Bloomberg by Matt Scully (August 19, 2016)

Lenders raising private funds to buy loans from their own platform is an inherent conflict because lenders cannot fulfill a fiduciary duty to both shareholder and loan buyer, Blue Elephant CIO Brian Weinstein says in investor letter.

  • Originate to distribute creates value for shareholders, but not necessarily loan buyers; difficult to imagine an investment arm of a lender refusing to buy its own loans because of deteriorating underwriting standards, he wrote in Thursday afternoon letter
  • “Trust issues caused by these fiduciary conflicts will slow the growth of the industry,” he said
  • Safe to say online lending myth has been “debunked”
  •  A “myth developed that online lending could grow infinitely” and steal business from big banks while providing investors a “Holy Grail” of high returns and minimum risk
  • Growth came to screeching halt this year amid deteriorating performance and governance issues; the “real devil” is in the performance details
  •  Competition for borrowers pushed lenders to lower rates and originate more than they could handle; defaults rose accordingly, during otherwise strong credit cycle
  • Calls for new analytical tools to compare loans across originators to allow investors to do independent assessments; not enough to trust the originator, which clearly has bias

To contact the reporter on this story:  Matt Scully in New York at

To contact the editor responsible for this story: Nabila Ahmed at