Prosper's Layoffs Show Marketplace Lender Backlash

Wall Street Journal

The backlash to online marketplace lenders is in full swing. Prosper Marketplace will fire 171 workers and its CEO won't take a salary, as loan volume declines and investors purchase fewer loans. The company will close a Utah office that's assigned to making loans for medical procedures, as it will make cuts totaling about 14% of its workforce, which is based in both San Francisco and Phoenix. Prosper's chief risk officer is being replaced and its lead business-development officer is leaving.

“With the recent tightening of the capital markets, we are refocusing on our core consumer loans business,” CEO Aaron Vermut said. Institutional investors have turned their backs quickly on Prosper and its ilk. Prosper has yet to post a profit. Earlier this week, OnDeck Capital reported a $12.6 million quarterly loss, as its CEO said volume from institutional investors who had previously bought its loans to securitize them has dropped “down almost to zero,” American Banker reported.

OnDeck's shares plunged following the report and LendingClub's shares followed suit, the Journal said. What's next? Will Kabbage have to discontinue its full bar in the company office?

The Fed released a proposal on Tuesday that would strip asset management firms of their right to terminate financial contracts with large banks. The proposal is designed as a failsafe against bank bailouts. Asset managers like Pacific Investment Management Co. have opposed the measure, but another large investment firm, Vanguard Group, came out in support of it.

Some of the postcrisis rules have addressed risks that investment firms faced from swaps and big bank failures, so “some of the early-warning triggers” the industry had developed before 2008 are no longer as relevant, said Bill Thum, a principal in Vanguard's legal and compliance unit.

The proposal's benefits to financial stability will outweigh its costs, Fed Chair Janet Yellen said in prepared remarks. “The crisis underscored that when a large financial institution gets into trouble, its failure can destabilize other firms,” Yellen said.

Financial Times

It's the U.K., but Barclays has introduced a mortgage product that lets borrowers take out a loan equal to 100% of the home's value, no deposit required. “It is the first true 100 per cent mortgage since the financial crisis,” a broker told the FT.

New York Times

The Consumer Financial Protection Bureau may be getting ready to crack down on deferred-interest promotions. The promotions lure consumers to buy expensive items like appliances by forgoing interest for six to 12 months. But deferred-interest promotions can be dangerous for consumers, as they will be slapped with interest charges if they don't pay their balance in full by the end of the promotion.

The National Consumer Law Center calls the promotions “one of the worst abuses, if not the worst abuse” of consumer finance, after the 2009 Credit Card Act cracked down on things like hidden fees.

The CFPB has not indicated its plans, but Director Richard Cordray in March told Congress that regulators had “significant concerns” about the product. The CFPB issued a report in December showing that the promotions had increased in volume between 2010 and 2013.

Citigroup and Synchrony Financial are the two largest purveyors of deferred-interest promotions.

Elsewhere ...

Daily Beast: The identity of the creator of bitcoin is a rather meaningless question, as anyone could have invented the digital currency, Eric Geissinger writes. Not the work of a loner genius, the underlying concept for bitcoin was developed over a fairly long period of time. Starting in the 1980s, a group called the Cypherpunks developed a manifesto calling for, among other things, electronic currency. They didn't just come up with the idea, they developed prototypes. Later, in 1996, the E-Gold concept was revealed.

More digital currencies popped up in the ensuing years, including b-money and Karma. So the idea that bitcoin emerged fully formed and without precedent from the skull of Satoshi Nakamoto/Craig Wright is false and misses the point entirely. Oh by the way, Wright probably isn't Satoshi, although he plans to continue claiming that he is.

San Diego Union-Tribune: MUFG Union Bank's ATMs and online banking services went down on Tuesday after the bank's network crashed. The services were out for most of the day, but were back online as of 6 p.m. Pacific time Tuesday.