The parent company of the high-cost digital lender CreditNinja has agreed to purchase a tiny Utah-based bank in a deal that may spark greater opposition than similar recent deals by other fintechs.
KMD Partners said that it has a deal to purchase Salt Lake City-based Liberty Bank, which has only $11.7 million in assets. Terms of the deal were not disclosed.
The acquisition could prove controversial because Chicago-based CreditNinja offers personal loans with annual percentage rates between 25% and 249%, according to its website. The lender focuses on borrowers with lower credit scores or little credit history who do not typically qualify for traditional bank loans.
High-cost loans have come under
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 that the bank will also offer credit at more affordable rates to CreditNinja borrowers who have improved their credit standing.
“We want to make sure that as they get on a path to better [financial] health, that they have a full suite of digital banking and lending products at their fingertips in a single solution,” said David Shorr, co-founder and executive chairman of KMD Partners, and a former CEO of the payday lender CashNetUSA, which is now a division of the publicly traded high-cost lender Enova.
If the deal is approved, Liberty Bank will operate separately from CreditNinja and be run by Marc Wintriss, the parent company’s chief lending officer and a former regulator at the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau.
CreditNinja would continue making high-cost loans, acting as the direct lender in 13 states and in partnership with Utah-based First Electronic Bank in states that restrict high-cost loans from non-banks.
High-cost lenders face close scrutiny from state regulators, congressional Democrats and consumer advocates who say that loans with triple-digit APRs put vulnerable Americans at risk of being trapped in debt cycles.
As the FDIC reviews the proposed merger, it should shut down CreditNinja’s high-cost loan program, and also eliminate similar partnerships at other FDIC-supervised banks, said Lauren Saunders, associate director of the National Consumer Law Center.
“The way to financial inclusion is not by offering somebody a predatory loan with the promise that you will graduate them eventually into a reasonable one,” Saunders said. “People who are struggling need reasonable, affordable credit today, not high-cost credit that just puts them further behind.”
KMD's Shorr argued that CreditNinja provides a vital source of credit to Americans who generally cannot qualify for bank loans. The lender ensures that its customers are able to repay their loans, which are not meant to be long-term solutions, he said.
“Our goal is to get them in the ecosystem, get them the credit they need and move them on a path towards better financial health,” Shorr said.
The companies expect to close the deal by the end of 2021, pending approval from the Utah Department of Financial Institutions, the FDIC and the Federal Reserve Board. KMD Partners would become a bank holding company regulated by the Fed, with Liberty Bank and CreditNinja operating as separate subsidiaries.
The deal seems likely to be approved, though it does raise some concerns about the mingling of higher-cost credit with traditional banking, said Ed Mills, Washington policy analyst at Raymond James. He suggested that KMD’s plan to shift CreditNinja borrowers to cheaper credit options is likely to get a favorable reception from policymakers.
“How they do it is going to be the real issue,” Mills said.
The deal is the latest example of
For some fintechs, buying an existing bank might be less expensive than starting a new bank from scratch. An acquisition can also provide more certainty than less-tested options like applying for the Office of the Comptroller of the Currency’s fintech charter, which remains the subject of
“I think that there are opportunities like this out there, so I think that this could be a really interesting trend that happens over the next few years,” Denson said.
Liberty Bank, which was founded in 1956 and has one branch in Salt Lake City, offers residential loans and other types of personal credit. The bank’s president and CEO, Kendall Phillips, said that KMD’s digital capabilities will help ensure that Liberty can “continue to serve our customers in new and innovative ways within an increasingly competitive environment.”
“I look forward to passing 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 lending partnership program, which also works with the high-cost lenders OppFi and Personify.
