The Mirage of Ethical Non-Prime Lending

Think of the highest interest Annual Percentage Rate (APR) you’ve ever heard of for any type of debt. Double it. Where did you land? I think for most you’ll be looking at somewhere in the range of 80% APR, maybe 100% APR. Those rates are astronomically high but what if I were to tell you there was a publicly traded lender that averaged 500% APR on their consumer loans? If your first thought was “holy shit” then you are now right where I was six months before starting to write this essay.

The company I discovered was Enova International (NYSE:ENVA), a digital lender generating $1.12B in annual revenue. Their business model relies on offering loans with APRs averaging around 500%, targeting non-prime borrowers who often have no other options. I thought, "How is this possible? Why isn’t anyone undercutting them aggressively to take away market share?”

With this question in mind, I began researching consumer lending. I learned about Dave.com, Empower.me, Bridgit, and various other venture-backed players in the space. Each of these companies started off with good intentions but ended up slowly becoming more aggressive at reclaiming capital, and ratcheting up the cost of capital over time due to pressure from their investors and competition. They each had rapid growth often hitting one million active users within months which powered future venture rounds and then the reality of “growth at any cost” set in and they had to result to more predation than they originally intended.

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