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Post by chris on Mar 17, 2015 19:00:07 GMT
Working capital is one thing but if we have a £1.5m loan repayment, for example, then that's a very different prospect cash wise than a £5k payment. Our loans don't typically follow the same simple profile of those on other platforms and whatever solution we come up with needs to work across the board. : I don't think anyone ever has suggested using DDs to collect bullet payments due at loan maturity. Payments that large are a different situation entirely, and I'd expect them to be handled separately. And most likely via CHAPS, which should provide same-day cleared funds. (Are CHAPS payments subject to chargebacks?) The issue here is the regular monthly payments, and I wouldn't have thought those would require an enormous amount of working capital to get past the chargeback issue for them. Sounds more complicated than it all needs to be with multiple routes of processing repayments. I don't get the issue with the planned automated processing of funds as they arrive in the client money account, so that they're distributed to lenders within 1 hour of being received. DD is no guarantee that you can collect funds and is every bit as cancellable as a standing order. The only real advantage, again as I understand it, is that it's possible to vary the amounts and dates payments are collected whereas a standing order has a predefined plan.
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Post by chris on Mar 17, 2015 19:01:33 GMT
If lenders are happy with there being a 7 day delay before they receive payment from a borrower then sure we can implement direct debits. I wouldn't have thought that would be what lenders wanted though? With standing orders and the automated bank feed we'd be aiming for distribution to lenders within 1 hour of funds being received.  Based on what was described before about the clearing cycle for Direct Debits, the funds are cleared 1 working day after the due date (and the request submitted to the banking system 3 working days BEFORE the due date). Why would an additional 7 day delay be necessary? 6 days was my understanding of how long it took to clear funds based on GoCardless's process. The first payment takes that long although subsequent payments can be quicker.
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Post by chris on Mar 17, 2015 19:11:44 GMT
Although not familiar with the detail of how client funds are handled, I would expect that an organisation handling significant volumes of transactions into and out of a client account would have a separate "receiving account" and "holding account", so that if any incoming transactions are reversed, only the "receiving account" is at risk. If the organisation themselves maintains a "float" in the receiving account, such a structure also provides an obvious solution to the "debit card problem" (by transferring funds into the holding account as soon as a debit card transaction is authorised), which I would assume is the one used by other organisations providing liquid funds the moment a card payment is authorised. It's one possible solution although we'd still need to move funds from one account to the other *before* we could credit lender accounts. Even via automated bank feeds there is a time delay on that, such as being processed hourly or even once per day, and we're not allowed to credit the user until those funds are received in the client money account. So if funds are received in a holding account where we maintain a certain level of float and on demand we then transfer those funds automatically into the client money account via a daily batch process, we can't credit those funds to the lender until that batch process has been run and we can be sure that the actual funds have been cleared into the client money account. I'd like to think that other organisations are using fully compliant solutions but that certainly isn't a given and not something we'll assume whilst assessing our own solutions.
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ilmoro
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Post by ilmoro on Mar 17, 2015 19:19:44 GMT
Based on what was described before about the clearing cycle for Direct Debits, the funds are cleared 1 working day after the due date (and the request submitted to the banking system 3 working days BEFORE the due date). Why would an additional 7 day delay be necessary? 6 days was my understanding of how long it took to clear funds based on GoCardless's process. The first payment takes that long although subsequent payments can be quicker. True, the same also applies to Paypal if you request a deposit into your account from your bank, they quote 3-7 working days, with the latter being the more usual.
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Post by maxeys on Mar 17, 2015 19:33:11 GMT
Given the amount of loans that are presenting late payments, surely AC should make provision within their Loan Agreements that commit borrowers to setting up standing orders for regular monthly payments. I appreciate AC have wording in their loan agreements to say they can claim default interest for any late payments however, this does not seem to happen unless a borrower is extremely late with their payment. Therefore this seems to have created the idea that borrowers can happily go off on holiday, with nobody else able to make the due payment in their absence, and simply pay it when they get back, even if its a number of days late. Other borrowers have been persistent offenders month after month, just a few days late each time, but nevertheless they are late payments and should not be tolerated when it is quite simple for a standing order to be put into place from the start. Do others agree that AC should tighten up in this respect? I completely agree. From my understanding borrowers credit history is not being impacted if they are late paying therefore giving no incentive to pay on time. If I personally failed to pay a dd my credit file would be impacted therefore I am incentivised to pay on time. I re-invest my money as soon as I receive repayments and therefore am missing out on days of interest when borrowers pay late. Not sure that's fair.
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Post by chris on Mar 17, 2015 19:38:39 GMT
Given the amount of loans that are presenting late payments, surely AC should make provision within their Loan Agreements that commit borrowers to setting up standing orders for regular monthly payments. I appreciate AC have wording in their loan agreements to say they can claim default interest for any late payments however, this does not seem to happen unless a borrower is extremely late with their payment. Therefore this seems to have created the idea that borrowers can happily go off on holiday, with nobody else able to make the due payment in their absence, and simply pay it when they get back, even if its a number of days late. Other borrowers have been persistent offenders month after month, just a few days late each time, but nevertheless they are late payments and should not be tolerated when it is quite simple for a standing order to be put into place from the start. Do others agree that AC should tighten up in this respect? My understanding is that borrowers are usually required to set up standing orders, although don't quote me on that. Hopefully andrewholgate can confirm. For what it's worth as part of the bank project and automation of repayments I'll be sure to agree set procedures with the admin side of the business for handling repayments and then codifying them within the software. As they'll only need to focus on problem payments I'm sure we can afford to be stricter on chasing those who are causing problems.
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sl75
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Post by sl75 on Mar 17, 2015 19:47:15 GMT
(Are CHAPS payments subject to chargebacks?) No. CHAPS is a real-time gross settlement system, so the receiving bank gets CLEARED funds when the transaction is confirmed (i.e. funds held on deposit in its own account with the Bank of England or something with a similar effect), and normal chargebacks are not possible. Various other payment systems have various other terms for cases where chargebacks can occur, but as CHAPS is primarily designed for non-reversible transactions (e.g. sending the funds to a seller's solicitor when buying a house), it's probably the best protected of the banking-based systems. However, any funds held in any bank account are at any time subject to the possibility of being frozen or seized if the bank (possibly acting under the instructions of the fraud squad) has cause to believe that they are not from a legitimate source, and a reversal of a particular transaction could, in principle be demanded, even if it was "fully cleared", and potentially weeks or months after the event. The various checks (anti money laundering, know your customer, etc.) will certainly act to mitigate the risk of this occurring to a great extent, and in any case the model used at AC probably wouldn't be very attractive for those KNOWINGLY using non-legitimate funds (and trying to launder them), but it seems to me that the POSSIBILITY remains of AC needing to recover funds from a lender in such circumstances, having had an equivalent amount frozen or seized within the client account.
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Post by batchoy on Mar 17, 2015 20:29:45 GMT
chris: I don't think anyone ever has suggested using DDs to collect bullet payments due at loan maturity. Payments that large are a different situation entirely, and I'd expect them to be handled separately. And most likely via CHAPS, which should provide same-day cleared funds. (Are CHAPS payments subject to chargebacks?) The issue here is the regular monthly payments, and I wouldn't have thought those would require an enormous amount of working capital to get past the chargeback issue for them. Sounds more complicated than it all needs to be with multiple routes of processing repayments. I don't get the issue with the planned automated processing of funds as they arrive in the client money account, so that they're distributed to lenders within 1 hour of being received. DD is no guarantee that you can collect funds and is every bit as cancellable as a standing order. The only real advantage, again as I understand it, is that it's possible to vary the amounts and dates payments are collected whereas a standing order has a predefined plan. The other difference between an SO and a DD is that an SO is a push from the payor's bank setup by the payor whilst the a DD is a pull by the payee and setup by the payee. Normally the payor signs a mandate giving the payee permission but it can be setup payor not present based on a verbal mandate. The fact that the payee is for the most part in control of the DD is the main reason that most businesses prefer it over an SO.
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acorn
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Post by acorn on Mar 17, 2015 22:05:15 GMT
I suspect most people are thinking in terms of DDs because most regular payments are triggered/ called by direct debit. I haven't raised a Standing Order for more than 15 years because I don't need to make regular fixed payments between my own accounts or to family accounts.
The issue seems to be that some lenders obviously don't use standing orders and seem to manage their cash flow by delaying the AC payment on a regular basis. Also if the payments for loan 101 were being managed by Standing Order, (loan update thread) the payment would have been made on time and we wouldn't have to wait until the Director returns from his business trip on Thursday.
I think borrowers should be firmly encouraged to make payments on time, or as near to it as banking hours permit, and the seven day window only used in exceptional circumstances.
Lenders don't like experiencing cash flow issues any more than borrowers do and chilled and happy lenders are surely always preferable to grouchy ones.
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Post by clgray on Mar 17, 2015 22:34:00 GMT
This is most definitely a subject that needs to be sorted ASAP. Late payments are happening far too often now on different loans - it seems to be a regular occurrence. AC need to make it a priority to stop this from happening. As others have said on the thread it means that lenders are missing out on further interest / money they could be investing into other loans.
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mikes1531
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Post by mikes1531 on Mar 18, 2015 4:46:12 GMT
My understanding is that borrowers are usually required to set up standing orders, although don't quote me on that. Hopefully andrewholgate can confirm. : I think the problem lenders are highlighting here is that this is not the case. In too many cases, when a payment doesn't arrive and questions are asked, the answer is that someone at the borrower's end was not available to initiate the payment. That's why people would like to see that variable out of the equation, and payments set up to happen at the right time without requiring human input every month. The issue of SO vs. DD is a minor one by comparison. (Example below.) The issue seems to be that some lenders obviously don't use standing orders and seem to manage their cash flow by delaying the AC payment on a regular basis. Also if the payments for loan 101 were being managed by Standing Order, (loan update thread) the payment would have been made on time and we wouldn't have to wait until the Director returns from his business trip on Thursday. This is most definitely a subject that needs to be sorted ASAP. Late payments are happening far too often now on different loans - it seems to be a regular occurrence. AC need to make it a priority to stop this from happening. As others have said on the thread it means that lenders are missing out on further interest / money they could be investing into other loans. I'm not too worried about losing a few pence of interest because a payment was late and I had to wait as couple of days to reinvest the money. What bothers me is the fact that a payment didn't arrive, and that triggers worries of whether I'm about to have another default. Anything that can be done to relieve that anxiety would improve the AC lenders' experience, and make people more likely to be willing to invest more with AC.
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Post by oldnick on Mar 18, 2015 6:38:07 GMT
The solution to tardy payments chris and andrewholgate is already available to AC when stipulating the terms of a loan. Retention of interest payments is an established principle which has been used with some loans already, although I'm not sure what criteria are used when employing it. Why not make it a condition of every loan that at least one instalment is withheld by AC at the outset to ensure that it hits our accounts when it should: assuming of course that the 'appointed person' at AC doesn't themselves 'go on holiday/attend a business meeting/move to an area without mobile phone signal/fall ill/forget'! That then gives AC all the time they should need to chase late payment themselves without attracting any attention from us. I think I should get a badge or something for this idea.  |
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bigfoot12
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Post by bigfoot12 on Mar 18, 2015 7:56:54 GMT
For what it's worth as part of the bank project and automation of repayments I'll be sure to agree set procedures with the admin side of the business for handling repayments and then codifying them within the software. As they'll only need to focus on problem payments I'm sure we can afford to be stricter on chasing those who are causing problems. It would be good if part of that project standardized payment dates when those payments fall due on a weekend or bank holiday.
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Post by andrewholgate on Mar 18, 2015 8:59:22 GMT
What we are in the process of doing is implementing a direct debit originator system. We haven't done this previously because there are not only cost implications but we also have to lodge cash to cover any potential charge backs. While the loan book was small, this wasn't cost effective for us. We are now putting it in place.
DD is not a guarantee of payment but it does mean that exceptions (missed payments) are more easy to identify and we get notification when a borrower cancels the DD instruction. So if they did that mid-month we could take action then and not wait until we know the payment has been missed.
On other banking improvements, we have explored the use of debit card payments but under CASS rules on client money, this wouldn't speed anything up as we can't credit the client account until we have cleared funds. Confirmation from a bank that the card is good is not the same as cleared funds and these can take 3 days to come in. We have already seen the FCA bare their teeth on financial promotion rules across the industry (but AC wasn't affected) and I'm not about to start breeching other FCA rules. Therefore the fastest way to get payments to us is by faster payment. We are implementing a system that tells us when a payment has hit the client account so that we can credit it almost immediately. We know that payments into the client account are an issue. We are fixing it.
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sqh
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Post by sqh on Mar 18, 2015 13:04:10 GMT
I think the problem is that the system sets an "investment paused" flag and disables buying and selling.
If the system set a "late payment" flag and continued to allow buying and selling there shouldn't be a problem.
After 3 days late the system prints a letter which is sent to the borrower warning that default interest applies if payment is not made within 7 days.
After 10 days the system sets a "default interest due to late payment" flag.
Some lenders would be keen to buy units with the prospect of default interest, others would sell.
Personally, I was very happy that loan #46 had a payment problem last week. I have been trying to buy units for months and last week I got a decent chunk.
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