WebBank Archives - Lend Academy

The Bank Partnership Model Affirmed in Settlement With Colorado

This groundbreaking settlement resolves the "true lender" issue in Colorado and could be used as a regulatory framework across the country

August 18, 2020 By Peter Renton Leave a Comment

The issue of “true lender” has been one that has dogged the marketplace lending industry virtually since its inception. When a borrower takes out a loan from most marketplace lenders the loan is often originated by a partner bank then held on their balance sheet for a short time before being sold to the lending platform. There has been debate about who is the true lender in these circumstances.

In 2017, the Colorado Attorney General filed two separate lawsuits against Marlette Funding and Avant alleging violations of the state’s Uniform Consumer Credit Code by charging interest rates in excess of those allowed under Colorado law. These loans were originated by out of state banks, Cross River Bank and WebBank, who were also party to these lawsuits. These banks are allowed to export higher interest rate caps across state lines but Colorado was saying that this was all a scheme to lend above Colorado’s usury rate limited.

The upshot of these lawsuits was that Colorado consumers had less choice as both Avant and Marlette, along with WebBank, started excluding Colorado consumers from their loan offerings. And it even called into question the business models of Cross River Bank and WebBank as both banks have established long running partnerships with many marketplace lenders.

After years of back and forth, and much time and expense, today the Colorado Attorney General announced a settlement with all parties. It is hard to overstate how important this is for the industry. These lawsuits have been hanging over the industry for years and even though the OCC recently proposed a new true lender rule there was still a great deal of uncertainty.

With this settlement, which amounts to $1.55 million in total, the companies have “committed that they will not lend to Colorado consumers at rates above 36% and will provide consumers with other protections required by Colorado law. In addition, non-bank partners will maintain a Colorado lending license.” There are also certain oversight requirements and they laid out a model for successful bank-fintech partnerships in Colorado. It is this model that could be adopted by other states and become a de facto national standard. Which is why this is big news today.

The industry was clearly pleased with this settlement. I reached out to several parties to get their commentary on what this means. First, Nat Hoopes from the Marketplace Lending Association: [Read more…]

Confident Financial Solutions to Offer Repair Financing Powered by WebBank

The latest bank partnership in fintech is tackling a new niche: auto repair finance

June 6, 2018 By Ryan Lichtenwald Leave a Comment

Auto lending is a segment that has seen a lot of traction in the last couple of years, but most of the innovation has centered around improving the new and used car financing process. One of more innovative players in this space is Confident Financial Solutions (CFS) and they are tackling a different niche within auto, car repairs.

Today, they announced a partnership with WebBank. WebBank was one of the first banks on the fintech scene having first partnered with LendingClub and Prosper almost a decade ago. Now they work with many fintech companies to provide banking services across a variety of lending verticals.

Traditionally consumers have relied on credit cards or even worse, payday loans to finance unexpected auto repairs. CFS and WebBank together have launched a product that allows the service center to offer financing at the point of sale. The process is all done on a smartphone in four steps with the consumer receiving a decision in just a few minutes for up to $7,500. Similar to WebBank’s other relationships, they are the ones who actually issue and hold the loan as a nationally-licensed, FDIC-insured, state-chartered bank. What makes this relationship unique is that WebBank will hold the loans on their own balance sheet.

Richard Counihan, CFS’ CEO included this statement in the press release:

CFS, over the past four years, has grown to be one of the nation’s largest providers of installment loans to consumers made through auto repair service centers and car dealerships. As such, we understand how hectic things can get in a service department. This innovative solution will help improve service advisor productivity and enhance the customer experience at an often tension-filled moment. What’s more, this fueled-by WebBank solution will aid our expansion plans as it supports our drive to offer ‘auto loans you can trust’ to more people in more places.

While this type of partnership with a bank isn’t unique, the niche that CFS is targeting is. According to a recent survey by AAA, 1 in 3 motorists or 64 million US drivers are unable to pay for an unexpected repair cost without going into debt. It is important for consumers to have access to more options at cheaper costs when they face vehicle repair bills.

There is a lot to like about this point of sale or “point of need” model as the company likes to call it. By building relationships with service centers across the US, CFS will be able to tap into millions of Americans without having to acquire customers directly.

A National Tragedy With a Link to P2P Lending

One of the San Bernardino shooters apparently took out a P2P loan just a few weeks ago causing a media frenzy focused in part on our industry.

December 9, 2015 By Peter Renton 10 Comments

Last week a tragedy occurred in San Bernardino, California. Since that time the media have been covering the story from every possible angle as they typically do. Then yesterday, Fox News reported that one of the shooters, Syed Farook, took out a $28,500 loan from WebBank. I thought that was curious because I know that WebBank doesn’t make consumer loans but they do originate loans for Lending Club and Prosper among others.

It soon became clear that the loan likely came from Prosper and suddenly P2P lending was dragged into the media circus. I have lost count how many interviews I have done in the past 36 hours and how many times I have had to answer such ridiculous questions as:

Is P2P lending going to become the new way for terrorists to get funding?
Prosper must have really low standards to allow a loan like this to be approved, right?
Shouldn’t the government crack down on these unregulated lenders like Prosper?

There have been many similar questions along these same themes. I didn’t really want to write about this but with all the persistent headlines today and yesterday I felt that someone in our industry needed to say something. Prosper would not comment on the story on the record. They would not even confirm or deny the existence of such a borrower on their platform, citing privacy laws. Here is their official response:

Prosper is prohibited by law from disclosing any non-public, personally identifiable information regarding any loan originated through our platform. All loans originated through the Prosper platform are subject to all identity verification and screening procedures required by law, including US anti-terrorism and anti-money laundering laws. As part of our standard procedures, we also confirm that all loan funds are disbursed into a verified US bank account in the borrower’s name. Like all Americans, Prosper is shocked and saddened by recent events in San Bernardino.

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Why Aren’t Banks Offering P2P Lending and Other Questions

June 27, 2012 By Peter Renton 7 Comments

I receive many emails from readers each week and I read and respond to every one. I thought this email that I received recently would be interesting for all readers. So rather than respond in private I am doing so here.

Here is what this reader asked:

If this (p2p lending) is so great and a threat to banks, why aren’t banks offering this? Seems inefficient for these companies to contract with Web Bank (what is the stability of this bank???). I’m always a little wary of things that aren’t institutionalized yet – especially when some of the return stories seem too good to be true.

So there are really three questions here and I will deal with each one in turn.

1. Why Aren’t Banks Offering P2P Lending?

The most obvious answer is that they don’t have to. Right now banks can borrow money at extremely low interest rates and then lend this money out at a much high interest rate (particularly in the case of credit cards). Their cost of capital would be much higher if they offered p2p lending because investors would demand more than a 1% or 2% return.