- June 10, 2016
- Posted by: MaxDecision, Inc
- Category: Avant, Credit Risk Modeling, FinTech, LendingClub, LoanDepot, Prosper Marketplace, Risk Management
Marketplace Lending For Dummies Series: How to avoid stackers
Recently Reuters has written a piece on Stacking within the Marketplace Lending industry. In which, Reuters defined stacking as a borrower taking out multiple loans and find themselves unable to make their daily or monthly payments. Stacking is not a new behavior, lenders in the personal and small business lending space has been navigating this behavior for ages. Okay, you are here to find out how to avoid stackers… let’s get right to it.
Do not hire a risk team that has zero experience with installment personal loans. (old school)
Especially in subprime lending, the stacking behavior is served daily in the subprime, no-prime arena. The deep subprime eco-system has figured out ways to detect stacking to help lenders to avoid over zealous borrowers. Such as real time detection of bursts of applications being filed across lead generators to name one. These bursts are tale tale signs of a customer or a publisher taking out or presenting multiple offers to the consumer. Although prime bureaus hasn’t figure this out yet, look into the major subprime bureaus, you will be surprised what you find there about your customers.
Look at the bank account for trial deposits (new school).
Most of the old school lenders (LendingClub and Prosper included) still use ACH to make the initial proceed of the loan, however before they make their deposit, they usually send a trial deposit (a few pennies to test the account). If you are lucky enough to be the next lender in line and you see trial deposits from Cross River Bank, Webbank, etc… steer clear. There are plenty of tools out there to read in the last 90 to 3 years worth of bank transactions.
Stacking is okay. (old school)
What?!, yes stacking is okay if you completely understand the consumer’s ability to pay. Let’s do some simple math. If your automated algorithm tells you that the customer can afford to make an installment payment of $500, but if he or she has already taken on debt of, say $300 a month, augment your offer to $200 per month, ($500-$300). If they take your offer, all is well, otherwise you probably didn’t want to lend to that person anyway.
Another lender staked me (bonus).
Not all is lost. If you are wise and pull your customer’s credit report on a regular basis, you can recall the remaining principal balance. (I hope you’ve written that in your loan agreement)
Until next time…
Timothy Li, CEO of MaxDecisions, Inc.