So YC funded a payday lender that targeted active duty military service members?
https://debanked.com/2019/01/lendup-gets-a-shake-up/
https://www.crunchbase.com/person/jacob-rosenberg (it would seem Rosenberg actually left in 2018)
Though according to the first one Orloff stayed on the board even after that point.
It's not like this is esoteric finance law either, I've worked in fintech lending during this whole time period and some of these violations are lending regulation 101. Military Lending Act compliance at the very least is dead simple to comply with and is the very first thing most lenders ensure compliance with (due to it being federal, whereas some more esoteric state level stuff can often get missed).
But here's an article from 2016 about what LendUp was trying to do back then: https://techcrunch.com/2016/01/22/the-loan-dolphin/#.4sfbucn...
I don't know much about LendUp at all, but I do remember the surprise - and feeling it myself - when it was announced that YC was funding a payday lending company. Then I remember the thinking behind it being explained (perhaps on HN, perhaps elsewhere) and seeing that the founders seemed to be making a sincere effort to offer something that was at least just less-terrible than the existing payday lending options around (many of which involve dealing with crime gangs), which made me think "OK, I guess it's worth a try". I presume YC thought the same thing when they invested almost ten years ago.
If it turns out that there's no possible way of making a sustainable business in this space that's less-terrible than that was there before, I still don't think it's reprehensible that YC thought it was worth backing founders that seemed to be making a sincere effort to try.
This is a disingenuous response because this space is highly competitive and most of the big names in it have not gone out of business due to flagrantly breaking the law. Just because LendUp broke the law and went out of business does not mean there are no sustainable, legal entities operating in it.
I said very clearly I have no specific knowledge on LendUp. I also know little about the space (apart from that it's a nightmare). The only specific insight I have here is on YC's history and ethical track record.
That said, can you educate me and other readers by linking to examples of companies that are doing well in this space (specifically, offering a better lending option than payday loans in the U.S.)?
* Sustainable, legal lending businesses operating in the payday loan space * Better lending options than payday loans
I am not an expert in either of these [though I have worked with numerous people who are experts in these] so will not make blanket statements (which is why your statement was disingenuous, rather than saying look I don't know anything about this you instead chose to make an authoritative statement indicating sustainable business was not possible in this industry which is untrue) about them, rather only indicate some of the information available:
In the first group you have companies like: * Enova [CashNet USA] - Had CFPB enforcement * Avant - Also from a YC founder, had FTC enforcement action * OneMain - Caps interest at 36%, actually has a carve-out in California lending law
These companies have been operating sustainably for years and looks like business is booming for them. Note how despite receiving enforcement action they were not shut down nor called "cheaters" by the CFPB like LendUp was? This is indicative that one can commit predatory actions in this industry and still be sustainable.
Now for the second group of better lending options than PayDay loans, that's a very wide field but let's assume we want to specifically discuss people who would otherwise be going for a PayDay loan. I'm going to link here to NerdWallet which actually has great overview of options: https://www.nerdwallet.com/article/loans/personal-loans/alte... Specifically, I would call out local credit unions as being a "good" option that is often overlooked despite providing a ton of loan capital in the U.S.
There are also a number of non-profits working to try to help people fall into the Pay Day loan space, in which I would specifically call out SaverLife https://about.saverlife.org/
Arguing whether or not PayDay loans are good (ethical) or not is subjective, as others have noted a high-interest loan can often be better than no loan, but what I would personally argue is that continued and improved government support for credit union payday lending (e.g. https://www.ncua.gov/support-services/access/advancing-commu... ) as well as more available physical lending options (e.g. Go to the Post Office for a loan) are very much worth exploring and supporting.
You've only cited companies/orgs that are operating legally, not ones that are demonstrated to be highly ethical and substantially better for borrowers to deal with than the payday lending companies that existed when LendUp was conceived around 10 years ago.
Clearly, LendUp was talking about trying to build something much better for borrowers than what existed then, and that's what was compelling to YC (as I said in an earlier comment, I vaguely remember discussions about this being had at the time, and thinking it would be interesting to see how their plans would play out).
Exactly what went wrong along the way, I don't know, and I haven't seen any comments here explaining it - only indignant comments leaping to the conclusion that everyone involved must have had malicious intentions from the start but not offering any evidence for this.
If you want to weigh in with your "hot take" you should at least read the article, rather than coming in claiming LendUp did nothing wrong and then when presented with evidence fall back on well "I don't know" and "know little about the space".
This is exactly why your comment is disingenuous, because you specifically stated "turns out that there's no possible way of making a sustainable business in this space that's less-terrible than that was there before" as a defense of LendUp's actions, when as I have pointed out to you, there are plenty of sustainable businesses operating in this sector. If you want to quibble around "sustainable" vs. "good" then at the very least you should acknowledge there are companies that are operating legally vs. ones shut down (e.g. LendUp) after committing multiple violations.
I mean seriously, are you just going to ignore this statement:
“LendUp was backed by some of the biggest names in venture capital,” said CFPB director Rohit Chopra. “We are shuttering the lending operations of this fintech for repeatedly lying and illegally cheating its customers.”
The Director of the CFPB doesn't just come out and call everyone liars and cheaters.
This is very much worth harping on, because you are perpetuating and defending the idea that YC can do no wrong, instead of accepting that it is possible it made a mistake in funding and supporting these founders.
The claim I’m disputing is that the original founders, when founding the company ten years ago, set out with malicious intentions to defraud people, and that YC and other investors knew and supported this.
(Others have later claimed that this wasn’t the allegation, and it was rather that YC made a mistake to invest in this company, in which case, fine, I have no major quarrel with that - most of YC’s investments turn out to be mistakes, that’s how their model works.)
But for those who insist that the original founders’ intentions from the start were nefarious and that YC was aware and complicit, this needs to be pushed back on, hard, as there’s no evidence for it and it makes no sense as you can’t build a successful business that way.
That the founders had high-minded ambitions that later turned out to be unachievable is the simplest explanation. Legal issues several years later, or examples of different companies doing different things to what the founders set out to do are not proof of malice on the part of the founders or YC, or of my dishonesty, and further wordy and aggressive replies from you won’t change that.
Seriously, the legal process has worked and the company has been shut down. Put away the pitchforks and torches.
That said, the "traditional" payday lenders all turn out to be quite predatory, don't they? (I understand that's what the original founding premise of LendUp was intended to address, even if they couldn't make it work.)
But aside from that, will the traditional payday lenders lend to everyone and anyone, no matter their circumstances? If not, what are the options for people who they won't deal with?
There of course is another possibility: the founding team in 2011 was proposing a concept that seemed ethical and an improvement over payday lending options that existed at the time, but over time the company's idea or execution changed for some reason, in which case, there was neither poor ethics nor poor judgement on YC's part.
Occam's razor would require us to accept this explanation unless there was substantive evidence for another scenario.
I hope you know your words hold a ton of moral and social weight in this community.
To say "YC wouldn't do that" is strong language, especially given the facts.
To say, "YC would only have invested in such a startup if they believed it could truly be of benefit to people" is better, because it acknowledges that while YC had the best of intentions, it could have made a mistake in funding these founders rather than give an idea that YC can do no wrong.
The founders, the ones funded by YC, created a company that committed financial crimes before they left the company. Those founders should be seen in that light, regardless of their intentions.
Tax evasion wasn't Al Capone's primary crime either.