Venture capitalists are abandoning payday loans

Venture capitalists are moving away from the payday loan space, a decade after jumping in.

Driving the news: LendUp, which had raised more than $200 million from companies like Google Ventures, stopped issuing loans earlier this month.

  • Axios obtained a letter sent to shareholders, in which CEO Anu Shultes said payday loans “are no longer acceptable solutions for critical stakeholders in our business and the community at large.”
  • Since its inception in 2012, the Oakland-based company had originated more than $2 billion in consumer loans.

What happened: Payday loans have always been controversial. Proponents argue it creates a financial option for the unbanked and disenfranchised, while critics believe it is too often predatory.

  • LendUp himself acknowledged the pitfalls of traditional payday loans, especially once Google banned payday loan ads in 2016, claiming that its technological solutions were more consumer-friendly. Nevertheless, it was fined by regulators for violation of payday loans.
  • Since then, the industry has been under a regulatory maelstrom. president obama instituted new consumer protections that President Trump last year canceled, only for Trump’s decision to be reversed in June by Congress.

Company history : LendUp started showing cracks in 2018, when it created a credit card unit now known as Mission Lane. Its founding CEO left soon after, replaced by Shultes.

  • At the end of last year, he spear a “digital banking and financial health platform” called Ahead Financials.
  • It would appear that the original LendUp investors are basically ending up with equity in Mission Lane – which has since raised a lot of money, including follow-ups from some LendUp backers – and everything from Ahead, which is technically a subsidiary of LendUp Global.
  • No LendUp investors contacted by Axios wished to comment on this story. LendUp CEO Shultes also declined an interview request.

The bottom line: Venture capital has become more liberal in its definition of “acceptable” investments, as evidenced by deals in industries like cannabis and gambling. But the pendulum sometimes swings the other way, pushing LendUp in an attempt to pivot.