A reporter from the New York Times recently called me for help on a story. He asked me if I had heard of a new lender called the “The Lending Club.” I told him that I had been coming across that name more and more these days. The story is on the front page of today’s New York Times: nyti.ms/1UQ5tDd
Actually, there has recently been a significant increase in clients seeking my help because of the Lending Club and other “non-bank” lenders like Prosper. These “internet” lenders target people with moderate to low income and large amounts of credit card debt. Specifically, they target people who always pay their credit cards on time, but are struggling because they are paying very high interest rates on credit cards issued by regular banks like Citibank, Chase or Capital One.
The New York Times story exposes the Lending Club scam. The Lending Club promises that they will consolidate high interest credit cards into one low interest loan to the Lending Club. The Lending Club then promises that this new “Lending Club” loan can be paid off in just a few years. Other non-bank lenders have jumped on the bandwagon with similar offers. The Lending Club’s main competition is called Prosper, but there are also many others.
Here is the catch with these offers: In return for a lower interest rate, the borrowers have to pay much higher monthly payments. The monthly payment to the Lending Club may be $400 or $500 more than paying the minimum payments on the credit cards. These higher monthly payments are so high that they end up crushing the Lending Club customer. Soon, they run out of money to pay for basics like food and rent. Many end up in bankruptcy. The New York Times article tells the story of several individuals who had to file bankruptcy to protect themselves from the Lending Club’s crushing debt.
If you know anyone considering borrowing from the Lending Club or Prosper, please tell them about this New York Times story. And, as always, if you know someone who is struggling with overdue debts, please have them call us for a bankruptcy consultation at 212-315-3755.