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Wednesday April 5 2017, Daily News Digest

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News Summary

United States

Colorado Attorney General Pursues ‘True Lender’ and ‘Madden’ Actions Against Major Non-Bank Online Lenders (JD Supra), Rated: AAA

On February 15, the Colorado Attorney General filed substantially similar, separate amended complaints in the U.S. District Court of Colorado against Marlette Funding LLC and Avant of Colorado LLC, alleging violations of Colorado’s Uniform Consumer Credit Code based on “true lender” and loan assignment cases. Both actions were originally filed in state court on January 27, 2017, and both were subsequently removed to federal court — on March 3, 2017 and March 9, 2017, respectively. In each instance, the complaint cites CashCall, Inc. v. Morrisey, 2014 W. Va LEXIS (W. Va. May 30, 2014), and Madden v. Midland Funding, LLC, 786 F.3d 246 (2d Cir. 2015), as legal authority for claims alleging usury and other violations of Colorado’s Uniform Consumer Credit Code.

The amended complaint filed in Mead v. Marlette Funding LLC d/b/a Best Egg asserts that Marlette paid all costs, including legal, marketing and other expenses, incurred by Cross River Bank in originating Best Egg loans. In addition, the complaint asserts that Cross River “bears no risk that it will lose its principal in the event consumers default on the Best Egg Loans that it sells to Marlette or to Marlette’s non-bank designees” because: (i) Marlette maintains a bank account in favor of Cross River in the amount of Marlette’s anticipated purchases; (ii) Best Egg loans originated by Cross River are sold to Marlette within two business days; (iii) the parties’ contract specifies that Cross River has no liability to Marlette for sold loans, and (iv) Marlette is obligated to indemnify Cross River “against any claim that any aspect of the Best Egg lending program violates the law.”

The amended complaint filed in Mead v. Avant of Colorado LLC, in turn, similarly asserts that Avant and not WebBank, which originated the subject loans, bears all cost and expenses, including the costs of evaluating loan applications and credit reports and the costs associated with dispersals of loan proceeds.

Cross River Bank Sues State of Colorado (Over the Transom), Rated: AAA

News Summary:

  • On April 3rd, Cross River Bank filed a Declaratory Judgment Action (Federal District Court) against the State of Colorado to protect its federal statutory and contractual rights to freely extend credit and to freely sell those loans on a nationwide basis
  • Previously (in January 2017), the Colorado Attorney General sued Marlette Funding in an attempt to prohibit Marlette from enforcing loans validly made by Cross River and validly sold by Cross River to Marlette
  • Cross River filed the declaratory judgment action in support of Marlette Funding (an MPL partner), and the broader bank-platform model
  • According to Cross River General Counsel, Arlen Gelbard, “the Colorado Attorney General is attempting to undermine the concept of federal preemption, and with it 150-years of established banking law.”
  • More specifically, Colorado’s action violates Federal Deposit Insurance Act (Section 27) and National Bank Act, as well as the “valid when made” doctrine
  • “It is clear to us that Colorado’s lawsuit against Marlette intentionally did not name Cross River as a party because Colorado knows that Cross River’s actions are protected by its status as a state-chartered, federally regulated Bank, which affords complete preemption over state law”

The Issue – Federal preemption/uncertainty:

  • The federal preemption provisions which allow small banks like Cross River to compete with larger entities, have come under attack by several states and in some recent court cases such as Madden v. Midland Funding and other so-called “True Lender” cases.
  • While we believe these cases were wrongly decided as a legal matter, the broader impact has been to encourage states and other plaintiffs to disregard or undermine key legal doctrines of federal preemption and loans as being “valid when made”, leading to market uncertainty.
  • The characteristics of the Cross River model are very different from many others in the marketplace, where the named lender has little to no involvement in the origination process and retains no “skin in the game”
  • This lack of certainty about what loan terms apply to subsequent purchasers has broad, adverse ramifications for US banking and financial markets. Specifically, certain investors have moved away from this asset class, which has reduced liquidity in the market.
  • “Although the action taken by the Colorado Attorney General is being positioned as one to protect the consumer, the actual result will likely have a negative impact on consumers and small businesses, as their access to this important source of credit is significantly reduced.”

SOFI RAISES THE VARIABLE STUDENT LOAN REFINANCING RATES (lendedu), Rated: AAA

The Federal Reserve’s interest rate increase last month is starting to show up in some loan products including student loan refinancing. Fixed rate borrowers are safe for now, but those with variable interest can expect to pay more.

As of April 1st the interest rate on a variable student loan at SoFi increased both on the low and high ends of the range. Borrowers will now pay anywhere from 2.565 percent to 6.490 percent interest on a variable refinance loan. That compares with 2.365 percent to 6.29 percent interest just a month ago. The interest rate on SoFi’s fixed rate products held steady at 3.375 percent to 6.74 percent from March to April.

Kabbage Extends $ 3 Billion in Funding to over 100,000 Small Business Customers (IT Business Net), Rated: AAA

Kabbage®, a pioneering financial services, technology and data platform, announced it has extended more than $3 billion to small businesses across all 50 U.S. states, covering every industry. The company has also now served over 100,000 small businesses through its platform, representing the largest customer base of any online small business lender.

ApplePie Capital CEO & Co-Founder Denise Thomas Makes Marketplace Lending Success Look Easy (Crowdfund Insider), Rated: A

“We have gained a foothold within the industry by partnering with 42 brands to date. Moving forward we will continue to innovate…”

Erin: You recently signed new investors plus funding capital, thus standing out in a challenging market. Please share details about your MO. How long did it take to raise the money?

Denise: It took five months. The two main sources of funding we closed were new strategic partners and existing investors. Our strategy was to continue to tell our story and educate investors about franchise debt as an asset.

Erin: Please share your experience about dealing with a prominent Bay Area VC saying, “You don’t look like Fintech.”

Denise: Statistically, there are far more men running fintech companies, clearly there are some biases out there around that. A study released by Peterson Institute for International Economics in 2016 found that “An increase in the share [on executive teams and boards] of women would be associated with a 15% rise in profitability.” At the end of the day, you want people in your board room who are supportive.

Erin: You have spoken quite positively about your relationship with Fifth Third. How and why does ApplePie’s relationship with this bank differ from others?

Denise: As opposed to our other loan purchasers, Fifth Third has made a strategic investment in our company and holds a stake in the growth of our business. They co-led our B round with QED Investors, with whom they have now also partnered to make strategic investments in VC-backed fintech companies. They have a long term vision for our industry and provide their expertise to create better financial solutions and a superior experience for our borrowers.

Erin: ApplePie Capital’s loans are backed by personal guarantee and unsecured. Personal assets are not required to back loans. Tell me more…

Denise: In franchising, there is a blueprint for the business owners to follow, in terms of cost analysis and every other aspect. This is measurable and people have a path to multi-unit ownership. We look at each brand and evaluate the sustainability of the business model, which has proven itself over the last 25 years through historical SBA data.

5W Public Relations Named Agency of Record for Sharestates (Yahoo! Finance), Rated: A

5W Public Relations, one of the 15 largest independently owned PR firms in the US, has been named PR Agency of Record by Sharestates, an online real estate investment marketplace that is an industry leader in crowdfunding for individual and institutional investors.

Could Real Estate Crowdfunding Help Millennials Retire Sooner? (Realty Biz), Rated: A

Real estate crowdfunding has proven a popular choice for one of the most fickle investing groups in the marketplace: Millennials.

On the surface, it seems improbable. Millennials investing in real estate? This is a group that has been loathe to purchase homes, with less than a third of Millennials becoming homeowners compared to 64 percent of the general population. After a little analysis, however, there are powerful reasons why real estate crowdfunding appeals to Millennials—enough that more are certain to join the crowd of investors in the coming years.

The stereotype, of course, is that Millennials are all underpaid with limited skills and few opportunities. That’s not reality, but even if it were, real estate crowdfunding has very low barriers to entry. Some of the best and most successful crowdfunding portals allow for investment minimums as low as $5,000. That lets Millennials get into the real estate investment game much earlier than previous generations.

Second, real estate crowdfunding is an investment option that allows Millennials to bypass banks. Having come of age during the Great Recession, many Millennials don’t trust financial institutions or Wall Street firms. They do, however, see the need to protect their money from the kind of financial breakdowns that hurt their parents’ retirement plans nine years ago by investing in hard assets. Real estate crowdfunding offers the chance to do just that.

PayPal Directors Hit With Class Action Suit from Shareholders Over Venmo (Crowdfund Insider), Rated: A

On March 24, 2017, shareholders of PayPal Holdings Inc., the parent company of mobile-payment provider Venmo, filed a derivative suit against its directors in the District Court of Delaware. A derivative suit is a form of class action in which shareholders can sue company officers or directors on behalf of the company.

The plaintiff shareholders claim in the suit that the directors of PayPal willfully or recklessly caused PayPal to make false or misleading statements which led to direct damages against PayPal. The false and misleading statements are alleged to have been made in PayPal’s quarterly reports, annual reports, and proxy statements which failed to disclose any of the alleged unfair and deceptive business practice or the fact that those practices would lead to increased regulatory scrutiny.

View the filing here.

Over 250,000 Shoppers And 1,400 Dealers Turn To AutoGravity (PR Newswire), Rated: A

AutoGravity, the FinTech pioneer transforming car shopping and finance with advanced mobile technology, today revealed that over a quarter million users – more than half of whom are millennials – have downloaded AutoGravity iOS and Android apps for car shopping and financing. AutoGravity also confirmed that its network of partner car dealerships has grown to more than 1,400 franchise dealers.

Since launching in 2016, AutoGravity has achieved significant growth across the United States, securing partnerships with the nation’s top automotive lenders, as well as four of the top five national dealer groups, representing all new and used car brands available in the country.

  • New cars remain popular with boomers. AutoGravity data shows two-thirds of car shoppers ages 50+ who pursue financing do so for new vehicles. In contrast, only half of AutoGravity car shoppers ages 18 to 25 who pursue financing do so for new vehicles
  • Japanese brands perform in California. Japanese economy and luxury car brands are more searched relative to American brands in California (as compared to the US overall)
  • Economy cars continue to be a popular choice. Economy brands rank in the top four most searched for vehicles across the US – luxury car brands round out the top seven
  • Millennials more cost sensitive than Gen X. Among car shoppers seeking financing on AutoGravity, millennials look to borrow ~15% less (finance amount requested) and seek to contribute ~25% less (cash down payment) relative to car shoppers ages 36+

Why FutureAdvisor orphaned its B2C book of business and other learnings at CFA Society’s robo-panel in San Francisco (RIABiz), Rated: A

The bad news: Selling robo financial advice to millennials — at least until they grow up and start acting like boomers — is a fool’s game.

Cianciolo provided the fullest update yet on FutureAdvisor since the firm’s eye-popping sale to BlackRock in 2015. See: Why BlackRock’s purchase of FutureAdvisor for $152 million could be a deal of destiny.

The robo — once the No. 3 retail player behind only Wealthfront and Betterment — no longer takes assets to millennials.

Standing up for retail and millennials was Zhang, a millennial herself, who questioned whether Roy and Ciancolo were being unduly pessimistic in capitulating to established players.

Jemstep had a brief period where it went for retail business but veered quickly to the B-to-B market.  “Can somebody [create a viable B-to-C robo advisor]?” Cianciolo asked. “Sure but you’re taking double and triple risks.”

Jamie Dimon Pushes for Simpler, More Coordinated Bank Regulations (WSJ), Rated: A

J.P. Morgan Chase JPM 0.33% & Co. Chief James Dimon laid out his wishlist of regulatory changes in his annual shareholder letter Tuesday, calling for simpler and better coordinated rules that could help to spur more lending and in turn economic growth.

Any changes are likely to help the bank. Mr. Dimon wrote that the “anticipated reversal of many negatives and the expectation of a more business-friendly environment” in addition to the bank’s results are among the reasons its stock price jumped about 30% in 2016.

Mr.. Dimon has previously said that rules should be coordinated among agencies, simplified and consistent, but in Tuesday’s letter spelled out what that meant for the first time.

He said banks have too much capital and that could be used instead to safely finance the economy.

Mr. Dimon reiterated that the so-called “gold plating” of international standards by U.S. regulators should be eliminated. Making U.S. rules stronger than international rules was in some cases a priority of Federal Reserve Governor Daniel Tarullo, who was the central bank’s regulatory point person but is stepping down this week.

Mr. Dimon also suggested reforms to the mortgage market since the housing sector has been “unusually slow to recover.”

Bond Street Partners With NerdWallet (Bond Street), Rated: A

Today, we are thrilled to announce that we’re partnering with NerdWallet to help more small business owners access fair and affordable financing. According to the Federal Reserve Bank, only 1 in 5 businesses that apply for a loan from a big bank are approved.

Together, we’ll create resources, guides and webinars to support the growth of businesses. In addition, entrepreneurs will now be able to access financing from Bond Street via NerdWallet’s Small Business Loan Tool.

Prominent Fintech Marketing Firm Leverage PR Sold to Caliber Corporate Advisors (Crowdfund Insider), Rated: B

Leverage PR, a prominent marketing firm engaged in the crowdfunding and Fintech sector, has been sold to Caliber Corporate Advisors.  Founded by Joy Schoffler, a well-known and highly visible participant in the emerging industry of financial innovation, shared the news with Crowdfund Insider, explaining she expects to remain engaged with the firm but in a different role.

Leverage PR was founded in 2010 and was the first marketing firm to recognize the potential of alternative finance.

United Kingdom

RateSetter continues to boost transparency with new expected losses committee (P2P Finance News), Rated: AAA

RATESETTER has set up a new committee on expected losses as part of a review of the way it monitors and reports on credit risk.

The panel, which will come into effect later this month, comprises the peer-to-peer lender’s chief executive Rhydian Lewis, its chief finance officer Harry Russell and various heads of consumer and commercial credit risk.

Boosting expected losses data is the latest of a batch of strategic changes RateSetter has put in place to price risk more accurately following higher-than-expected losses on its 2014 and 2015 loans.

Peer-to-peer loan fund considers change of manager (Financial Times), Rated: AAA

The UK’s first peer-to-peer loan fund is to review its investment manager as a swath of funds struggle to generate returns from the emerging asset class.

The listed fund, P2P Global Investments, buys loans from websites matching interest-paying borrowers with lenders in the UK, US, Europe and Australia, as well as holding stakes in the platforms.

It is currently managed by MW Eaglewood Europe, an asset manager majority-owned by UK hedge fund Marshall Wace. In a short announcement to the stock market on Tuesday, the board said it would review the arrangement following discussions with Eaglewood and “significant shareholders” and would update the market in due course.

Oakam Brings Gamification and Rewards to Consumer Finance with New Mobile App Feature (BusinessWire), Rated: A

Oakam has enhanced its mobile app with the launch of Oakam Grow, a new feature that uses gamification to make consumer finance more engaging, rewarding and inclusive. Oakam Grow builds on the UK-based consumer lender’s application of behavioural science to encourage the development of positive credit habits, and supports its strategy to bring digital disruption to the largely analogue micro-credit industry.

Oakam Grow gamifies the experience for Oakam’s mobile app users through the application of social currency theory, which enables customers to share in the financial upside of their responsible credit behaviour. Customers earn points when making repayments via the app or referring friends, redeemable for loan repayments, cash-back, store vouchers, lower rates on future loans, or to socially vouch for friends in the loan application process. Oakam’s award-winning mobile app first launched in 2015, and today more than 55 per cent of its customers are regular users. The addition of Oakam Grow will further drive app downloads and engagement.

Oakam has seized on the opportunity to disrupt the £1.8 tn global micro-lending industry through the use of AI, machine learning and cognitive science. The century-old industry has seen little innovation since its founding and today relies on the same analogue processes that keep cost-to-income ratios above 50 per cent, and prices high for consumers. The industry’s network of around 200,000 doorstep loan agents globally also leaves consumers with poor or no credit history, vulnerable to misleading offers and predatory practices.

Oakam’s omni-channel model, comprising its digital properties and UK retail network, confronts both the issues of inefficiency and consumer protection.

RateSetter Business Finance Adds Relationship Manager Amanda Sharp (Crowdfund Insider), Rated: A

RateSetter has appointed Amanda Sharp as Regional Relationship Manager for London and the South East. Sharp previously spent 35 years with RBS Group.

How to navigate the P2P maze (FT Adviser), Rated: A

Against a backdrop of rising inflation and continued low interest rates, it is no surprise that a growing number of the UK’s financial advisers are looking for ways to make their client’s money work harder.

And there is one solution in particular that has caught the attention of eagle-eyed advisers: peer-to-peer (P2P) lending.

Assuming current Bank of England inflation at 2.3 per cent, according to latest figures, and interest rate forecasts, money deposited in the average high street savings account today will shrink in real terms after both one and two years.

In fact, some high street bank cash savings accounts are offering just 0.01 per cent in savings – less even than the current Bank Base Rate of 0.25 per cent.

Even in its slowest year yet, 2015, the sector grew by over 80 per cent according to one report (Nesta, Pushing Boundaries: the 2015 UK alternative finance industry report).

P2P lending is likely to grow even faster as more and more P2P lenders receive their full FCA authorisation – heralding the arrival of the ‘Innovative Finance ISA’ (IFISA), which will almost certainly add to the momentum the sector is experiencing.

European Union

Why Stockholm is creating more unicorns than London per capita (elite business magazine), Rated: AAA

The result of the Swedish government’s tech drive of the 1990s is that while Silicon Valley may be the undisputed champion of the world when it comes to producing unicorns, Stockholm comes a close second. According to SparkLabs, the seed-stage fund, the Californian city has produced 10.7 unicorns per million inhabitants, the Nordic city produced three and Tel Aviv, which came third, birthed 1.2. So it’s no wonder the European Digital City Index ranked the metropolis as Europe’s second best city after London when it comes to supporting its digital entrepreneurs. “In Stockholm, we’re really freaking good,” says Stark.

But even though access to a solid infrastructure has proven vital in fostering this thriving entrepreneurial community, it isn’t the only factor. Equally important for the success of Sweden’s startups is the fact that that the nation has a population of just under ten million, which means new enterprises have to be thinking about international expansion from the get-go.

‘Shadow banks’ step into the spotlight (Financial Times), Rated: A

The growing influence of alternative capital is most evident in the US — in April 2015, nonbank lenders accounted for more than half of new government-backed mortgages. Banks are still the biggest lenders in Europe, but rivals are emerging. Many of the new players are linked to the securitisation industry, where loans are packaged up and sold on as bonds to capital markets investors.

Private equity-funded upstarts have quietly taken a more active role in the UK’s securitisation market, which used to be dominated by big banks.

Today one of the largest users of securitisation in the UK is not a bank. The Northview Group, which writes mortgages under the Kensington brand and is funded through securitisation, describes itself as a nonbank challenger lender.

A wave of nonbank lenders, including companies such as Munt and Dynamic Credit, have appeared in the past few years. These players now account for close to a fifth of new Dutch mortgages, according to IG&H, a consultancy. This is up from almost nothing just a few years ago. The companies take capital from institutions and lend to homeowners.

Technology companies that facilitate lending between investors and businesses make up another area of growth in shadow banking, and they are becoming more adventurous in the services they offer.

Funding Circle is one of Europe’s best known peer-to-peer lending platforms, where retail users can invest in loans made online. It lends £100m a month in the UK and is expanding in Europe.

As with other forms of shadow banking, European P2P lending lags far behind the US market. Investors who use Funding Circle, which is also active in North America, said they were disappointed last summer with the performance of US loans written by the company. The concerns followed losses that investors made on P2P loans securitised by OnDeck, a nonbank lender.

International

Statistic of International P2P Lending Services March 2017 (P2P-Banking), Rated: AAA

The total volume for the reported marketplaces adds up to 532 million Euro.

Milestones reached this month are:

  • Mintos crossed 150 million EUR in originations since launch
  • Moneything reached 50 million GBP since inception

P2P loan volume

Australia

Agri-lending helped drive SocietyOne to a new loan record (Finder), Rated: AAA

Peer-to-peer (P2P) lender SocietyOne has announced a new lending record, passing the $250 million lending mark in March of this year. Part of the lender’s success is due to increased demand for its two agri-lending products, which, combined with a surge in personal loans over the post-Christmas and New Year period, saw an additional $45 million lent to customers.

China

China P2P industry lending nears Rmb1tn despite crackdown, new regulations (Financial Time), Rated: AAA

Growth in China’s peer-to-peer lending sector has proven resilient in the face of new regulations and a year-long crackdown by authorities on online financing, with total P2P loans blowing past the Rmb900bn ($130.7bn) mark last month.

Outstanding P2P loans came to Rmb920bn at the end of March, according to new figures released today by lending platform Wangdaizhijia.

Month-on-month growth in outstanding loans slowed compared to before the new regulations were introduced in August, from 5.7 per cent in July 2016 to 4 per cent last month.But when viewed in renminbi terms, growth has ratcheted up, with the industry tacking on an average Rmb35.6bn a month in the seven months since regulations were introduced, compared to an average rise of Rmb29.1bn in the seven months ended August.

China curbs ‘Wild West’ P2P loan sector (Financial Times), Rated: AAA

Peer-to-peer lending in China is at an inflection point as state regulators aim to transform it from a “Wild West” industry rife with fraudsters into a respectable market in which legitimate lenders can offer funds to willing borrowers.

With their offer of attractive fixed returns over short periods, P2P investments appear similar to saving products that reputable commercial banks offer as an alternative to low rates available for deposits. P2P yields are typically higher than those available from banks, making them an easy sell to investors.

Since 2011, 3,556 platforms have collapsed, according to Online Lending House, a website that tracks the sector. In a third of the cases, law enforcement agencies closed the platforms or their owners or managers simply disappeared.

Asia

Dangoestate.com Real Estate Crowdfunding Platform Celebrates 1,000,000 Investors (Digital Journal), Rated: AAA

Dango estate, the now five months old Singapore based investment platform is growing by leaps and bounds. The mood at their three offices around the world was very high yesterday as they celebrated the 1,000,000’th investor on the platform.

Dango estate has achieved great success in the crowdfunding industry in the shortest time, the platform has already funded more than $500,000,000 in loans worldwide and delivered over $350,000,000 in principal and interest to investors, with yields as high as 10%.

Authors:

George Popescu
George Popescu
Allen Taylor
Allen Taylor

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Allen Taylor

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