Loans
+1 for Swift Capital, -1 for Lending Club
December 15, 2016Swift Capital has named Tim Naughton as Chief Legal Officer, according to a company announcement on Thursday. “Prior to joining Swift Capital, Naughton advised Bank of America’s small business lending and deposit services as assistant general counsel and senior vice president,” it says. “He served as external counsel for American Express and Sallie Mae, and was a partner at Hudson Cook specializing in financial and regulatory compliance.”
Hudson Cook law firm coincidentally produced the merchant cash advance industry’s training course.
Meanwhile, Lending Club disclosed in an 8-K Thursday that CTO John MacIlwaine had tendered his resignation “to pursue another opportunity.” MacIlwaine had been with the company for more than 4 years. He is the latest of several C-level execs to depart in 2016. Former CEO Renaud Laplanche resigned in a scandal earlier this year and CFO Carrie Dolan, like MacIlwaine, also resigned “to pursue another opportunity” back in August. Other executives including Jeff Bogan and Adelina Grozdanova, Lending Club’s Head of Investor Group and Vice President, Head of Institutional Investors respectively, also both resigned in May. Lending Club’s stock is down more than 50% since the beginning of the year.
More Loans, More Fraud? Lenders Are the Victims
October 30, 2016
Funders and lenders might want to review a TransUnion study that revealed borrowers who take out a second loan within 15 days are four times more likely to be later identified as fraudsters. Taking out a third loan in that time period raises the likelihood to ten times.
Telis Demos of the WSJ reported on the subject in a brief titled, Borrower or Fraudster? Online Lenders Scramble to Tell the Difference, but one statistic really stands out. “On average, 4.5% of borrowers take out more than one personal loan on the same day,” according to TransUnion. “While only some forms of loan stacking are fraudulent, the practice can be costly when inauthentic borrowers apply for multiple loans from multiple lenders within a short timeframe.”
TransUnion SVP Pat Phelan wrote that loan stacking can be a lucrative crime. “In 2015, our study of lenders in the FinTech industry reported that stacked loans represented $39 [million] of $497 million in charge-offs. Depending on how fast each lender does their due diligence, it’s possible they won’t know about other loans and applications until it’s too late.”
The analyses are notable in that they attribute stacking behavior to mischievous borrowers. It’s the lenders that are being victimized.
“It’s likely the same applicants with malicious intent who apply for multiple loans are also applying for multiple credit cards or a number of short-term or personal loans at other financial institutions as well,” Phelan wrote.
Morgan Stanley Backs Online Lender Affirm with $100 Million in Debt
October 13, 2016Consumer lending startup Affirm aims to replace credit card purchases with personal loans and has found a backer in Morgan Stanley.
Founded by former PayPal CTO and entrepreneur Max Levchin, Affirm secured a $100 million credit line from Morgan Stanley to expand its lending capacity. This latest round of financing totals the company’s fundraising to about $525 million in cash and debt financing with a $800 million valuation.
Affirm’s consumers are typically immigrants and recent college grads who do not own credit cards and have no credit history, who take out loans for big dollar online purchases like high end furniture, jewelry and gym equipment.
Affirm partners with ecommerce and internet service companies like Expedia, Casper Sleep and Eventbrite to offer personal loans (10-30 percent APR to be paid back within 12 months) to buyers at checkout.
The San Francisco-based company’s loans are funded by Cross River Bank and its investors include marquee Silicon Valley names like Lightspeed Ventures, Khosla Ventures and Andreesen Horowitz.
“The financial industry has managed to avoid significant disruptive innovation since the mid-90s, and we are working hard to change that. Our first goal is to bring simplicity, transparency, and fair pricing to consumer credit,” says Levchin on the company website. Is replacing credit card debt with personal loans a way to go about it?
Payday Loan King Scott Tucker Loses FTC Fight: Must Pay $1.3 Billion
October 2, 2016
Deceptive payday lending has come at a steep price for one Scott Tucker, who was briefly an accomplished professional race car driver. On Friday, September 30th, United States District Judge Gloria M. Navarro ordered a judgment be entered in favor of the FTC in the amount of $1,301,897,652. That concludes a case that had carried on for four years.
The $1.3 Billion judgment is no doubt a bad omen for Tucker as he awaits his criminal trial in New York. He was arrested earlier this year in February and charged with multiple counts of conspiracy, collection of unlawful debts and false TILA disclosures. In that case, US Attorney Preet Bharara seeks a forfeiture of at least $2 Billion. An initial accounting of his assets subject to forfeiture are his ferraris, porsches, a private jet, homes and more than a dozen bank accounts, according to the indictment.
That should be a big blow to Tucker considering that an asset freeze has forced him to rely on court-appointed attorneys in the criminal case. However, the FTC alleged last month that Tucker was still managing to live a lavish lifestyle that included steakhouses, country clubs, and spa visits. Documents filed in the FTC case show that as recent as July 22nd, the court was still ordering newly discovered bank accounts related to Tucker to be frozen. Given the billions sought in damages, one local newspaper in Kansas City, named The Pitch, questioned back in May where all of the money went.
We may soon find out. The judge’s order in the FTC case not only banned Tucker and his co-defendants from participating in consumer lending for life but also ordered that he must identify all business activities for which he performs services whether as an employee or otherwise and any entity in which he has an ownership interest in. The FTC was also awarded the authorization to obtain additional discovery without court consent and the permission to pose as a consumer, supplier, or other individual or entity to the defendants or any individual or entity affiliated with the defendants without the necessity of identification or prior notice.
The judgment was entered in case number 2:12-cv-00536.
Google Payday Loan Ad Ban Conspiracy Theory Gains Steam: It Was The CFPB
September 28, 2016
This past May, Google told the world that they were the good guys.
That’s when they banned payday lending ads from their search results to “protect [their] users from deceptive or harmful financial products” all the while brushing aside the fact they were significant investors in LendUp, a payday loan company.
But LendUp wasn’t just any payday company. They were disrupting the entire game, according to a 2013 story that appeared in TechCrunch that hyped up how they were all about helping borrowers with poor credit improve their credit scores so that they could move up the ladder.
Less than three years later, LendUp CEO Sasha Orloff was still preaching the same principles. “Everything has to be transparent. There is no fine print. No hidden fees. And everything has to get someone to a better place,” Orloff insisted.
But that wasn’t true, according to a Consent Order published by the CFPB and settlement agreement released by the California Department of Business Oversight, in which the company agreed to pay millions in refunds and penalties. LendUp miscalculated APR and for years did not even report the payment history of many eligible borrowers to credit agencies. In fact no loan information was even reported to any credit bureau at all up until February 2014. They also weren’t transparent about their fees.
“Many of the benefits Respondent advertised as available to consumers who moved up the LendUp Ladder were, in fact, not available,” the CFPB asserts in its September 26th order. “Although it advertised all of its loans nationwide, from 2012 until 2015, Respondent did not offer any loans at the Platinum or Prime levels outside of California. In many states Respondent still does not offer such loans.”
Not that they did any better in California, where the DBO charged them with violating basic state laws through expedited funding fees, extension fees, and the condition that they buy other goods or services in order to get a loan.
LendUp told the WSJ that the settlements “address legacy issues that mostly date back to our early days as a company, when we were a seed-stage startup with limited resources and as few as five employees.”
But LendUp may just be a pawn in a bigger game between the CFPB and Google.
I fingered the CFPB as being the likely culprit behind Google’s payday loan advertising ban back in May 2016, when it was very likely that a CFPB investigation of LendUp was currently taking place. That theory was even picked up by The New Yorker. Today it looks awfully likely.
The CFPB mentioned LendUp’s use of facebook advertising and Internet search results advertising in its Order against the company. “Respondent used online banner advertisements appearing on Facebook and with Internet search results (emphasis mine) that included statutory triggering terms, but Respondent failed to disclosed in those advertisements the APR and whether the rate could be increased after consummation.”
Internet search results were used to carry out the deceptive practices, they allege? Sounds like Google had a potential problem on their hands.
Let’s recap:
- November 2013 and January 2016: Google Ventures invested in LendUp which promoted itself as a disruptively transparent and educational short term lender whose mission was to help consumers move up the ladder
- May 2016: Google suddenly bans payday loan ads from their search results seemingly out of nowhere
- September 2016: The CFPB and California DBO announce settlement orders over LendUp’s deceptive practices, wherein it was alleged that LendUp did not exactly do what it advertised and their ads in Internet search results violated TILA and Regulation Z
Was a CFPB investigation the real reason that Google had a change of heart about its lucrative payday loan advertising revenues?
It’s hard to ignore the evidence.
Alt Finance Companies Secure Place on Inc. 5000
August 29, 2016If the story of alternative finance has been major growth, Inc. has quantified the latest statistics through its Inc. 5000 2016 list. Here’s a handful that you might recognize:
| Rank | Company | Growth Rate (3 years) |
| 155 | Capital Advance Solutions | 2328% |
| 176 | Channel Partners Capital | 2074% |
| 183 | Kabbage | 2027% |
| 335 | Lighter Capital | 1144% |
| 346 | Quick Bridge Funding | 1114% |
| 368 | Swift Capital | 1047% |
| 705 | Credibly | 558% |
| 763 | Square | 523% |
| 912 | Reliant Funding | 439% |
| 1259 | Blue Bridge Financial | 307% |
| 1260 | loandepot | 307% |
| 1392 | InterMerchant Services | 276% |
| 1576 | Fora Financial | 240% |
| 1726 | National Funding | 215% |
| 1928 | Tax Guard | 193% |
| 2096 | Bankers Healthcare Group | 177% |
| 2227 | Bizfi | 164% |
| 3113 | Envision Capital Group | 109% |
| 3569 | Cashbloom | 88% |
| 4217 | CAN Capital | 65% |
| 4691 | Capify | 50% |
Goldman Sachs Unveils Online Lending Venture, Marcus
August 22, 2016
Updated: Goldman Sachs’ online lending venture Marcus launched on Thursday.
The investment bank had earlier planned to call it ‘Mosaic’ and its aimed at borrowers with high credit scores (above 660) looking to consolidate debt.
Notably, it’s invite-only for now, meaning the only people who can apply are those who receive a special code from them in the mail. Might that potentially be Lending Club’s customers?
The bank is coming out swinging by promoting their no-late-fee, no-origination-fee, no-fee-of-any-kind-outside-of-interest-charges platform, something no marketplace lender can compete with.
Goldman has been laying the groundwork for Marcus since the beginning of the year. The bank made several key hires for the project including former Consumer Financial Protection Bureau attorney, Mitch Hochberg who was roped in to head compliance for the unit. The venture will be lead by Harit Talwar, former head of card services at Discover Financial and executives from American Express and Lending Club.
As deBanked commented earlier, Goldman’s foray in the crowded online lending universe could be too little, too late with a me-too product. It’s quickly-processed consumer loans might have to compete not only with incumbents like Lending Club, Prosper Loans and Avant but also with other bigger banks like Discover and Chase.
Google’s Payday Loan Ad Ban References The Truth in Lending Act (TILA)
August 15, 2016Did the government pressure Google?
Payday loan ads have mostly disappeared from Google’s search results after they banned ads for personal loans where the Annual Percentage Rate (APR) is 36% or higher. In a May 12th post, shortly after the proposed ban was announced, I speculated that the sudden change was likely due to government intimidation, rather than the come-to-Jesus moral reckoning claimed by Google’s Director of Global Product Policy, David Graff.
Google’s official Adwords policy regarding personal loans now cites the Truth in Lending Act, hinting that compliance with the policy is really about compliance with federal law.
Advertisers for personal loans in the United States must display their maximum APR, calculated consistently with the Truth in Lending Act (TILA).
This policy applies to advertisers who make loans directly, lead generators, and those who connect consumers with third-party lenders.
The TILA regulations can be found at 12 CFR Part 1026. The description of which charges are included and excluded from the calculation of “Finance Charge” is found in Section 1026.4. The APR calculation for “Open-End Credit” is found in Section 1026.14. The APR calculation for “Closed-End Credit” is found in Section 1026.22.
The timing of this change is suspicious since just one month before Google announced the ban, the owners of an online payday loan lead aggregator were hit with a lawsuit by the Consumer Financial Protection Bureau (CFPB). Among the allegations is that the defendants ran a lead aggregation business that did not attempt to match consumers with the best loan for their needs, as consumers were led to believe by some lead generators.
“In particular, consumers are likely to be steered to lenders that charge higher interest rates than lenders that comply with state laws, that do not adhere to state usury limits, or that claim immunity from state regulation and jurisdiction,” the complaint says.
The company the defendants ran, T3Leads, was also sued by the CFPB in a separate action.
Google too, as master aggregator, arguably does not attempt to match consumers with the best loan for their needs, nor have they likely been continuously vetting their lending advertisers for legal compliance. While Google has not been sued or accused of any wrongdoing, the CFPB seemed to be laying the groundwork for such a challenge in the future. And as a blanket hedge or perhaps after a direct threat, they’re now applying certain federal loan laws as if they were already subject to them.
You can see an example of the before-and-after of Google’s search results HERE.
