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‘L Card’ aims to stand out from subprime herd

Kelly Dilworth

LendUp’s new L Card, which targets those with little credit history or bad credit, aims to succeed where startups and traditional lenders have failed in recent years. The L Card is not perfect, but it’s a step up from the competition.

The new L Card differs from others in that it’s an unsecured subprime credit card and applicants are approved in seconds. The new L Card also doesn’t charge exorbitant interest rates or bury new cardholders in fees.

For example, the new L Card charges a minimum APR of 19.99 percent and a maximum APR of 29.99 percent – which is not that much higher than what many prime credit cards now charge. Many subprime cards, by contrast, charge APRs as high as 25 to 36 percent.

The L Card also charges substantially lower fees, setting it apart from lower rate subprime rivals, such as the Credit One Visa Platinum, that offer competitive APRs but charge up to $99 a year in annual fees. The most L cardholders with bad credit will be charged is a $60 annual fee (up to $5 per month). Some L cardholders aren’t charged a fee at all.

Unlike other notoriously pricey subprime cards, such as the First Premier Bank credit card, the L Card doesn’t charge additional program or monthly fees, nor does it charge a penalty rate when cardholders miss a payment. In addition, it caps late fees at $7 and gives cardholders a five-day grace period before charging extra for paying late.

The Silicon Valley startup company LendUp, which bills itself as a “socially responsible lender for the emerging middle class,” and Beneficial State Bank, this week announced plans to expand their L Card joint venture. The move is expected to quadruple the availability of L Cards, the news release said.

For consumers who are used to fee-laden cards and dodgier forms of lending, such as high-priced payday loans, the L Card is a significant step up. In the past year, a number of lenders, including Discover and Green Dot, have introduced new secured cards for consumers who are building or rebuilding their credit histories. But to access a secured card, you need to have enough money saved up to put down a substantial security deposit.

If you wanted an unsecured credit card, you typically had to choose between high rate, fee-laden cards that charged hundreds of dollars worth of processing and service fees or somewhat more affordable cards that charged mid-range APRs and steep annual fees.

Consumer advocates have been complaining for years that consumers with bad credit don’t have enough affordable borrowing options. But banks have been slow to develop new options, in part because lending to subprime consumers is so risky and expensive.

A handful of startups tried to close the gap by offering unusual lending products that charged significantly less than traditional subprime lenders. But they either came under fire from consumer advocates for charging rates that were still well above the 36 percent rate cap that consumer advocates suggest for small dollar loans, or they shut down operations after just a few years. The promising alternative lender Vouch, for example, closed its doors in 2016.

Meanwhile, peer-to-peer lenders such as Lending Club and Prosper have become a popular alternative for some consumers who have been shut out by traditional lenders, but their rates run as high as 36 percent and they also charge significant origination fees.

Even LendUp has raised consumer advocates’ ire in the past for offering a payday loan alternative that did away with some of the worst features of payday loans, such as rolling balances, but still charged three-figure APRs. LendUp was also fined by the Consumer Financial Protection Bureau in 2016 for failing to deliver promised benefits.

Like other subprime products before it, the new L Card isn’t perfect (it’s never a good idea to charge a significant balance on a card with a nearly 30 percent APR). But as more cardholders emerge from the economic recovery ready to start borrowing again, the more consumer-friendly card could be seen as a refreshing breath of fresh air.

It could be a while, though, before a larger number of consumers can access the new L Card. LendUp and Beneficial State Bank are in the process of widening access, but for now, the L Card is only available by invitation.

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