Why a high-cost consumer lender buys a small Utah bank

The parent company of high-cost digital lender CreditNinja has agreed to buy a small Utah-based bank in a deal that may meet with greater opposition than similar recent deals from other fintechs.

KMD Partners said it has entered into a deal to purchase Salt Lake City-based Liberty Bank, which has only $ 11.7 million in assets. Terms of the contract are not disclosed.

The acquisition could prove controversial as Chicago-based CreditNinja offers personal loans with annual rates between 25% and 249%, according to its website. The lender focuses on borrowers with lower credit scores or little credit history who are generally not eligible for traditional bank loans.

High cost loans have gone under increased surveillance policymakers since the start of the Biden administration. Some fintechs, including LendingClub and Social Finance, both of which have recently announced bank acquisitions, cap their consumer loan APRs at 36% or less.

KMD Partners plans to use Liberty Bank to offer checking and savings accounts, credit cards and other banking services to underserved populations, according to executives involved in the deal. They said the bank will also offer loans at more affordable rates to CreditNinja borrowers who have improved their creditworthiness.

“We want to make sure that as they embark on the path to a better [financial] healthcare, that they have a full suite of digital banking and credit products at their fingertips in a single solution, ”said David Shorr, co-founder and executive chairman of KMD Partners, and former CEO of the payday lender CashNetUSA, which is now a division of high-cost, publicly traded lender Enova.

If the deal is approved, Liberty Bank will operate separately from CreditNinja and will be headed by Marc Wintriss, director of loans at the parent company and former regulator of the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau.

CreditNinja would continue to provide high-cost loans, acting as a direct lender in 13 states and partnering with Utah-based First Electronic Bank in states that restrict high-cost lending from non-banks.

High-cost lenders come under scrutiny from state regulators, Congressional Democrats and consumer advocates who say lending with triple-digit APRs puts vulnerable Americans at risk of being trapped in debt cycles.

As the FDIC examines the proposed merger, it is expected to shut down CreditNinja’s high-cost lending program and also eliminate similar partnerships at other FDIC-supervised banks, said Lauren Saunders, associate director of the National Consumer Law Center.

“The path to financial inclusion is not to offer someone a predatory loan with the promise that you will eventually turn it into a reasonable loan,” Saunders said. “People in difficulty need reasonable and affordable credit today, not high cost credit that puts them even further behind. “

KMD’s Shorr argued that CreditNinja provides a vital source of credit for Americans who generally cannot qualify for bank loans. The lender makes sure its clients are able to repay their loans, which are not meant to be long-term solutions, he said.

“Our goal is to integrate them into the ecosystem, get them the credit they need and put them on the path to better financial health,” said Shorr.

The companies plan to complete the deal by the end of 2021, pending approval from the Utah Department of Financial Institutions, FDIC, and Federal Reserve. KMD Partners would become a bank holding company regulated by the Fed, Liberty Bank and CreditNinja operating as separate subsidiaries.

The deal looks likely to be approved, although it raises concerns about the mix of higher-cost credit with the traditional banking system, said Ed Mills, Washington policy analyst at Raymond James. He suggested that KMD’s plan to shift borrowers from CreditNinja to cheaper credit options is likely to be well received by policymakers.

“How they do it is going to be the real problem,” Mills said.

The chord is the latest example of a fintech trying to get into the banking system by acquiring an insured depository institution, noted Allen Denson, partner at the law firm Venable. Loan Club firm its acquisition of $ 1.4 billion in Radius Bank assets in February, and SoFi plans announced in March to buy the $ 150 million Golden Pacific Bancorp asset.

For some fintechs, buying an existing bank can be cheaper than starting a new bank from scratch. An acquisition can also provide more certainty than less proven options like requesting the fintech charter from the Office of the Comptroller of the Currency, which remains the subject of litigation.

“I think there are opportunities like this so I think this could be a very interesting trend that will happen over the next few years,” Denson said.

Liberty Bank, which was founded in 1956 and has a branch in Salt Lake City, offers residential loans and other types of personal credit. Bank President and CEO Kendall Phillips said KMD’s digital capabilities will help ensure Liberty can “continue to serve our customers in new and innovative ways in an increasingly competitive environment.”

“I can’t wait to hand over the reins to Marc [Wintriss], whose deep experience in lending, consumer protection and risk management will serve Liberty Bank and our community well, ”Phillips said in a written statement.

Wintriss, the bank’s proposed CEO, is the former chief credit officer of Target Bank and First Electronic Bank, the Utah bank that partners with CreditNinja on high-cost loans in some states. At First Electronic, Wintriss helped develop the bank’s loan partnership program, which also works with high-cost lenders OppFi and Personify.

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