Loans
Senator Elizabeth Warren Questions Federal Agencies About Discrimination in Fintech Lending
June 12, 2019
Senator Elizabeth Warren and colleague Senator Doug Jones (D-AL) addressed a letter to multiple federal agencies this week to inquire about their individual roles in overseeing fintech, particularly as it pertains to potential discriminatory underwriting.
The senators cited a UC Berkeley study that examined discrimination in the era of algorithmic underwriting. “With algorithmic credit scoring,” the researchers write, “the nature of discrimination changes from being primarily concerned with human biases – racism and in-group/out-group bias – to being primarily concerned with illegitimate applications of statistical discrimination. Even if agents performing statistical discrimination have no animus against minority groups, they can induce disparate impact by their use of Big Data variables.”
The letter tasked the Federal Reserve Chairman, OCC Comptroller, CFPB Director, and FDIC Chairman with responding to 5 questions by June 24th. They are:
1. What is your agency doing to identify and combat lending discrimination by lenders who use algorithms for underwriting?
2. What is the responsibility of your agency with regards to overseeing and enforcing fair lending laws? To what extent do these responsibilities extend to the fintech industry or the use of fintech algorithms by traditional lenders?
3. Has your agency conducted any analyses of the impact of fintech companies or use of fintech algorithms on minority borrowers, including differences in credit availability and pricing? If so, what have these analyses concluded? If not, does your agency plan to conduct these analyses in the future?
4. Has your agency identified any unique challenges to oversight and enforcement of fair lending laws posed by the fintech industry? If so, how are you addressing these challenges?
5. Has your agency identified increased cases of lending discrimination in financial institutions that participate in the fintech industry? Are there additional statutory authorities that would help your agency enforce fair lending laws or protect minority borrowers from discrimination in their interactions with the fintech industry?
Credit Invisibles Recap – Presented by Canadian Lenders Association in Toronto
June 9, 2019The Canadian Lenders Association’s (CLA) workshop on credit invisibles and credit deserts was held at the Toronto law offices of Blake, Cassels & Graydon on June 5th. Situated in the financial district with views of the CN Tower, Michael Turner of Policy and Economic Research Council (PERC) kicked off the morning with a presentation on credit invisibility.
Using data from TransUnion Canada, PERC’s research showed that 36.5% of all credit files in Ontario, the most populous province, have between 0-2 trade lines. Anything fewer than three was considered to be credit invisible. The numbers were similar for Quebec and British Columbia at 33.7% and 37.2% respectively. Meanwhile, in sparsely populated Yukon, the percentage of invisibility is over 65%.
Credit deserts were geographic areas where invisibility was highly concentrated.
The panel that followed affirmed PERC’s research that there is a lack of available credit data on a significant portion of the population and that geographics play a role. Panelists included Jason Appel, EVP & Chief Risk Officer of goeasy ltd., Glenn Waine, Head of Data Science at TransUnion, Elizabeth Sale, Partner at Blake, Cassels & Graydon LLP, Tony Vardy, COO at Progressa, Vahan Der Kaloussian, Director of Data Science at Capital One, and Christopher Grnak, CRO & EVP and Trust Science.
A video recording of the presentations is below:
Affirm Partners with Walmart for Payments
February 28, 2019
Walmart customers can now pay for items using credit from Affirm, the online consumer lender announced yesterday. Walmart customers can find out how much they qualify for online and then make online or in-store purchases with in three, six or twelve monthly installments. A credit decision is made in real time and does not affect the customer’s credit score, according to Affirm.
“Walmart serves millions and has become a leader in the retail landscape with its commitment to help shoppers ‘save money and live better,’ which closely mirrors our own mission to ‘improve lives’ with our products,” said Max Levchin, founder and CEO at Affirm, as well as a founder of PayPal. “I’m looking forward to introducing Walmart customers to a modern and innovative way to buy the things they need.”
Affirm is now available as a payment option on Walmart purchases ranging from $150 to $2,000. This is not Walmart’s first foray into financing. In fact, in July of last year, Walmart entered into an exclusive partnership with Capital One to issue a Walmart credit card. But Elizabeth Allin, Vice President of Communications at Affirm, said that this partnership is the first point-of-sale loan product partnership for Walmart.
“They’ve really embraced e-commerce and the evolution of digital and mobile,” Allin said of Walmart, which has been the biggest retailer in the world for years.
Now 57 years old, the retail giant is pursuing partnerships with financial organizations to facilitate access to customer credit. But back in 2006, Walmart set its sights on bringing these lending operations in house, by becoming bank. Using a controversial statute, it attempted to get a charter to become an ILC bank. Met with strong opposition from banks and other opponents, Walmart backed down.
Elevate Reflects on Success of Fintech in Personal Loans
February 21, 2019The unsecured personal loan market hit an all-time high in 2018, jumping 17 percent year-over-year to $138 billion, according to data from TransUnion released today and featured in a CNBC story.
“The rapid growth in consumer loans sits squarely on the shoulders of fintechs,” said Jason Laky, senior vice president and leader of TransUnion’s consumer lending line of business. “They continue to be the main driver.”
According to the data, fintech companies, like LendingClub, Prosper and Elevate, issued 38 percent of all U.S. personal loans last year, which is up from 35 percent in 2017 and just five percent in 2013. Conversely, banks’ market share for unsecured personal loans is shrinking. Traditional banks’ share of these loans is down to 28 percent from 40 percent five years ago.
Will this trend continue? The non-bank consumer lenders think so.
Credit unions are down to 21 percent from 31 percent in the time period. While their market share shrank, they still saw overall growth in total loan balances, according to Laky.
“Although regulations are starting to loosen, banks still cannot provide the kind of emergency funds that so many Americans need,” Chief Operating Officer of Elevate Credit Jason Harvison told deBanked via email.
He said that the rise of the gig economy has created near-constant income volatility for a large number of Americans and cited a recent JP Morgan Chase study that found that 41% of U.S. households experience income fluctuations of 30% or more month-to-month.
“Many consumers who need access to funds quickly in order to weather financial emergencies can’t access personal loans from banks,” Harvison said. “Online lenders can help fill this void.”
By lending to non-prime borrowers, do these lenders worry a lot about what might happen in an economic downturn?
“We’ve found in past downturns that non-prime consumers actually fare better than prime,” Harvison said. “Essentially, non-prime consumers are always living their lives in a state of “recession.” They experience income volatility, job insecurity, and a lack of access to necessary financial products. They live like this every day, and therefore know how to weather these challenges.”
New York Legislators Introduce Small Business Usury Bill
February 20, 2019Two members of the New York State legislature have introduced a bill to apply consumer usury protections to small businesses. Bill A03638, introduced by New York Assemblymembers Yuh-Line Niou and Crystal Peoples-Stokes define a small business as “one which is resident in this state, independently owned and operated, not dominant in its field and employs one hundred or less persons.”
The bill is separate from the one introduced to outlaw Confessions of Judgment in financial contracts.
Commonbond Receives Financing From Major Banks
February 14, 2019
Commonbond announced today that it has signed $750 million in lending capacity from Goldman Sachs, Citibank, Barclays, BMO, and ING.
“From the start, we have set out to build the highest levels of trust with our customers and our capital partners,” said CommonBond CEO and co-founder David Klein. “Access to this level of capital, and at a lower cost, is a testament to the platform we’ve built, the quality of our members, and the success of our capital markets program. We’re thrilled to have some of the world’s top banks recognize [this], and work with us in a way that ultimately benefits the consumer.”
This new financing will support growth for Commonbond, which provides student loans and student loan refinancing. According to a company statement today, in addition to growth, the new lending capacity reflects significantly lower cost of capital for CommonBond, improving the company’s borrowing spreads and advance rates.
This financing comes a little less than a month after Reuters reported that Commonbond laid off 18% of its staff, which affected 22 people. Based in New York and founded in 2013, Commonbond has originated over $2.5 billion in loans.
How Much Elevate Spends to Acquire Customers
February 11, 2019How much does a non-prime consumer lender spend to acquire a borrower? According to Elevate’s Q4 earnings report, the company spent less than $150 per borrower to originate $31 million in loans towards their partnership with FinWise Bank. Overall, however, their cost of acquisition has hovered below $245.
Elevate’s direct mail channels made up 42% of acquisitions in 2018. That’s down from 54% in 2017. In the company’s earnings call, Elevate CEO Ken Rees said of the decreasing reliance on direct mail, “we believe this sets us up for strong future growth through these expanded channels.”
Elevate offers three products to non-prime customers: RISE, a state-licensed online lender that offers up to $5,000 in unsecured installment loans and lines of credit, Elastic, a bank-issued line of credit, and Sunny, a short-term loan product for customers in the UK. RISE and Elastic serve the US market.
Separately, Elevate reported $787 million in revenue for 2018, an increase of $113 million, or 17%, compared to 2017’s full-year revenue of $673 million.
Home Improvement Loans on the Rise
February 6, 2019
A story this week in American Banker suggested that popular home improvement TV shows like HGTV’s “Fixer Upper,” “Love It or List It” and “Property Brothers” are creating a growing demand for home renovation, and hence, home renovation loans.
Nielsen rating data shows that the combined viewership of the three aforementioned shows on the HGTV (Home and Garden Television) channel rose from 5.4 million viewers in 2014 to 8.6 million viewers in 2018.
deBanked spoke to Michael Funderburk, Director of Personal Loans at LendingTree, which encompasses home improvement loans, and he said that he has seen an increase in home improvement loan volume at LendingTree. But he doesn’t necessarily think there is a correlation to the popularity of the HGTV shows.
Funderburk said people are likely to renovate their home as opposed to buy a new one for a few reasons. One is that new home supply hasn’t quite caught up with demand yet, which is causing home prices to increase. Secondly, mortgage rates are higher than they have been for the last several years.
“Despite the fact that the economy is doing well, people are in better financial positions, have better income, people are thinking ‘What do I do with this [money]? I don’t necessarily [have enough] to move homes, but maybe I can renovate my current home?”
Spending on home remodelling has steadily increased over the last two years from approximately $295 billion at the start of 2017 to nearly $340 billion at the end 2018, according to a study from the Joint Center for Housing Studies of Harvard University.
According to the American Banker story, Doug Duncan, Chief Economist at Fannie Mae, said that there are two reasons why home remodelling spending (and resulting borrowing) is increasing.
“Baby boomers [have] said they intend to age in place,” Duncan said. “As you get older, it requires some accommodations, things like door handles, potential wheelchair ramps, bars in the shower, that type of thing.”
The other reason for increased home improvement, he said, is that Generation X (those born between 1965 and 1979) will also be remodelling their homes.
“Gen Xers maybe have kids in junior high or high school and would like to move up,” Duncan said. “But there simply isn’t inventory, and it’s expensive if they’re in an urban center and in a school district they like.”
Whether it’s because someone saw a beautiful new den built on the “Property Brothers,” or they’re just too settled in to move, the market for the home improvement loans seems to be growing and is likely to continue. And it’s possible that small businesses may seek similar loans to freshen up their stores rather than find a new space.
