Online Lending Suffers ‘Growing Pains,’ Not Subprime Bubble

Last Friday, LendingTree’s CEO Doug Lebda and CNBC’s Jim Cramer spoke on Mad Money about how the lending market is transforming, to the benefit of customers. This came after LendingClub’s ordeal earlier this month, when the online lending platform’s stock took a 49.2% dive in four days in reaction to former Chief Executive Renaud Laplanche’s resignation, at the behest of board findings regarding unsavory securitizations.

This is no cause for widespread concern, referencing recent “growing pains” amidst online lenders, Lebda argued. He also suggested that we’re just witnessing an industry shift in financing, akin to that of the hotel and travel industry transformation of the early aughts. In line with this notion, Cramer said this is part of a larger movement toward convenience, consumer choice, and competitive pricing.

Lebda argued further that long-term capabilities of online lenders are a shoo-in worthy of public confidence, yet admitted their future will inevitably be a competitive one, citing the imminent entry of many traditional banks into the lending space. To him, recent market success comes on the heels of increased automation amid lenders. According to Lebda, such automation makes features like comparison shop financing a reality, which gives consumers a sense of transparency.

Both Cramer and Lebda agree a lending bubble doesn’t seem evident at this time, despite recent media coverage suggesting the contrary, which signifies concerns regarding subprime auto lending. Why? Because (they say) lenders have been careful in managing underwriting standards to eschew capital risks. While Lebda admits some newer online lending companies’ market valuations may have created bubbles, investors can expect the end of this adolescent stage in online lending market to foreshadow increased competition, which ultimately means greater consumer choice.

As for LendingClub’s recovery, The Wall Street Journal reported the online platform is carrying out talks that would entail Citigroup Inc. potentially buying or providing financing for future loans made by the online platform. According to the Journal, this means LendingClub is trying to reassure investors by finding new commitments for them following the forced resignation of its chief executive, Renaud Laplanche.