Request for feedback on TOU edit

[Guest]

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[JohnAtKiva]

Hey all -

I've been working on a proposed edit to the TOU, and would love your feedback on it before it goes live!

First, some quick context.  A while ago, Colette and Dan asked in a thread about how we handle repayment distributions:

If an MFI makes a partial repayment due to either cash flow issues or currency issues, then there must be a fair way to spread the payments out.  Is it to the oldest loans?  Should it be prorated?  If people felt that the newest loans were made after the MFI were rocky, should the new loans be reimbursed?  Kiva will get people arguing in all three ways, and a freeze on all received moneys until the MFI has a chance to catch up might mean that it works itself out.

Now you are touching on the important issue.  If the delay in repayment taken at Kiva's discretion does nothing to alter the allocation of funds to lenders, then Kiva should have that discretion (although best practice commitments would be appropriate).

What has concerned Kiva Friends about certain situations was the delay resulting in a shift in WHO received the funds as repayments.

I replied with a bit of context into when we consider a pro-rata distribution:

As I understand it, a major consideration for considering a pro-rata distribution is when the borrower to lender connection is broken.  For example: if a partner's MIS system went down and they were unable to generate accurate repayment amounts for each borrower, that would break the borrower/lender connection.  Or alternatively, there may be another situation where Kiva may find it difficult to verify delinquencies and defaults to individual borrowers.

In these cases, we would have no way of confirming which lenders each repayment should be forwarded to.  In this rare case, Kiva's goal would be to be as fair as possible to the affected lenders.  When the borrower/lender connection has been broken, we would seek to achieve this goal by collecting the full amount of funds lent from Kiva lenders to the organization's borrowers, and then paying out those funds to Kiva lender accounts on a pro-rated basis.  That seems more fair than relying on repayment data known to be missing or inaccurate.

Dan pointed out in his reply that our TOU don't explicitly account for the possibility of pro-rata distributions in cases like this (he also asked for more clarity around when Kiva goes pro-rata, which I'll address separately later):

John - The Terms of Use currently read as follows (sect 1.2):
"Except as may be provided in Section 1.9 below (“Loans Made Via Guest Checkout”), any amounts actually received by Kiva from a Field Partner(s) as repayment by the applicable Borrower(s) will be distributed among the Lenders on a pro rata basis in accordance with the amounts loaned by such Lenders to such Borrower(s). These distributions may, in Kiva's sole discretion, be made periodically or in one lump sum once 100% of all Loan proceeds for a particular Loan have been received."

As it stands, the Terms make NO provision for a change in allocation of repayments.

So to address that, I took a look at the relevant portion of the Terms:

Except as may be provided in Section 1.9 below (“Loans Made Via Guest Checkout”), any amounts actually received by Kiva from a Field Partner(s) as repayment by the applicable Borrower(s) will be distributed among the Lenders on a pro rata basis in accordance with the amounts loaned by such Lenders to such Borrower(s). These distributions may, in Kiva's sole discretion, be made periodically or in one lump sum once 100% of all Loan proceeds for a particular Loan have been received.

And worked with our team to propose an edit to the second sentence:

Except as may be provided in Section 1.9 below (“Loans Made Via Guest Checkout”), any amounts actually received by Kiva from a Field Partner(s) as repayment by the applicable Borrower(s) will be distributed among the Lenders on a pro rata basis in accordance with the amounts loaned by such Lenders to such Borrower(s).   In addition, these distributions may, in Kiva’s sole discretion, be made to a Lender either (i) on a pro rata basis based on the portion of the applicable Loan that was funded by such Lender, or (ii) on a pro rata basis based on the portion of the total outstanding amounts of all Loans facilitated through the applicable Field Partner that were funded by such Lender.

Phew, did you get all that?  Anyway a favor: could you guys read through the proposed edits to the TOU, and let me know what you think?  I'd love your feedback before the new language goes live!!

Thanks,
John

[AccountAbility]

I assume that the only change is the one you highlighted in yellow (as follows):
In addition, these distributions may, in Kiva’s sole discretion, be made to a Lender either (i) on a pro rata basis based on the portion of the applicable Loan that was funded by such Lender, or (ii) on a pro rata basis based on the portion of the total outstanding amounts of all Loans facilitated through the applicable Field Partner that were funded by such Lender."

My objection originally was twofold.  First, I didn't believe the Kiva ToU allowed such a shift in recipients and second, such a modification without a clearly delineated process flies in the face of required fiduciary conduct.  It CANNOT be left to Kiva's sole discretion whenever it chooses to willy nilly change who gets repayments back from loans through MFI Field Partners.  You indicated that this would only occur when "the connection between the lenders and the borrowers was broken".  That is a nice concept, and would work if it were definable.  However, as we have seen in the real world experiences, this is hardly ever a black and white issue but rather something in between.

I think I would be so bold as to assert that even if the ToU granted such broad discretion as proposed, if challenged it would be deemed invalid as against public policy and contrary to fiduciary standards under which Kiva would find itself in such situations.  (namely, "we are holding monies and we don't know precisely who it belongs to.")

I think it needs more work  --  with a more precise definition of the "broken connection" and some best efforts language to the effect that if such efforts fail to obtain the necessary data to correctly identify who the repayments belong to, then the alternate method of distribution will be exercised.

Dan

[JohnAtKiva]

I assume that the only change is the one you highlighted in yellow

Yup!

I think I would be so bold as to assert that even if the ToU granted such broad discretion as proposed, if challenged it would be deemed invalid as against public policy and contrary to fiduciary standards under which Kiva would find itself in such situations.  (namely, "we are holding monies and we don't know precisely who it belongs to.")

Say that a field partner has their computers stolen and they lose all of their repayment data.  In that case, we would be in a situation where we would be holding funds repaid by those borrowers but not know which lenders to forward those repayments along to.  In that situation, it seems like the most fair path would be to distribute those repayments (pro-rata) to all of the remaining lenders.  I think that sense of fairness would be the governing factor in any decision around how to handle repayment distributions in that scenario... let me know if you can think of an alternative approach!

I think it needs more work  --  with a more precise definition of the "broken connection" and some best efforts language to the effect that if such efforts fail to obtain the necessary data to correctly identify who the repayments belong to, then the alternate method of distribution will be exercised.

We are definitely open to suggestions!  If you have any thoughts on how to more precisely define a broken connection between borrowers and lenders, please let me know!

Thanks Dan,
John

[iampaul]

Say that a field partner has their computers stolen and they lose all of their repayment data.  In that case, we would be in a situation where we would be holding funds repaid by those borrowers but not know which lenders to forward those repayments along to.

John, I find that confusing for the following reason: it has been my understanding right along that the FP notifies Kiva which lenders have repaid money to the FP and how much they have repaid and then Kiva bills the FP for any such amounts that are not covered by new fundraising under the net billing process. What you are now describing, Kiva having the money but not knowing to whom the money belongs, seems virtually impossible to me under such conditions if an FP's repayment data was lost. Either they would lose the data before notifying Kiva, and before Kiva had the money that could be attributed to that data, or Kiva itself ends up acting as something of a backup to that data through the notifications it has received.

Or am I totally missing something again?

Paul

[AccountAbility]

Yup!

Say that a field partner has their computers stolen and they lose all of their repayment data.  In that case, we would be in a situation where we would be holding funds repaid by those borrowers but not know which lenders to forward those repayments along to.  In that situation, it seems like the most fair path would be to distribute those repayments (pro-rata) to all of the remaining lenders.  I think that sense of fairness would be the governing factor in any decision around how to handle repayment distributions in that scenario... let me know if you can think of an alternative approach!

We are definitely open to suggestions!  If you have any thoughts on how to more precisely define a broken connection between borrowers and lenders, please let me know!

Thanks Dan,
John

The first issue that needs addressing is when does Kiva conclude that the data of whose monies they are holding is not going to become available to them. Part of the reason for requesting "best efforts" language in the ToU is that Kiva has no right to just sit and passively wait to see if the accurate data just shows up.  On the other hand each situation is different and having a process for trying to actively pursue the "lost" data is not too much to expect. This certainly is not something unique to Kiva.  Does Kiva exercise its process of discovery for a period of time -- say six months -- before it concludes it is not going to get the accurate data?  Does it rely on outside authorities and expertise "on the ground"?

Then there is the question of how much data has to be unavailable before giving the funds to a different set of lenders?  If it is 75% verifiable does Kiva work with that portion the way the system is supposed to work and only deal with the 25% in an alternate manner?

It seems to me there are only two options here. One is to spell out what are the circumstances which would cause Kiva to invoke this alternate method of distribution in some detail.  The other option is to insert best efforts language that allows Kiva flexibility while being accountable to an external standard.

Dan

[Amy-in-PHX]

Hey all -

I've been working on a proposed edit to the TOU, and would love your feedback on it before it goes live!
{snip}
So to address that, I took a look at the relevant portion of the Terms:

And worked with our team to propose an edit to the second sentence:

Phew, did you get all that?  Anyway a favor: could you guys read through the proposed edits to the TOU, and let me know what you think?  I'd love your feedback before the new language goes live!!

Thanks,
John

John, I think it needs to say something more like "Under certain circumstances" Kiva may distribute money pro rata, and then specify (to the extent possible) what those circumstances are.  The draft you posted, by saying "In addition" and "in its sole discretion," is just too arbitrary and broad.  I guarantee you that I, for one, would be out of here in a flash if that draft were the TOU.  I think the current TOU is better than the draft - by being silent about the possibility of any alternative distribution methods, at least I feel fairly sure that a departure from the usual method would be done only in extraordinary circumstances.

[RichardF]

Except as may be provided in Section 1.9 below (“Loans Made Via Guest Checkout”), any amounts actually received by Kiva from a Field Partner(s) as repayment by the applicable Borrower(s) will be distributed among the Lenders on a pro rata basis in accordance with the amounts loaned by such Lenders to such Borrower(s).   In addition, these distributions may, in Kiva’s sole discretion, be made to a Lender either (i) on a pro rata basis based on the portion of the applicable Loan that was funded by such Lender, or (ii) on a pro rata basis based on the portion of the total outstanding amounts of all Loans facilitated through the applicable Field Partner that were funded by such Lender.  In the event Kiva determines it is unable to verify the accuracy of the source(s) and/or amount(s) of any Borrower repayments it has received, it will exercise its fiduciary responsibility and engage its best efforts to quickly and accurately identify the sources and amounts in question.  If Kiva subsequently determines any sources and/or amounts of Borrower repayments it holds cannot be accurately identified, such amounts will be disbursed to Lenders on a pro rata basis in accordance with the publicly disclosed repayment schedule(s) on its website showing the sources and amounts of repayments due for the Field Partner(s) in question, and the amounts loaned by such Lender(s) to such Borrower(s).

Edit note. Reordered clauses.

[Harvey:)]

Quote
Except as may be provided in Section 1.9 below (“Loans Made Via Guest Checkout”), any amounts actually received by Kiva from a Field Partner(s) as repayment by the applicable Borrower(s) will be distributed among the Lenders on a pro rata basis in accordance with the amounts loaned by such Lenders to such Borrower(s).   In addition, these distributions may, in Kiva’s sole discretion, be made to a Lender either (i) on a pro rata basis based on the portion of the applicable Loan that was funded by such Lender, or (ii) on a pro rata basis based on the portion of the total outstanding amounts of all Loans facilitated through the applicable Field Partner that were funded by such Lender.  In the event Kiva determines it is unable to verify the accuracy of the source(s) and/or amount(s) of any Borrower repayments it has received, it will exercise its fiduciary responsibility and engage its best efforts to quickly and accurately identify the sources and amounts in question.  If Kiva subsequently determines any sources and/or amounts of Borrower repayments it holds cannot be accurately identified, such amounts will be disbursed to Lenders on a pro rata basis in accordance with the publicly disclosed repayment schedule(s) on its website showing the sources and amounts of repayments due for the Field Partner(s) in question, and the amounts loaned by such Lender(s) to such Borrower(s).

[/b]

   

[AccountAbility]

In the event Kiva determines it is unable to verify the accuracy of the source(s) and/or amount(s) of any Borrower repayments it has received, it will exercise its fiduciary responsibility and engage its best efforts to quickly and accurately identify the sources and amounts in question.  If Kiva subsequently determines any sources and/or amounts of Borrower repayments it holds cannot be accurately identified, such amounts will be disbursed to Lenders on a pro rata basis in accordance with the publicly disclosed repayment schedule(s) on its website showing the sources and amounts of repayments due for the Field Partner(s) in question, and the amounts loaned by such Lender(s) to such Borrower(s).

I am remiss in not earlier thanking you for significantly improved language to account for these "unusual" situations.  

I have been mulling over that last sentence to see how the prorata would work in practice and am still uncertain whether it fully addresses the question.  I think the denominator should be the currently outstanding loan balances for the applicable loans that lack accurate data and the numerator should be the funds that Kiva has obtained from the MFI Field Partner which are attributable to that same group of loans.

Maybe that's what you said and I just can't get the sense of it in practice.  But if Kiva cares, I think they would do well to jettison their language and work from your language, because you've come doggone close to covering the situation.

Dan

[RichardF]

How Kiva Works Steward   Step Kiva Kiva partners with MFI - Due Diligence Partner Partner disburses loan to Borrower Partner Partner uploads loan details, Kiva Repayment Schedule Kiva Lenders fund loans Kiva Kiva sends funds to Partner Partner Borrowers repay Partner Kiva Parter repays Kiva Kiva Kiva repays Lenders

How Kiva Repays Lenders: Decision Tree

• Confirmed Kiva as Steward Info? No. --> Pack up shop, move to Cayman Islands!
  
  • Yes.
  • Confirmed Kiva Repayment Schedule? No. --> Repay Lenders by Kiva Repayment Schedule.
    
    • Yes.
    • Confirmed Borrowers repay Partner details? No. --> Repay Lenders by Kiva Repayment Schedule.
      
      • Yes. --> Repay Lenders by Borrowers repay Partner details.

Dan, thanks.  The logic of my proposed language is based on How Kiva Works and a decision tree I believe Kiva should use “in the event it doesn’t know something it should, based on how it’s supposed to work.”

First, I took the basic steps of how Kiva works and assigned an information steward to each step – who should be responsible for the quality and accuracy of that information.  This is separate and distinct from being repaid any loans made.  I consider Kiva to be offering an implied, if not explicit, warranty on the quality of the information it presents on its online microlending platform.

Second, I constructed a decision tree on how Kiva should repay Lenders any repaid money it holds from Partners.  This decision tree ranges from knowing basically nothing to knowing everything it needs to know to get the job done.

The Terms of Use assumes Kiva is not a source of risk in any way for repaying Lenders.  That’s fine.  I don’t believe it, but that’s another topic virtually no one seems to care about.

The next question, “Confirmed Kiva Repayment Schedule?” gets to the fundamental accuracy of Kiva’s loan repayment system.  These schedules are posted by the Partner along with the loan request profiles.  If, in fact, these repayment schedules turn out to be inaccurate or indeterminate, that calls into question the entire operations of the Partner from the start and the due diligence conducted by Kiva when the partnership was created.  As part of its implied warranty, stewardship of its initial review of the prospective Partner, and ongoing fiduciary responsibilities, I believe Kiva should step up and honor any repayment schedules posted on its website as the standard against which any unknown repayments it holds should be judged.

The final key question, “Confirmed Borrowers repay Partner details?” settles the issue.  If Kiva confirmed the repayment schedule but has doubts about the accuracy of the actual Borrower to Partner repayment records, then the best available information is the schedule.  Again, Kiva’s repayments to Lenders then should be based on these schedules. 

If the Borrowers repayment details to Partners are confirmed, then the repayment information system is working as designed.  Repayments should be made according to How Kiva Works.

As far as the Terms of Use go, if someone can better wordsmith this decision tree, then I’m all for it.  If the Terms of Use get modified to legitimize repaying loans based solely on the total amounts and proportions of loans outstanding to Lenders, then that’s simply another reason for me to be pulling out all of my Kiva credits as quickly as possible.

[JohnAtKiva]

I am remiss in not earlier thanking you for significantly improved language to account for these "unusual" situations.  

Hey Dan - I thought for a moment you were thanking me! :-)

Thanks Richard, for taking the time to pull together some suggested language.  I'll take your suggestions into account when reviewing with our attorneys.

Paul - sorry for not being more careful with my hypothetical.  A better example: a case where a field partner has reported a set of repayment reports and invoice/payments have occurred, but then we investigate and aren't able to verify the accuracy of those reports.  That would've been a better example.

Amy - Thanks for the feedback.  I'll see what we can do.

John

ps Paul and Amy - A special thanks to referring to me by name in the thread above!  It makes me feel more human and more like a member of this community, and I really appreciate it!

[Amy-in-PHX]

ps Paul and Amy - A special thanks to referring to me by name in the thread above!  It makes me feel more human and more like a member of this community, and I really appreciate it!

You're welcome, John -- You have been contributing to this forum longer than I.  I never thought of you as anything but a member of this community, albeit you are also a Kiva staff member.  Happy Sunday,
Amy 

[AccountAbility]

Hey Dan - I thought for a moment you were thanking me! :-)

John

ps Paul and Amy - A special thanks to referring to me by name in the thread above!  It makes me feel more human and more like a member of this community, and I really appreciate it!

John -Since I was quoting Richard's wording, yes I was indeed thanking him.  I will remember to address you as John in the future, although a couple of my generic references to Kiva were not addressing you specifically since I didn't think your role was to fix the ToU.

Dan

P.S. I always pause when someone here refers to the posts on a thread as being "above" -- since this forum let's each user elect whether new posts are added at the top or at the bottom of a thread.  I have always elected to have new posts show on top.  It saves a lot of scrolling.  But since it is a user preference, I try not to refer to the posts below.

[AccountAbility]

I am re-posting the following comment here at John's request, particularly in light of his desire to "close" the thread that it was originally posted to:

I would like to be absolutely clear in what I consider necessary for Kiva to do in these situations.  First, it is abundantly clear that under certain circumstances Kiva needs a mechanism to abandon the peer to peer concept of lenders to borrowers and revert to a concept more in keeping with a participating group loan to the MFI Field Partner.  Notwithstanding comments to the contrary, this action indeed results in my loan repayments being credited to someone else and/or someone else's loan repayment being credited to me. It's an arithmetic certainty that allocating by each loan repayment will produce a different result than allocating by the proportion to all the loans outstanding.

AND there is no provision in Kiva's current Terms of Use for this action, however, reasonable the action might appear to be. The earlier attempt to add such a provision provided total Kiva discretion as to whether to "pull the trigger" on such an action .  The provision needs to include such things as:

1) some specificity as to under what circumstances Kiva will exercise such an action

2) that reasonable efforts by Kiva to obtain part or all of the data have been made (including the ability to exercise such action on only part of a portfolio),
 
3) that there is some objective determination that additional data will not be forthcoming

4) that taking this action is determined to provide the best outcome for all lenders in the affected portfolio

These are unfortunate situations from many perspectives. but that shouldn't give Kiva a whimsical power to mess around with significant monies however it sees fit.  (Of course that is overstating it, but the point is that Kiva can do better in dealing with Kiva lenders)

Dan