Articles by deBanked Staff
Lending Club CEO Resigns After Shady Dealing, Manipulated Loan Application Dates
May 9, 2016
Lending Club CEO Renaud Laplanche has resigned after an internal probe revealed that all was not right with the sale of a $22 million pool of near-prime loans to a single accredited institutional investor. The pool contained loans that the investor specifically did not want. It was not a mistake. “Certain personnel apparently were aware that the sale did not meet this investor’s criteria,” said new executive chairman Hans Morris.
The Board stepped in and conducted its own investigation. During the course of it, they also found that a senior manager had manipulated the application date on $3 million worth of loans. A forensic auditor was then called in but they didn’t find any evidence to indicate that other loan data had been manipulated.
Three senior managers have also resigned or been terminated. None will be getting severance pay. Morris said that they could not disclose their identities.
Company President Scott Sanborn is now the temporary CEO.
Square Capital Has No Borrower Acquisition Costs, Hints at Making Loans to Non-Square Users
May 8, 2016
As the marketplace lending industry frets over acquisition costs, one lender is sitting pretty, Square. That’s because they source their borrowers from their existing payment processing ecosystem. Square CFO Sarah Friar said on their earnings call last week that it was one of the big advantages they had with investors looking to buy loans. “We’re not having to go out and it’s not costing us more to do customer acquisition because it doesn’t cost us anything. We’ve already acquired them,” she said. Compare that to OnDeck who spent $16.5 million in Q1 to acquire borrowers through sales and marketing.
Also on the call, Friar did reveal one benefit of having switched from a merchant cash advance product to a loan product that didn’t have anything to do with investors, and that’s being able to handle clients who want to satisfy the balance in full or obtain additional funds. Since no interest accrues with traditional merchant cash advances, there are no presumed discounts if you want to repurchase your sold receivables. Early repayments were apparently the number one request they received from their clients.
It’s not clear exactly what Square did previously when merchants wanted to “repay early,” but there are other merchant cash advance companies that will allow clients to repurchase back their sold receivables at a slightly discounted price if it’s relatively soon after the original transaction occurred. Either way, Friar said that the shift from MCA to loan hadn’t changed the level of demand.
Notably, while not even directly asked, Friar also said that they are also continuing to look into making loans to non-Square users, perhaps through other card processors.
Defrauding Fintech Lenders Leads to Conviction
May 8, 2016
It’s not just collection firms and attorney demand letters that deceptive borrowers need to be wary of. In the Western District of Tennessee, Preston E. Byrd was convicted on six counts after defrauding RapidAdvance and Windset Capital out of more than $100,000 collectively.
According to the original indictment filed in August of last year, “Byrd did knowingly devise and intend to devise a scheme and artifice to defraud Windset Capital and RapidAdvance by means of false and fraudulent pretenses, representations and promises.” As part of that, Byrd submitted fake bank statements, a fake lease agreement and other misleading documents. He faked his own name, calling himself Jason Hester, and pretended to be the landlord of the property in question, confirming falsely to underwriters that a lease existed and was in good standing.
In reality, he had no business location.
Once Byrd received the funds from each company, he wired portions of the ill-gotten proceeds to other accounts.
The jury convicted him on three counts of wire fraud and three counts of engaging in monetary transactions in criminally derived property. The trial concluded on March 24th of this year and Byrd is expected to be sentenced on June 16th.
The case is unique because the sole victims were fintech lenders and the criminal charges were brought by United States Attorney Edward L. Stanton III.
On his twitter account, Byrd describes himself as a “multifamily housing developer, entrepreneur, business consultant, public speaker, mentor, yogi, and (some might say) a cool dude.” Not mentioned there however is that Byrd was previously convicted of wire fraud in 2003 and that he also lost a lawsuit brought by Arvest Bank for fraud.
The criminal case # concerning Byrd with Rapid and Windset is 2:15-cr-20025-JPM
Marlette Nabs Prosper’s COO Josh Tonderys
May 6, 2016
Prosper’s loss is Marlette’s gain.
The Delaware-based marketplace lender, Marlette, appointed Josh Tonderys as its new president after Prosper let him go earlier this week.
His departure came as Prosper laid off 171 employees, closed down its office in Utah and led CEO Aaron Vermut to draw a nil paycheck. Prior to joining Prosper in 2012 as chief risk officer, Tonderys worked at Barclaycard US where he led their open market credit card business overseeing assets of over $2.5 billion.
“We are laser focused on being the long-term winner in this space and building a sustainable business that will prevail regardless of the economic cycle,” said Jeffrey Meiler, CEO and founder of Marlette which has originated $2 billion loans to date.
Is Marlette’s confidence overstated at a time when the industry is entering a rough patch? Two months ago, Prosper raised the interest rates they charge, citing a “turbulent market environment,” before Citigroup announced that they would no longer buy loans from Prosper to package into bonds. Its rival Lending Club saw a 10 percent decline in its stock and is expected to announce Q1 earnings on Monday.
Marketplace lending emerged as a surrogate for bank loans touting to be an industry well prepared for a downturn. But as things stand, its place in the world is being challenged and some companies are feeling the pressure.
SoFi is Now a Fannie Mae Seller, Servicer
May 4, 2016
SoFi clocked in another milestone in mortgage lending by becoming an approved Fannie Mae seller and servicer.
SoFi Lending Corp, the company’s wholly owned subsidiary can, as a seller, sell mortgage loans to Fannie Mae and service loans on behalf of the Federal National Mortgage Association.
“While we launched our mortgage business focused on larger ‘jumbo’ loans, the certainty and efficiency offered by Fannie Mae will enable us to serve more members by expanding geographically and into smaller loan amounts,” said Michael Tannenbaum, VP of Mortgage at SoFi in a press release. “Sixty-five percent of SoFi’s purchase customers are first-time homeowners who have what we call a ‘millennial mindset.”
In March this year, the company was laying down the works to start a real estate trust to buy mortgages sold by the lender. According to Bloomberg, some of SoFi’s borrowers seek mortgages that are too big to be funded through Fannie Mae and Freddie Mac.
In the crowded online lending space, where customer acquisition is key, companies scramble to lock in borrowers early to keep lending to them through different life stages from student loans to auto loans to mortgages. SoFi uses the free cash flow method for mortgages, a deviation from the industry standard of debt-to-income ratio.
“There isn’t a banker out there that doesn’t look at me and shake his head and say, ‘You don’t know what you’re doing, but we’re doing it,” Cagney told Bloomberg. SoFi plans to sell $3 billion in mortgages this year.
California Lending License Questions Answered – Even the Tricky Ones
May 2, 2016
Q: Can a loan broker operate under the authority of a lender that’s licensed in California?
A: “The CFLL requires both lenders and brokers to hold their own licenses.”
That’s one of many responses provided by Department of Business Oversight Commissioner Jan Lynn Owen to a series of questions and hypothetical scenarios posed by the Equipment Leasing and Finance Association. The nine pages of answers, available on Leasing News basically explains that any funny business or creativity to try and circumvent the law will not be tolerated.
Tom McCurnin, an attorney at Barton, Klugman & Oetting, wrote in Leasing News that “disguising the commissions as something else, like a markup or consultation fees, won’t pass muster before the DOB. The parties engaging in this may be subject to a cease and desist order and hefty fines.”
“While many may claim the recent letter is a revelation, I believe it is simply a restatement of what we’ve known all along—get a license or face the consequences,” he concludes.
CAN Capital Makes Prized Alliance With Entrepreneur Media Inc
May 2, 2016CAN Capital partnered with Entrepreneur.com to create another channel of funding small businesses.
Last month (April 7th), the 18 year old company surpassed $6 billion in small business funding and later this year, it will launch Entrepreneur Lending Powered by CAN Capital to process working capital loans on behalf of the media giant.
“As we get ready to celebrate National Small Business Week, we are excited to work with Entrepreneur Media to continue delivering on our vision of helping small businesses grow and achieve their goals through fast access to funding,” said Daniel DeMeo, CEO of CAN Capital.
The New York-based company which uses propriety data-driven models has made over 170,000 individual fundings including restaurants, medical offices and beauty salons. Last year, the company introduced two new special small business loans – TrakLoan, which adjusts daily payments with daily card sales and a monthly installment loan product offering a customer longer terms with higher transaction sizes.
This comes in the context of small businesses being underfunded. Business Insider recently reported that “only half of small businesses with $100,000 to $1 million of annual revenue received at least some of the financing they applied for from large banks in late 2015.”
As banks wrestle with tight lending practices, online lenders have filled the gap for providing quick and smaller loans to businesses who need prompt financing.
OnDeck Prices $250 Million Securitization
April 29, 2016
OnDeck announced the pricing of its $250 million securitization. The online lender will issue notes in two classes consisting of $211.5 million initial principal amount of Class A Notes and $38.5 million initial principal amount of Class B Notes with final legal maturity in May 2020.
Notes were priced with an annual yield to expected maturity of 4.250% for class A notes and 7.754% for class B notes.
“We believe the successful pricing of our securitization demonstrates the strength of our hybrid funding model, which includes warehouse funding, securitizations and whole loan sales,” said Howard Katzenberg, OnDeck’s chief financial officer in a news statement.
As the alternative lending industry proliferates, companies scramble to secure long-term capital and diversify risk. The hybrid model for funding is one way of doing that as investors demand higher yields from loans sold by marketplace lenders. Moody’s downgraded loans consumer loans originated by Prosper on account of missed payments of underlying loans. And earlier this month (April 12th), Citigroup said that it will stop securitizing loans made by Prosper.
However, this does not signal gloom and doom yet. This week, Lending Club revisited securitization and confirmed that it is reportedly in talks with Goldman Sachs and Jefferies Group to put together its first big bond offering.
Will OnDeck’s loans face the same market trepidation?
