/C:
    This is taken from you new T/C:
    3.5. The Operator shall transfer any funds collected as fulfilment of the Claims to the
    Investor’s Client Account. However, the Fees (e.g. contract fee and annual management
    fee) and debt collection fees paid by the Borrower shall remain to the Operator to
    compensate the costs related to the servicing of the Loan Agreement and debt
    collection and shall not be transferred to the Investor.

    If Bondora cannot allocate debt collection fee onto the borrower anymore, why do you write in your T/C that Bondora will keep the debt collection fees? It seems like you charge debt collection costs to the borrower + sucess fees to the investor.

    (4) I will not argue again about the retroactive change of the T/C that leads to heavy disadvantages for the investor. I do not agree on that. Appropriate steps are beeing assessed.

    (5) Jevgenijs indicated that fees for Collection Agency will be visible in the loan book. Will Bondora keep this promises?

    Thanks.
    YaCop

    1. Hi Arne,

      Please find answers below:
      (1) There is no cross-subsidizing with success fees between countries. The agreement with 35% in Estonia is one specific DCA and we want to see if this means that they will do 4x better job than the next one in line. And it is entirely possible. Please consider that with the new regulations, we cannot send borrowers in EE to our “intermediate court” anymore; also „strong recovery” is not the same as “fast recovery”. Therefore, instead of believing we prefer to test different options and make decisions that are best for investors on factual data rather than guesses.
      (2) That is correct. We already charge number of paid notifications to borrowers during the first 60 days (ie before default) which would be included in this number. What is remaining, the local DCAs have authority to claim from the borrower in case of success. Also mind that the Success fees/agreements that we have with DCAs already account for these sums. In other words, the success fees would be higher if they would not be eligible for some of those amounts.
      (3) Thanks for pointing out section 3.5. and we apologize for the confusing wording but I can assure you that we do not charge both.
      (5) We aim to build the relevant views after our test period with DCAs is over and it is clear what is exactly required and what can be automated, because currently the exchange is mostly manual with different DCAs and that is not feasible to implement in full scope.

    2. You had a trial with DCAs before and all it did was delay court action.

      Once again you are doing your experiments at the expense of your investors. The Spanish and Slovakian fiascos last year cost us a lot and here you are again using us as guinea pigs.

      I do not agree to pay success fees for previous loans when there is no mention of collection costs being at our expense, if you do not want to do this work yourselves you should pay the costs. I will not be lending under such conditions as the default rates for your borrowers are excessive.