One of the things that’s really different about credit card debt is unlike most of your car, your mortgage, all the rest, those are fixed payments. Your credit card debt varies in amount every month, both based on the balance and the rate, but also based on whether you pay the minimum payment or you pay it off or something in between. So, consumers really don’t have a very good way to see all of that data and manage it holistically. So we are working on an experience that will help them do that, as well as a line of credit products that as we’re seeing those balances build, we’ll be able to allow them to kind of sweep that automatically into an installment payoff plan. So, you know, those will all be kind of in the background in development and optimization right now until the time is right.
But we plan to be in a position to leverage all of that to, you know, with what we think will be a pretty powerful competitive mode when the time is right.
John Hecht: Great. I appreciate the power, guys. Thanks.
Operator: Our next question comes from Reggie Smith with JPMorgan. Please proceed.
Reggie Smith: Hey, good evening. Thanks for taking the question. I guess, I wanted to clarify a comment that you just made. Did you suggest that you had, kind of, pivoted your underwriting towards people that were refinancing credit card debt as opposed to using the proceeds or something else?
Scott Sanborn: Well, it’s always been our kind of largest use case. It’s always been our dominant use case because on average we’re able to offer people let’s say a price that’s 400 basis points to 500 basis points below their cart and it’s a big market. Half of all U.S. consumers are carrying credit card debt and so we’re able to know who they are, know that we can approve them and reach out and say we got a better deal for you. But there are other use cases especially for repeat members. Once they see how easy it is to work with LendingClub and they’re in our system. They can come back and use it for a whole variety of other things, home improvement, you name it, weddings, moving. So those latter alternative use cases, they’re still in the mix, but they’re a smaller percentage of what they would have been two years ago.
We’re not talking about significant shifts, we’re talking about on the margin, but yes, that is how we have, one of the many ways we’ve adapted. We’ve also, you know, tightened up our approval rates for people with federal student loans over a year and a half ago. The number of ways we’ve adapted to this environment, that’s just one.
Reggie Smith: Can you talk a little bit about your average APR on new originations this period, maybe contextualize compared to last period, maybe a year ago?
Drew LaBenne: Yes, so in the prime space where we’re originating, I mean, the coupons range anywhere from 10% to 18%, 19%. But on average, we’re skewing towards the higher end of that population. So they’re going to be in the low-teens in terms of the coupons that we’re putting on the books for ourselves.
Scott Sanborn: And in terms of coupon we’ve passed on, we’re roughly in the near prime space, we’ve pretty much passed on all of the rate increases to that borrower. That’s we mentioned where there’s less competition in the prime space. We’re probably closer to just under $300 of the — call it $500 rough rate increase.
Reggie Smith: Got it. And I think you guys talked about a sale price on loans at the $0.96 range during your prepared remarks or maybe was a question earlier. I guess is there a way to kind of contextualize what the required return your buyers are looking for? Either gross or net today maybe versus a year ago or I was kind of framed that difference there?
Drew LaBenne: Yes, I mean, I’d say, you know, prior to the rate increase, right on the prime credit, you were looking at an unlevered return of call it 4% to 5% for prime and call it 7% to 8% for near prime. I’d say those numbers today are more like 8% to 10% for prime and north of that for near prime. So the way you get there is higher coupons, lower losses, and a discount. And I guess the other thing to note is, you know, coming into this rate environment, we were selling loans at or above par. I think we were at 101%, you know, so, you know, pretty big difference in pricing given the pressure on returns. Now that — and that, you know, part of that return equation is due to the loss of the banks, right? And, you know, because the banks on prime can absorb a lower return, but without them in the mix, with asset managers that are often warehouse funded, they need that higher return.
Scott Sanborn: And Reggie, just one of the things you said is that if we look in this space, who we’re competing with, I don’t know that the economics that are being offered out there are sustainable for a lot of the businesses, right? The fact that we’re able to do this unique structure where we can take the A-note and capture some yields, while also giving efficient financing think is pretty differentiated. And you know if this environment grinds on I think it’s going to be pretty important as a differentiator for our ability to continue to you know maintain profitability and marketplace.
Reggie Smith: I got one more question kind of a two-parter on that, that structured note security. Just can you remind us the buyers of that equity tranche over digital tranche, are those new partners, or are the existing partners that kind of moved over? You feel like you can get some asset managers that moved over to this structure. And then the second part of that question is, is there an opportunity to possibly move further down the credit spectrum, maybe enhance the yields there given the support or would that breach anything related to it being something that’s able to be non-CECL, non-reserved? Thanks.
