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>A central component of LendUp’s marketing and brand identity was the “LendUp Ladder.” LendUp told consumers that by repaying loans on time and taking free cour

by tw04 5y ago

>A central component of LendUp’s marketing and brand identity was the “LendUp Ladder.” LendUp told consumers that by repaying loans on time and taking free courses offered through its website, consumers would move up the “LendUp Ladder” and, in turn, receive lower interest rates on future loans and access to larger loan amounts. As alleged in the complaint, in reality, as tens of thousands of LendUp’s customers climbed the “LendUp Ladder,” they failed to qualify for larger loan amounts and continued to be offered similar or higher interest rates compared to previous loans. While the initial founding direction seems well intentioned, it sounds like they were scamming customers, or unable to actually follow-through on the promise to consumers. Glad the regulators are actually enforcing some of the rules.

polygotdomain 5y ago
While it does seem like a scam, I think the "following through" aspect was doomed from a business perspective. Credit, and therefore rates, is based on a consumer's history, not their knowledge. While poor financial decisions can certainly be chalked up to not knowing any better, knowledge of what you should do goes out the door when there's bills to pay and not enough money to cover them all. Remember, LendUp is likely just a middle man and marketer; it's facilitating the loan, not doing the actual underwriting (and therefore rate setting). Following through would mean exposing the business to risk that customers, in spite of climbing their made up ladder, still made payments. Considering the other shady stuff that this thread is talking about, it doesn't surprise me that they didn't choose to take on that risk. Of course the irony in all of this is that the very thing that would've prevented customers from making the right choice even though they were gaining financial knowledge is the loans that LendUp was handing out. I wonder if the pitfalls of payday loans was part of that knowledge track. I doubt it.
- emodendroket 5y ago
  I suppose in theory, in the very long run, improving one's credit by paying off loans in a timely fashion could lead to that result eventually.
- tw04 5y ago
  > Credit, and therefore rates, is based on a consumer's history, not their knowledge. But their entire premise was that they weren’t simply going to use existing credit scores. > Remember, LendUp is likely just a middle man and marketer; it's facilitating the loan, not doing the actual underwriting (and therefore rate setting). Over $350m to be a middle man for small loans seems like an absurd amount of funding. I assumed and hope all that cash was because they’re actually lending directly.
  - Closi 5y ago
    > I assumed and hope all that cash was because they’re actually lending directly. It’s not typical that you lend your own money out, and banking 101 is usually that you borrow money from one person (E.g. someone who has a bank account with you that you pay interest) to lend it to another at a premium (and you get the profit between those two figures in return for holding the risk if there is a default). Investors will typically expect a much higher return on their own funds than the loan APR (unless the APR is eye wateringly high). Edit: Apologies I stand corrected - I’ve just looked at the internet archive and it shows rates of up to 1825% APR. These loans are definitely predatory and so could have been done directly from the capital. Not surprised they got shut down, similar companies operating in the UK got shut down years ago and pretty much everyone is better off for it. It’s a hugely predatory industry.
    - CaptainZapp 5y ago
      > I’ve just looked at the internet archive and it shows rates of up to 1825% APR Sheesh, APR on loans in Switzerland - Not exactly known as a socialist hell hole - are capped by law at 15%. Anything above this is usury and a criminal offence.
      - Closi 5y ago
        The UK is similar, but splits it across two rules (which allow for higher interest loans but cap the potential impact): * Interest must not exceed 0.8% per day. * The total cost of any loan must not exceed 100% of the original loan amount. (NB: This is only for consumer loans, commercial loans do not have a cap.)
tootie 5y ago
I wouldn't be surprised if it's a scam. I also wouldn't be surprised if it was all wishful thinking and their attempt to bypass traditional risk models was just a failure.

by tw04 5y ago

polygotdomain 5y ago

While it does seem like a scam, I think the "following through" aspect was doomed from a business perspective. Credit, and therefore rates, is based on a consumer's history, not their knowledge. While poor financial decisions can certainly be chalked up to not knowing any better, knowledge of what you should do goes out the door when there's bills to pay and not enough money to cover them all. Remember, LendUp is likely just a middle man and marketer; it's facilitating the loan, not doing the actual underwriting (and therefore rate setting). Following through would mean exposing the business to risk that customers, in spite of climbing their made up ladder, still made payments. Considering the other shady stuff that this thread is talking about, it doesn't surprise me that they didn't choose to take on that risk. Of course the irony in all of this is that the very thing that would've prevented customers from making the right choice even though they were gaining financial knowledge is the loans that LendUp was handing out. I wonder if the pitfalls of payday loans was part of that knowledge track. I doubt it.

emodendroket 5y ago
I suppose in theory, in the very long run, improving one's credit by paying off loans in a timely fashion could lead to that result eventually.
tw04 5y ago
> Credit, and therefore rates, is based on a consumer's history, not their knowledge. But their entire premise was that they weren’t simply going to use existing credit scores. > Remember, LendUp is likely just a middle man and marketer; it's facilitating the loan, not doing the actual underwriting (and therefore rate setting). Over $350m to be a middle man for small loans seems like an absurd amount of funding. I assumed and hope all that cash was because they’re actually lending directly.
- Closi 5y ago
  > I assumed and hope all that cash was because they’re actually lending directly. It’s not typical that you lend your own money out, and banking 101 is usually that you borrow money from one person (E.g. someone who has a bank account with you that you pay interest) to lend it to another at a premium (and you get the profit between those two figures in return for holding the risk if there is a default). Investors will typically expect a much higher return on their own funds than the loan APR (unless the APR is eye wateringly high). Edit: Apologies I stand corrected - I’ve just looked at the internet archive and it shows rates of up to 1825% APR. These loans are definitely predatory and so could have been done directly from the capital. Not surprised they got shut down, similar companies operating in the UK got shut down years ago and pretty much everyone is better off for it. It’s a hugely predatory industry.
  - CaptainZapp 5y ago
    > I’ve just looked at the internet archive and it shows rates of up to 1825% APR Sheesh, APR on loans in Switzerland - Not exactly known as a socialist hell hole - are capped by law at 15%. Anything above this is usury and a criminal offence.
    - Closi 5y ago
      The UK is similar, but splits it across two rules (which allow for higher interest loans but cap the potential impact): * Interest must not exceed 0.8% per day. * The total cost of any loan must not exceed 100% of the original loan amount. (NB: This is only for consumer loans, commercial loans do not have a cap.)

tootie 5y ago

I wouldn't be surprised if it's a scam. I also wouldn't be surprised if it was all wishful thinking and their attempt to bypass traditional risk models was just a failure.