Various Loan Updates (Assetz Capital)

Another excellent reason for ilmoro maintaining numbers, if I get 1 out of 6 wrong.

No, I don't believe so. I guess AC figure that the "vocal minority" on here that might have questions / issues are attentive enough to find it for themselves! 

The following questions have been raised in the Q&A...

Re WMCH: Probably best to allow the extension on the £200K, but if they are also in the process of taking their business elsewhere, why not give them a hard time with the interest?

There are a number of points that need addressing here and I will try to do so fairly and reasonably.

First point I want to make is that there was a comment raised that the business has made £20k profit in the quarter and the repayments are £19k in cash.  The assumption was made that repayments could double and still be affordable.  This is not so, as profit isn;t cash.  For clarity, I am a trained accountant so do have a good understanding of this.  The reasons why profit isn't cash are:

- A sale may be recorded in the P&L but the customer may be given an extended period to make payment which is recorded as a debtor in the balance sheet.  A financial transaction but not cash.  The cashflow takes place at a later date.
- A cost may be recorded in the P&L but the business may have been offered credit terms, in which case a creditor is recorded on the balance sheet.  As above, the financial transaction has taken place but the cashflow happens later.
- Non-cash items could be in the P&L.  Assets on the balance sheet may get revalued which causes a "profit" in the P&L but there is no cash transaction.  Alternatively, if the assets are devalued (as with depreciation under normal accounting practices), then this causes a "cost" in the P&L but no cash has been transferred.

Profit is not cash.

Secondly, variation to loan agreements.  There are clauses in our loan agreements that allow borrowers to request a variation.  If made in a timely manner, any variation is not a default if agreed by the lender(s).  Therefore default interest is not payable.  We also have to abide by Outcome 6 of the FCA TCF guidelines:  

Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint. - See more at: www.the-fca.org.uk/fair-treatment-customers#sthash.wpAcrDWd.dpuf

We cannot put in place unreasonable post-sale barriers.  Treating the loan as a default after the borrower has made a reasonable request to vary would be considered unfair.

Thirdly, the borrower is penalised financially.  Taking the £200k for an extra quarter costs the borrower £5,500 in interest that they wouldn't be paying if they made the repayment on time.  You are not being asked to lend £200k at 0% but you are getting a reasonable level of return on the money for the period.  Asking for default interest on a loan that is not in default would be considered unreasonable under Outcome 6.

Fourthly, as with all credit decisions, we have made an assessment and spoken extensively to the borrower before we put it anywhere near the lenders.  This isn't just a blind portal with not credit control in place.  We are not just a processing unit, but we have highly experienced professionals looking at each request and making informed considerations on what is the best strategy.  If it wasn't a reasonable request, we wouldn't put it to you.  My team have spent time looking at the request and seeing what else could be done.  They know that profits aren't cash, and they know how to look at a cash flow.  If they say there would be a cashflow pressure on the business that is because there is one.  The alternative here is to say no and let the loan default.  At which point we have breach Outcome 6 of the FCA TCF rules, and potentially putting a loan at risk of capital losses.  We put things to you for a reason and not because we are "soft".  AC are by no means soft in their approach.

Andrew

Well other platforms and other lenders do it, and I cannot understand the point of the relevant clause in the loan agreement if it has to be waived every time.

The variation is NEGOTIATED and as such you should routinely include enhanced interest as per the original agreement before you put it to lenders. 

I have created a poll about this p2pindependentforum.com/thread/3722/when-ac-charge-default-interest     As you probably know this is already going as a complaint to the FOS from when you let the borrower off scot free last time.