Debt Reduction Trifecta
I’ve posted three pieces about what seems to be a debt mediation scam by a variously-named company. Last week I got yet another unsolicited Final Notice from American Debt Mediators, also known as CRV and Debt Arbitrators. I’ve also written about the Credit Card Hardship Programs that are available from most lenders. Anyway there’s nothing new about this latest piece of mail. It looks like an overdraft notice, has some official-looking warnings about obstructing the mail on the front, and claims I am late in sending them $366.67 for a debt mediation plan that promises to satisfy my debt for less than the balance owed. How much less? Good question. Probably not enough to recoup the payments they’ll collect.
I also got another Loan Pak from Embrace Home Loans. With the words ExpressPlus checked, the Loan Pak must be intended to look like a special delivery mailer. The Shipper is one D Noyce from 25 Enterprise Center Newport RI 02842. According to the mailer, I am pre-qualified for up to $417,000. And presumably down to zero. When I first got Embrace mailings, I wondered where they got that number. Turns out it is the maximum Fannie Mae/Freddie Mac FHA guaranteed mortgage amount in my area.
On LinkedIn under Kurt (David) Noyce, we find that Embrace was formerly Advanced Financial Services. Complaints appear in Ripoff Reports and ConsumerMotion. I gather the Embrace routine is to collect $375 for a spurious real estate appraisal.
I got a third mailer – first contact – from The Lending Club, a peer-to-peer lending agency which is profiled positively on Wikipedia. To the borrowers they promise lower rates. To the investors they promise higher returns. Can both be true? The rationale is that people are paying so much above the prime rates on credit card and other debt that there is plenty of room for a careful investor to make essentially microloans to people that are perfectly capable of paying back a loan. IOW, they claim to remove the middlemen, the banksters, and pass the savings to both investors and borrowers:
When initially founded, Lending Club positioned itself as a social networking service and set up opportunities for members to identify group affinities, based on a theory that borrowers would be less likely to default to lenders with whom they had affinities and social relationships. …
After registering with the SEC, Lending Club stopped presenting itself as a social network … To reduce default risk, Lending Club focuses on high-credit-worthy borrowers, declining approximately 90% of the loan applications it receives and assigning higher interest rates to riskier and borrowers within its credit criteria.
But soon I ran across a site called Lending Club Scam, which seems designed to catch the eye of people like me that want to check up on Lending Club, and provides a positive and reassuring review by Jonathan. “You can relax now, because you’ve made it to a truthful review about Lending Club, whether you intend to be an investor or a borrower. Let me please share with you some thoughts which better helped me understand and evaluate their service.”
Call me cynical, but I got suspicious after reading that and other preemptively-named sites including the terms Lending Club and Review.
The Economist has a laudatory article from January of 2013:
… Lending Club brings that spread down by using technology to match up borrowers and investors without incurring the costs of legacy IT systems and branch networks that weigh down the banks. The firm concentrates on creditworthy, “prime” consumer borrowers, and the average rate that they pay on loans is 14%, well inside credit-card charges. Allowing for a default rate of 4%, and Lending Club’s fees, the returns to investors are 9-10%, which isn’t too shabby given where interest rates are.
14% is a lot higher than the 6.78% APR touted on the Lending Club flyer, but still a a lot lower than the 18% to 21% some credit cards charge. From the investor’s viewpoint, Oblivious Investor compares Lending Club risks with junk bonds:
As it stands right now, I’d categorize Lending Club notes as short-term, high-risk debt that’s difficult to diversify and that carries somewhat higher expenses than I’d like. Entertainment/feel-good value aside, I don’t see much purpose for Lending Club notes in most portfolios.
So I’m not sure what to think of Lending Club. It isn’t obviously disreputable like ADM or Embrace. I would hesitate to invest in such a propped-up economy, but it might be a good deal for the borrower that can qualify.