Venture capitalists abandon payday loans

Venture capitalists are moving away from the payday lending space, a decade after rushing into it.

Driving the news: LendUp, which had raised more than $ 200 million from companies like Google Ventures, this month stopped making loans.

  • Axios obtained a letter sent to shareholders, in which CEO Anu Shultes said payday loans “are no longer acceptable solutions for critical stakeholders in our business and the community at large.”
  • Since its inception in 2012, the Oakland-based company has generated more than $ 2 billion in consumer loans.

What happened: Payday loans have always been controversial. Supporters argue it creates a financial option for the unbanked and disenfranchised, while critics believe it is too often predatory.

  • LendUp itself recognized the pitfalls of traditional payday loans, especially after Google banned payday loan ads. in 2016, claiming that its technological solutions were more user-friendly. Nevertheless, it was fine by regulators for payday loan violations.
  • Since then, the industry has been subjected to a regulatory maelstrom. president obama instituted new consumer protections that President Trump last year canceled, only for the Trump decision to be overturned in June by Congress.

Company history : LendUp started showing cracks in 2018, when it created a credit card unit now known as Mission Lane. Its founding CEO left shortly after, replaced by Shultes.

  • At the end of last year, he spear a “digital banking and financial health platform” called Ahead Financials.
  • It would appear that LendUp’s original investors basically end up with equity in Mission Lane – which has since raised a lot of money, including some follow-ups from some LendUp backers – and everything from Ahead, which is technically a subsidiary of LendUp Global.
  • No LendUp investor contacted by Axios wanted to comment on this story. The CEO of LendUp Shultes also declined a request for an interview.

The bottom line: Venture capital has become more liberal in its definition of “acceptable” investments, as evidenced by transactions in industries such as cannabis and gambling. But sometimes the pendulum swings in the other direction, causing LendUp to attempt a pivot.

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