Alternative lenders Everest (SME) and CircleBack (Consumer) both share an investor indicted last week on racketeering charges. His name is Charles Hallinan, and he’s known in the payday-loan industry for pioneering two techniques referred to as “rent-a-bank” and “rent-a-tribe”, that are used by dozens of lenders to claim high rates are legal.
Hallinan’s “rent-a-bank” technique has become commonplace among even reputable online lenders that offer lower rates. A borrower who applies through LendingClub Corp. or Prosper Marketplace Inc., two of the biggest marketplace lenders, will probably get a loan issued by WebBank in Salt Lake City. That allows those companies, which haven’t been accused of usury, to avoid the need for banking licenses. CircleBack, founded in 2013, offers consumer loans at interest rates from 6.6 percent to 36 percent and had loaned more than $200 million as of September, according to its website. The company has raised money to make loans from investment bank Jefferies Group and hedge fund Pine River Capital Management, whose representatives declined to comment.