Loans
Loan Scammers Play With Email Dots
June 28, 2023
Did you know if you send an email to myname@gmail.com or my.name@gmail.com or myna.me@gmail.com, they would all go to the same place? Scammers do. In a recent bombshell report published by the SBA and OIG, $200 billion in PPP/EIDL fraud was accomplished through a number of common techniques, one of which appears to be through the manipulation of email addresses.
Some mail servers, including Gmail’s for example, ignore the dots, a feature likely built in because periods are commonly used as concatenation operators to join two strings in programming. Reader’s Digest recently called this “The Gmail Trick That’s Been Around for 15 Years—But Few People Know About It.”
“Any combination of your e-mail address and those little dots is sent to the exact same inbox. You own all dotted versions of your address,” RD wrote.
The implications of this, however, are that scammers can potentially bypass systems that rely on e-mail addresses as a primary form of verification or identity. Both scammer@gmail.com and scam.mer@gmail.com could have separate accounts in one system even though it’s the same email address. This method is useful to scammers because they do not have to register additional gmail accounts, which could potentially trigger additional unnecessary verifications or reviews from Google for suspicious activity. Instead, they can rely on the single account.
Furthermore, the SBA report said that aliases or email forwarding or disposable email addresses are also used in fraud and are a fraud indicator.
“Using an alias technique to add an extension to an existing email address through use of a dash (-) or plus (+) that resolve to the same email (e.g., username-123@gmail.com or username+bob@gmail.com both resolve to username@gmail.com)” was something that the SBA analyzed in its fraud investigation. “Using a disposable email service to remain anonymous by receiving emails at a temporary address that may self-destruct after a certain time elapses” is another technique that was examined.
Is your system checking for dots in gmail addresses? If they weren’t before, they should now!
Prosper Originates $631.9M in Q1
May 23, 2023Prosper Marketplace originated $631.9M in loans in the first quarter of 2023, up 13% YoY. Ninety percent of Prosper’s Q1 2023 loans were funded through their Whole Loan channel, down slightly from the 92% in Q4 2022. The company generated a loss of $9M on about $38M in revenue.
Prosper is one of the few fintech lenders from the ancient era to somewhat stick with its original business model. Although it moved away from peer-to-peer to Whole Loan sales, it did not become a bank like its competitors LendingClub and SoFi did. Prosper also seems to have stabilized after some tumultuous growth years in the pre-covid era.
SBA Lifts SBLC Moratorium
April 11, 2023
It’s official. The SBA is lifting the moratorium on licenses for Small Business Lending Companies (SBLCs), ending the 40-year pause that began in 1982. The SBA is also adding a new type of lending entity called a Community Advantage SBLC while also removing the requirement for a Loan Authorization in the 7(a) and 504 Loan Programs.
The 37-page rule, which is slated to be published in the federal register on April 12th, included the SBA’s analysis of all the comments it had received, including the criticisms. Some argued, for example, that opening up the doors would allow the unscrupulous world of fintech to participate in the market. The SBA was unmoved by this, countering that existing participants already rely on fintech.
“SBA has for many years provided oversite to non-depository entities participating in the SBA business loan programs,” the SBA said. “This includes SBLCs, non-federally regulated lenders (NFRLs), 504 Certified Development Companies (CDCs), and Microloan Intermediaries. In fact, most all lending institutions incorporate the use of financial technology in their delivery of loans and other financial products.”
One such fintech that has been eager to become a participant, issued a prepared statement on the decision earlier today.
“Funding Circle applauds the Biden Administration for ending the SBA’s 40 year moratorium on licensing additional state and SBA licensed and regulated non-depository lenders thus ending its lender oligopoly in favor of competition and innovation,” said Funding Circle. “This is an opportunity for the more than 8,000 community banks and credit unions that don’t offer 7(a) loans to partner with Fintech lenders to offer affordable loans quickly in underserved communities. Congress should now focus on ensuring SBA has the resources necessary to license more than three new lenders in its SBLC program in order to increase competition and distribution of government guaranteed loans in underserved communities.”
The SBA also published new rules on April 10th that will amend various regulations governing the 7(a) and 504 loan programs.
Canada Reduces Max APR Cap From 47% to 35%
March 28, 2023
The government of Canada announced that it will be reducing the max allowable loan APR under the Criminal Code from 47% to 35%. The startling news was included in the annual federal budget report released on Tuesday as part of the nation’s initiative to “crack down on predatory lending.” It also said that it plans to consider reducing the max cap by even more in the future.
The budget report supported its decision by sharing an anecdote about a fictional single mother name Hannah. In this story, Hannah’s car breaks down and she is unable to get to work unless she comes up with $5,000 for the repairs. It’s then that a “predatory lender” tries to offer her a loan with a 46.9% interest rate, allowing her to fix her car but leaving her in a “cycle of debt.” Fortunately, due to the new APR cap that will be put in place, Hannah will be spared this fate, the government touts. Ironically, it does not consider the possible consequences of receiving no loan at all.
The proposal to reduce the max APR cap had been opposed by the Canadian Lenders Association. It issued an official statement shortly after the new rule was made public.
“This will disproportionately affect low-income Canadians – the segment of the population most at risk given their inability to qualify for credit at prime rates – who struggle to make ends meet by limiting or eliminating entirely their access to credit,” said CLA president and CEO, Gary Schwartz. “In an effort to ease the financial burden on Canadians who need it most, the federal government has achieved the opposite. If you are borrowing at non-prime, you are already facing financial challenges. For potentially millions of Canadians, that burden just got heavier today.”
Marcus Ceases Its Lending Business, Admits They Tried to Do Too Much Too Quickly
January 23, 2023
It’s the end of an era. Marcus, an online consumer lending venture launched in 2016 by Goldman Sachs, is winding down its lending business. Rumors of the shift circulated around the media last month but last week Goldman Sachs made it official.
“We started a process to cease offering new loans on the Marcus platform,” said Goldman CEO David Solomon. “We will likely allow the book to roll down naturally, although we are considering other alternatives.”
Solomon attributed the move to the firm reorganizing itself but elaborated further when pressed.
“…we tried to do too much too quickly,” Solomon said. “And of course, in the environment that we are in, it’s hard to go back when we started in that strategy 6 years ago. We obviously built the deposit business, the loan business, and we talked about a much broader platform and I think we came to the conclusion that there were some changes.”
Solomon added that in trying to do too much, it was affecting their execution and he conceded that they didn’t have “all the talent we had needed to execute the way we wanted.”
Left unsaid about Goldman’s original motivations was a desire to compete with LendingClub, who had blazed a massive trail with peer-to-peer lending and showed the world a market of potential untapped opportunity. The two firms went head-to-head against each other for consumers and LendingClub eventually ditched peers as a source of financing and later became a bank itself. The final destination for both companies brings closure to the twenty-teens where growth of an online lending business at any cost was all the rage.
Coincidentally, The Federal Reserve is now investigating Goldman Sachs’ use of appropriate safeguards in its Marcus lending division, according to the WSJ.
The Marcus online savings account product is reportedly remaining active.
Financing Fertility
January 6, 2023
Ever heard of financing in vitro fertilization? LendingPoint offers financing opportunities for IVF to help women trying to get pregnant. On average IVF can cost anywhere from $15,000 to $30,000. That’s not cheap. LendingPoint is widely known in the consumer lending space but the range of why borrowers are looking for financing is wide.
“We have some really impactful financing opportunities where we’re financing IVF programs for women to get pregnant, which is probably some of the most lovely stories that we get to hear and an impact that we get to do on someone’s life,” said Amanda Flashner, Chief Experience Officer at LendingPoint.
Different treatments have different price points and different needs. LendingPoint partners with many merchants so that they can offer their own customers what they need at the point of sale. Other types include medical, dental, and home improvement businesses, for example.
Flashner was recently appointed Chief Experience Officer (CXO) which is a new executive position for the company altogether. Advocating on behalf of their customers, she is responsible for their beginning-to-end experience, making sure it’s personalized to the customer centricity that they’re building.
“It’s a really exciting time. I like to say our customers have always been the heart of our company and they are, and our CEO (Tom Burnside) has been an incredible advocate for the customer experience practice that I helped build here from the ground up at LendingPoint, but now our customers really have a seat at that table, helping make big decisions on their behalf, so that’s really exciting.”
CXO is not commonly heard of like CFO or COO but Flashner said she does see this role becoming more important in an executive committee of other companies.
Borrower Didn’t Make Their Payment? Maybe They Just Forgot
November 18, 2022
When borrowers gets squeezed, who will they pay first? According to a survey conducted by Lexop, American respondents ranked mortgage and rent payments as having the highest priority among recurring bills. Utilities (water, electricity, and gas) came second, car loans third, phone/internet bills fourth, and personal loan payments dead last. That may not be what lenders want to hear but the information could prove helpful in preparing for an economic downturn.
Notably, a missed payment may not even be a sign of financial stress. According to the same Lexop survey, 34% of respondents stated that the primary reason they had for being late on a bill was that they simply forgot. A majority also disclosed that they were late in paying because of other non-financial issues like invoicing errors, not having access to the bill, payment method issues, and more.
These seem like addressable issues especially since 35% of respondents wanted digital reminders via text or email. Less than 10% preferred they be reminded via phone call or snail mail.
“Empowering consumers to work with collectors toward meeting their payment goals is the best way to foster healthier business-customer relationships that will ultimately result in increased debt recovery and customer retention,” said Amir Tajkarimi, Chief Executive Officer and Co-founder of Lexop, in a published statement related to the findings. Tajkarimi was a panelist on The Need for Speed in Payment & Collection at the Canadian Lenders Summit in Toronto this week. There, he explained that his firm was hyper focused on improving the collections user experience and emphasized that a missed payment is not always the result of a borrower not having the resources to pay.
The data revealed from the study is timely since 60% of respondents also shared that they were concerned about their ability to pay bills over the next 6 months.
Upstart Hit With Another Lawsuit
October 13, 2022A new lawsuit brought by a shareholder of Upstart is also being brought derivatively on behalf of Upstart. That’s because plaintiff alleges that the Directors of the company would otherwise have to sue themselves or the company’s executives for the damage caused, a highly unlikely course of action.
Plaintiff alleges the company or certain directors and executives violated Section 14(a) of the Exchange Act, breached fiduciary duties, were unjustly enriched, abused their control, grossly mismanaged the company, wasted corporate assets, and violated Section 10(b) and 21D of the Exchange Act.
Things are not exactly great in shareholder land. The company’s stock as of May 4th close was $93.57 and is now currently hovering around $24.49. The plunge began when the company released its poorly-received quarterly earnings on May 9th. For a long time, the company had asserted it was not a balance sheet lender, but a shift in economic conditions was causing that to change.
The unwelcome quarterly earnings report was coincidentally timed after Upstart CEO David Girouard had sold more than $200M worth of company stock in the previous 8 month span and co-founder and SVP Paul Gu sold $140M worth over nearly the same time period.
Then, in August, Girouard said, “In the last few months, lenders and institutional credit investors reacted more quickly and abruptly than we anticipated. Despite the fact that our bank partners have seen consistently strong credit performance, meaning portfolios performing at or above plan across quarterly cohorts, several of them have paused or reduced originations due to fear about the future of the economy.”
Plaintiff alleges that false and misleading statements allowed the stock price to be propped up while insiders sold their stock on material non-public information. The full complaint can be viewed here.
This lawsuit is separate from a securities class action filed earlier this year.
