Kiva Terms of Use

[Guest]

.

[AccountAbility]

I have been (patiently?) waiting to see if Kiva would update their Terms of Use before year end.  The tax treatment of losses on loan defaults becomes an issue as this tax year draws to a close.  With Kiva's current ToU disavowing any obligation by anyone for repayment, it appears as though there will be no (USA) tax deduction allowed as an investment loss.

In order to put in one place the background of this concern, I quote the current ToU in its offending section 1.2:

"....You hereby acknowledge and agree that neither Kiva, its Field Partner(s) nor the Borrower(s) will be obligated or pay you any principal (other than to the extent actually received by Kiva from a Field Partner with respect to such Borrower)...."

I didn't put my money in Kiva loans based on tax treatment, so it might not stop me from continuing, but the implication in Kiva's FAQs when I originally put the money in was that, although the "loan" itself was not a deductible donation, a subsequent loss from defaults might be deductible as an investment loss--consult with your tax advisors about that.  (I can't seem to find that particular statement at this time on the website, so perhaps Kiva removed it.)

If anyone would like background on Kiva's Terms of Use as they now stand and the implications for lenders of their current terms, I would refer you to the thread in the lounge entitled "Kiva Contract" found here:

http://www.kivafriends.org/index.php/topic,1666.0.html

Dan

[wthepoo]

(I can't seem to find that particular statement at this time on the website, so perhaps Kiva removed it.)

Hi Dan,

it's here: http://www.kiva.org/about/help/questions?subtopic=How%20Kiva.org%20Works#question27

Best wishes,
Wolfgang.

[AccountAbility]

Thanks, Wolfgang - Although the wording is pretty vague, I'm glad to see that the comment is still there at least.  It gives me some hope that maybe the ToU will be modified.

Dan

[AccountAbility]

In an effort to link related threads so people can find relevant discussion, here is the link to a thread I'll call "Six days in July"  that discussed the underlying issues/problems with the current Terms of Use:

http://www.kivafriends.org/index.php/topic,2332.0.html

Dan

[AccountAbility]

Apparently Kiva does look at its Terms of Use from time to time.  Since I last checked, there have been two insubstantial changes made.  They fixed the citation symbols for the sections of California Law which deal with arbitration.

Otherwise, no "best efforts" promised and still no clarity on who "lenders" are legally lending to.

Dan

[Soriak]

This may be different in the US, but in Switzerland I would just deduct it and the tax agency would let me know if they disagree with the deduction. It would be entirely obvious that no attempt to evade taxes was made: the sum is insignificantly small and the argument to allow the deduction is reasonable.

Ultimately, I don't see how it matters whether the loan was to Kiva, to the MFI, or to the entrepreneur. You loaned money, you didn't get it back -> capital loss. But I'm not your tax consultant. 

[AccountAbility]

Ultimately, I don't see how it matters whether the loan was to Kiva, to the MFI, or to the entrepreneur. You loaned money, you didn't get it back -> capital loss. But I'm not your tax consultant. 

It doesn't matter WHO I lent it to but it does matter THAT I lent it, and not that I just gave it away with a hope that I probably will get it back.  That is my concern with the current ToU which removes the obligation from all parties.

Dan

[RichardF]

It doesn't matter WHO I lent it to but it does matter THAT I lent it, and not that I just gave it away with a hope that I probably will get it back.  That is my concern with the current ToU which removes the obligation from all parties.

Dan

Apparently, I interpret the ToU differently.

1.2 Loan Collection and Repayment. As Borrowers repay the Loans, the Field Partner(s) will post repayments to the Website. Repayments will be made in periodic installments, depending on the terms of the applicable Loan. You understand, however, that you may be able to retrieve whatever repayment, if any, Kiva collects at the end of the Loan term in one lump sum or in any other periodic installments provided for in Kiva's sole discretion. Any amounts received from a Borrower as repayment will be distributed among the Lenders on a pro rata basis in accordance with the amounts loaned by such Lenders to such Borrower. You hereby acknowledge and agree that neither Kiva, its Field Partner(s) nor the Borrower(s) will be obligated or pay you any principal (other than to the extent actually received by Kiva from a Field Partner with respect to such Borrower) [emphasis added] interest or other fees or amounts to you or any other Lender in connection with any Loan you make. At this time, Kiva does not charge interest on any Loans posted on the Website.

Turning a disclaimer of double-negatives into an assertion, I transform this language to read...

"You hereby acknowledge and agree that Kiva, its Field Partner(s) and the Borrower(s) will be obligated to pay you any principal to the extent actually received by Kiva from a Field Partner with respect to such Borrower."

I interpret this to mean the repayments portion of the Kiva lending cycle obligations apply as follows (also assuming the PA2 repayment model):



Step 4: The Borrower is obligated to repay the the Field Partner the principal of the loan originated by the Field Partner, plus interest, according to their contractually-specified repayment schedule.

Step 5: The Field Partner is obligated to repay Kiva any principal collected from the Borrower - settled on a monthly, net balance basis (according to the PA2 model).

Step 6: Kiva is obligated to repay You any principal repaid by the Field Partner at the end of the Loan term in one lump sum or in any other periodic installments provided for in Kiva's sole discretion (on a monthly basis for the PA2 model).

[AccountAbility]

Apparently, I interpret the ToU differently.

Turning a disclaimer of double-negatives into an assertion, I transform this language to read...

"You hereby acknowledge and agree that Kiva, its Field Partner(s) and the Borrower(s) will be obligated to pay you any principal to the extent actually received by Kiva from a Field Partner with respect to such Borrower."

I agree that they have an obligation to Kiva lenders to turn over money actually received, but that is only a middleman's obligation of conveyance.  The other end of any loan made contains a "I hereby promise to repay you" from someone.  That someone is undisclosed as it relates to Kiva "lenders".

Dan

[RichardF]

I agree that they have an obligation to Kiva lenders to turn over money actually received, but that is only a middleman's obligation of conveyance.  The other end of any loan made contains a "I hereby promise to repay you" from someone.  That someone is undisclosed as it relates to Kiva "lenders".

True, but... What do you want to see changed and why?

The ToU clearly states you are making a loan.  It clearly states you cannot claim it as a charitable contribution.

1.3 Tax Deductibility. You understand that Kiva is a non-profit public benefit corporation. Kiva has received exemption with the Internal Revenue Service as an organization that qualifies as a public charity under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended from time to time. You acknowledge, however, that because you are making a loan and not donating any money, you are not eligible to receive a tax deduction as might otherwise be available in connection with a charitable contribution to a tax-exempt public charity. ...

Nonrepayment of a loan results in a capital loss.  What are you looking to see in the ToU that currently is not there? 

If Kiva implemented some form of a non-interest, principal repayment promissory note approach like what Prosper.com uses, would that address your concerns (e.g., Lender: WebBank. Assigned to Prosper Marketplace, Inc. Assigned to ___)?  What would Kiva lenders gain from such a change?

Prosper.com Promissory Note Sample
Promissory Note
Borrower name and address: __________________________ (not visible to lenders)
Lender: WebBank. Assigned to Prosper Marketplace, Inc. Assigned to ___________________ (not visible to borrowers)

1. Promise to Pay. In return for a loan I have received, I promise to pay WebBank, a Utah-chartered Industrial Bank ("you") the principal sum of ___________________ Dollars ($__________), together with interest thereon commencing on the date of funding at the rate of ____ percent (____%) per annum simple interest. I understand that references in this Note to you shall also include any person to whom you transfer this Note.

2. Payments. This Note is payable in 36 monthly installments of $___________ each, consisting of principal and interest, commencing on the ________ day of _____________, and continuing until the final payment date of __________________, which is the maturity date of this Note. The final payment shall consist of the then remaining principal, unpaid accrued interest and other charges due under this Note. All payments will be applied first to any late charges then due, then to any unpaid fees incurred as a result of failed automated payments or returned checks or bank drafts as provided in Paragraph 11, then to interest then due and then to principal. No unpaid interest or charges will be added to principal.

...