The Pertuity Direct Blog

Changing the Credit Crisis Conversation

Wed, 13 May 2009 11:04:00 GMT

Read any story concerning the Treasury Department's ongoing efforts to combat the credit crisis, and you're almost certain to encounter a heavy dose of negativity. Whether it's the recent article in The Washington Post concerning the findings of a congressional report on the recently launched TALF program, or any of the recent stories pointing out that banks still are not lending, the discussion always seems to focus on what isn't working.

At Pertuity Direct, we think the nature of the conversation needs to change. We understand people are frustrated. But negativity and criticism don't solve problems, and they certainly won't fix the credit crisis. Creativity, conversation and innovation, on the other hand, do solve problems, and they're capable of solving this one as well.

So I'd like to use this blog to talk not about the credit crisis itself, but instead about what we can do to fix it. And there is something we can do. Working together with the Treasury, we think social lenders can help stimulate the flow of consumer credit.

So what exactly can social lenders bring to the table that has thus far been lacking?

Innovation
When problems arise that traditional solutions just don't solve, innovation is the answer. Such is the case with the credit crisis. Social lenders have innovative tools at their disposal that traditional banks do not, and we can use them to effectively combat this crisis.

Public Engagement
First and foremost among those tools is the ability to engage the public. Part of the frustration for everyday Americans is the helplessness they feel. Greatly impacted by the credit crisis, yet powerless to do anything about it. Social lending changes that. It gives citizens the power to personally kick-start lending activity, and in doing so, it creates that much-needed sense of engagement.

Clean Balance Sheets
Social lenders do not need capital to shore up their balance sheets. That enables us to create perhaps our most powerful tool for combating the credit crisis...

A Direct Pipeline to Borrowers
In other words, any money the government dedicates to social lending is money that would be put directly into the pockets of consumers in the form of affordable, fixed-rate loans. When used to refinance high-interest debt or fuel small business growth, those loans in turn directly stimulate economy activity.

Responsible Underwriting
This is especially true of the team here at Pertuity Direct. Responsible lending is our hallmark, and it's critical as far as combating the credit crisis is concerned. Because when we defeat this thing, we want to defeat it for good.

Make no mistake, the credit crisis is a big problem. But like any problem, it has a solution. We'd love the opportunity to talk with the Treasury about how we can be a part of it. We'd love the opportunity to help change the conversation. And, we'd love to have you join that conversation, so please share your comments below.

Promoting Diversity

Fri, 08 May 2009 12:02:00 GMT

Strengthen your portfolio by looking beyond the traditional.

What can I do differently?

That's a question a lot of people are asking themselves these days. What can I do differently to keep the stock market from wiping out my 401(K)? What can I do differently to guard against inflation? What can I do differently to be better prepared the next time something like this happens?

There are, of course, no easy answers. If you know anything about us, you know that we're not about discovering the magic bullet that doesn't exist. What we are about is finding smart financial solutions. And one of the best ones we’ve heard so far comes from a recent Forbes article by David Serchuck. Its message? Diversify your portfolio beyond the traditional by thinking like a sophisticated financial institution.

Serchuck specifically states the following:

"The key for individual investors is to try and take a page from institutional investors, who have a large arsenal of tools at their disposal."

The piece later shares the following insight from Stephen Roseman of the hedge fund Thesis Capital:

"The biggest impediment that the individual investor has faced is an inability to be anything other than 'long and wrong.' What I mean by that is that the individual investor has historically had two choices: 1) to be long stocks and bonds, or 2) to make a market call and move their assets into cash... Institutional investors often have a much more 'complete' view of the world. They position their assets across disparate and typically less correlated asset classes and strategies."

We couldn't agree more. But in order for individuals to put this plan into action, they first need access to a diversity of products capable of taking them beyond the traditional. That's where we believe consumer loans come in. Consumer loans constitute an asset class traditionally reserved for sophisticated financial institutions. But thanks to social lending, that's no longer the case. Consumer loans can now serve as a piece of the diversification puzzle for everyday individuals.

Now, under no circumstances are consumer loans the be all and end all of portfolio diversification. That's a distinction that no asset class will ever lay claim to. But we strongly believe consumer loans do have a place, especially if the following is true of them:

They were meticulously underwritten by experienced professionals and awarded only to deserving borrowers with good credit.

These are critical qualifiers that mitigate risk and create the stability we all seek. Remember, this is not about chasing huge returns. It's not about finding a way to get rich quickly. It's simply about determining what we can do differently. Have a thought on the topic? Please share your comments below.

Literacy Begins with Transparency

Mon, 04 May 2009 10:58:00 GMT

Institutions Need to Do Their Part to Create Smarter Consumers.

Great blog entry on financial literacy this week by Felix Salmon of Reuters. Salmon reviews a panel discussion that took place at the recent Milken Institute Global Conference. The panel, entitled Financial Literacy: An Issue of American Competitiveness, featured noted speakers such as Richard Hartnack, Vice Chairman of U.S. Bancorp, and David S. Simon, Executive Vice President, Citigroup Inc.

Although the panel was in agreement that the American consumer suffers from a lack of financial literacy, Salmon noted that few specific solutions to the problem were proposed. According to the review:

"There was, unfortunately, very little discussion of how exactly to give Americans those skills."

We agree with him. That is unfortunate. But we'd like to take the opportunity to suggest what we believe is one of the simplest ways to build financial literacy: Increased transparency on the part of financial institutions. Let's put the onus on ourselves here. Let's deliver products and services in a manner such that consumers can fully understand what they're getting into.

Transparency is a powerful thing. It creates informed customers, and informed customers make smart decisions. During the past 18 months, it's become painfully clear just how much better off we are when our customers make smart, informed decisions. But literacy starts at the top, and it's time we as financial institutions step up and take the lead. It’s our job to make sure our customers never walk out the door with unresolved questions. That's why we need to build transparency into everything we do.

At Pertuity Direct, we're making sure we do more than just talk the talk on this issue. You may recall that I also made the case for increased transparency in my last blog entry. Well, in the time between that post and this one, we added a new page to our web site in which our credit policy is clearly detailed. No fine print. No advanced degree required. Just the facts, plainly stated, same as with our rates and fees page. We also understand that transparency is a living thing, and we'll always be looking for ways to make improvements.

Finally, we believe financial literacy is a two-way street, so we'd love to read our members' comments and thoughts on the topic. Continue the conversation by leaving a comment (you must be a member to comment, so if you haven't done so already, sign up here).

Pertuity Direct Finovate Presentation: 60 Minutes And Counting

Tue, 28 Apr 2009 16:32:00 GMT

We are excited to be presenting at 2:07 PCT/5:07 EST today at Finovate in San Francisco. It has been about three months since our big launch and we've got a lot to say. So far we've really enjoyed the demos and have seen a lot of them focus on how to help the consumer in today's unique lending market.

In addition to showing how our product works and what it makes it tremendously different than other products out there, we just launched our Pay It Forward, Pay It Down contest: vote for one of three selected borrowers, and on May 14th, the winning vote-getter will receive $2,500 to pay down their loan! You can vote here, and you can also sign up to win an Amazon Kindle2 for yourself.

Whether you're in person at Finovate today, or watching from the web, we'd love to hear your feedback. Come by after the session to chat or send us an email at feedback@pertuitydirect.com.

Refinancing Redefined

Wed, 22 Apr 2009 10:26:00 GMT

Forget your mortgage. Consider your flat screen.

If you're reading this blog, chances are you don't need me to tell you how much money you can save by refinancing your mortgage. You know the drill. You secure a new mortgage at a lower interest rate, pay off your old mortgage, and the next thing you know, you're saving money each month. Or, maybe your monthly payment is the same, but you've switched to a 15-year mortgage and you're saving big by paying it down faster.

But what if refinancing didn't have to end with mortgages? What if you could apply the same concept to all the other stuff you've financed over the years?

You know, all that stuff currently racking up interest on your credit card bill every month. The flat-screen television, the timeshare, the Jet Ski you just had to have but never use. The stuff you intended to pay off right away, but hey, life happens. The stuff you thought you were getting good deal on when the interest rate on your credit card was 12%. The stuff that doesn't seem like such a good deal anymore now that your rate has been jacked up to 20% despite your good credit.

What if you could refinance all that expensive debt and save big as a result? Well you can. A low-interest rate loan (from say, Pertuity Direct, for example) will enable you to replace your high-interest credit card debt with affordable, fixed monthly payments. Unlike credit cards, the interest rates are fixed for the life of the loan and you don't get hit with penalty repricing and things like overlimit fees. And, because your monthly payment is fixed, and the loan has a specific term (3 years for Pertuity Direct loans), they come with the built-in discipline of paying the debt off!

The numbers tell the story. Let's say you have credit card debt checking in at $10,000, which according to a recent article by Gerri Willis of CNNMoney.com, would make you like a lot of Americans. And let's say you have one of those unsightly 20-percent interest rates. Assuming that each month you make the minimum payment (as many people do, unaware of how much money it's costing them in the long run) of 3%, or $300, it would take you approximately 49 months and $4,717.85 in interest to pay off that debt.

Now, being the savvy financier that you are, let's say you take advantage of your good credit and refinance that debt with a loan term of 36 months and an interest rate of 11%. Your new monthly payment is now $327.39, but the total interest you wind up paying is now just $1,785.93. You've just used the power of debt refinancing to save nearly $3,000.

But you've done more than just save money. You've taken back control. Being in control means not having to hope the credit card company will treat you fairly. It means not having to hope the government will intervene on your behalf (which it is considering) with credit card companies. It means having the stability needed to manage your money smartly.

So take back control. All it takes is a new take on refinancing.

Putting the Service Back in Financial Services

Wed, 15 Apr 2009 11:23:00 GMT

The customer always comes first. It's the oldest adage in the book, a simple concept that's served as a cornerstone principle for nearly every successful business in America.

So why is it that so many companies in the financial services industry are having such a hard time adhering to it? Why is it that seemingly every time you read the financial news, you learn that another bank or credit card company has made a decision that will adversely affect its customers, in many cases even its best customers?

For example, The Los Angeles Times recently reported that some 16% of Americans - that's over 30 million people - had their credit card limits reduced between April and October of 2008. The median credit score for these cardholders? A whopping 768 - that is considered "super prime." Citing a detailed study by Fair Isaac Corp., the Times stated the following:

"More than 30 million cardholders had their credit limit reduced between April and October last year, but most of the adjustments were not made for the traditional reason: risky behavior like making late payments or having accounts go to collections. About 22 million card holders, or 11% of American consumers, saw their credit limits lowered despite having no recent dicey behavior or actions..."

That's not all. They are going after customers with interest rate increases as well - even for super prime, good credit customers (if you recall, I was personally a victim of this as I shared in one of my previous blog posts – and yes, I know I keep pointing this post out, but I'm still annoyed by the whole thing).

On Monday, The Wall Street Journal reported more bad news for consumers:

"The average annual credit-card rate has climbed to 12.35% from 11.38% six months ago, according to CreditCards.com..."

So how do consumers feel about all this? In a word: annoyed. This is smartly depicted in the article Credit Card, Bank Fee Hikes Spark Outrage by Alice Gomstyn of ABC News. The piece is chock-full of scathing quotes from everyday folks who've had it up to here with the lack of customer appreciation being shown by banks and credit card companies. They're angry. And they should be.

Look, it's one thing to play it safe with riskier borrowers. As we all know, banks and credit card companies lost a tremendous amount of money taking risks on borrowers with sub-prime credit. This we understand.

What we don't understand, however, is why so many in the industry have decided to penalize even those borrowers with good credit. These are borrowers who have acted responsibly, paid their bills on time and worked hard to keep their finances in order. They've done nothing to deserve rising interest rates and shrinking credit limits, and yet that’s exactly what they’re getting.

Borrowers with good credit are the luxury car drivers of the financial services industry. They deserve to be courted and competed for. They deserve products and services worthy of their business. Instead, they've been shown a collection of banged-up used cars and simply told to take it or leave it. The industry has become afraid to differentiate, and in doing so, it has failed to meet the needs of its most desirable customers.

What's most ironic about all this (and if you're a borrower with good credit, most frustrating about it) is that now more than ever, the financial services industry should be differentiating. We should be doing everything we can to encourage consumers to maintain good credit, and to reward those who do. We should be putting our customers, especially our best customers, first.

That's what Pertuity Direct is all about. We make great customer service our top priority. We do it by providing an innovative service designed specifically for borrowers with good credit. We do it by offering competitive, fixed-interest rates and a transparent, easy-to-follow process that focuses on security and privacy. We do it by constantly striving to maximize user convenience through our social lending platform.

But more than anything, we do it by understanding that ours is a business built on service. And our customers will always come first.

When Getting Paid and Paying Bills – Think Green

Thu, 09 Apr 2009 14:15:00 GMT

Imagine the difference you could make if you received your monthly banking statements electronically and your monthly bills by email, and paid your bills electronically.

How green are electronic payments?

By switching to electronic bills, statements, and payments, the average household can reduce greenhouse gas emissions by 171 pounds annually - a savings equivalent to:

Not driving 169 miles
Not consuming 8.8 gallons of gasoline
Planting 2 trees and allowing them to grow for 10 years
Preserving 24 square feet of forestland

The bottom line?

Taking a small step like reducing paper from your bills and financial transactions can have a big impact. Every year, paper checks use more than 674 million gallons of fuel and add 3,628,220 tons of CO2 to the environment.

Getting started is an easy, three-step process: Assess, Ask, and Act.

Assess which bills, statements, and payments you currently have that use paper.
Ask your employer, financial institution, and companies that send you bills how to receive bills and manage your accounts electronically, and receive and make payments electronically.
Act on your decision and set a specific date to stop the paper and PayItGreen^™ at every opportunity.

Learn more about the greening of payments at www.payitgreen.org.

Posted By:
Pay It Green © 2008 NACHA. All rights reserved.
This document is provided by the PayItGreen Alliance and NACHA for information only and does not constitute legal advice.

Technorati Profile

How About Saying It Straight With Consumers?

Fri, 03 Apr 2009 13:46:00 GMT

As a consumer, I have a bone to pick with companies whose ads are consistently more hype than bite. With the TV show ER making its last stand, I read some articles explaining how it jumped the shark many years ago due to too many "very special" branded episodes. I'm sure you can recall many, many of the overzealous promos shouting "You can’t miss this week’s ER". "Must See TV" was at its best before they felt like they had to call it that.

The overhype machine can also be found in financial services and here's where it really matters - it can have a direct impact on your wallet. As a new business competing in this highly competitive space, we watch what others do, and it can be very tempting to follow suit and make lofty promises and focus on ways to attract customers without really giving them all the facts. So let me be very clear: I won’t let that happen here at Pertuity Direct.

Since social lending can be a complex animal, let me try to make what we do more transparent:

We price from 8.9% to 17.9% plus charge an origination fee of 1-2% (based on credit score) when allowed by state law.
If borrowers don't have good credit and a FICO of at least 660, they won't get approved. We need to be responsible lenders and ensure that borrowers have the ability to handle their debt payments.
The rates we offer are fixed for the life of the loan. We do not change interest rates or charge overlimit fees. However, there is a $15 late fee (our Rates & Fees page spells everything out).
We sell our loans to the National Retail Fund, a closed-end investment company registered under the 1940 Act. Go to www.nationalretailfund.com for more details and a prospectus.
The National Retail Fund is a mutual fund and is its own entity. The loans we sell to the fund are owned by the fund and its shareholders, not Pertuity Direct.
We continue to the service the loans after sale. Currently for free, but in the long run, we have the option to charge the fund 1%.

While consumer lending and hedge funds have come under great scrutiny from Uncle Sam for deceptive practices, I don't seem to hear the same noise in the mutual fund industry. You know why? U.S. mutual funds are among the most strictly regulated financial products. Take a look at Fidelity, Vanguard or other fund websites and/or legal documents. You'll see they report the same return and expense measures while leaving it up to you to compare and predict future performance. The regulations are part of their beauty and make mutual fund investing possible for all of us. Does that mean you always make great returns? Of course not, but you can count on a consistent means to compare performance across all types of funds.

Now that we are two months post launch and have continued to optimize our processes, we are greatly focused on how to be more transparent about credit policy and loan performance, among other things. So stayed tuned for some changes we hope you like. And I ask you to hold me to my promise of being honest and open in what we communicate. It is a requirement for building a great business that I can be proud of.

The management team here at Pertuity Direct values your thoughts and feedback. Please reach out to us at feedback@pertuitydirect.com to let us know what you think and tell us how we're doing.

Posted By:
Tom McNally
SVP, Finance

Out Of Sight, Out Of Wallet?

Wed, 25 Mar 2009 13:56:00 GMT

I came across an interesting article in the paper recently that I thought was worth sharing. It's written by Michelle Singletary, a personal finances columnist at the Washington Post. The article sites research that suggests consumers who are more likely to use credit cards for purchases will spend more than their cash-toting counterparts. Quote:

"In their groundbreaking research, Drazen Prelec and Duncan Simester of the Sloan School of Management at MIT found that study subjects paid more when instructed to use a credit card rather than cash. In fact, they found that people were willing to pay up to 100 percent more with plastic."

Also:

"This customer behavior is at odds with standard economic theory, which argues that the method of payment should have no effect on spending, so consumers seem to be indulging in 'irrational behavior', [Greg Davies at Britain's Warwick University] says in a research article, 'The Realities of Spending'."

You can read the full article here.

We at Pertuity Direct believe that there are several advantages of an installment loan, or personal loan, over credit cards. The above article highlights some of the ways in which credit cards can enable impulsive spending for one.

Perhaps more importantly, it is credit card pricing and penalty fees that make cards a bad bet for lots of consumers. Installment loans present a financing option for consumers that have more transparent pricing structures and less onerous penalty pricing than credit cards. In fact, overdone, punative penalty pricing is what Congress is currently examining with an eventual intent to introduce further regulation to curb these practices.

Main Street takes on Wall Street

Wed, 18 Mar 2009 09:54:00 GMT

I do not typically watch a lot of T.V., so when the feud between Jim Cramer (of CNBC) and John Stewart occurred last week on Stewart's The Daily Show, I was completely oblivious. It literally took five of my friends telling me about it before I finally checked it out on Comedy Central and it's brilliant!

(WARNING: EXPLICIT LANGUAGE)

The Daily Show With Jon StewartM - Th 11p / 10c

Jim Cramer Unedited Interview Pt. 3

Daily Show Full Episodes
Important Things w/ Demetri Martin

Political Humor
Jim Cramer

Bottom line is that Stewart (representing Main Street) is taking on Cramer (representing Wall Street) and Main Street came out ahead big. In one of the earlier segments, Stewart shows clips of Cramer (while Cramer is sitting there, dumbfounded) 12 years ago saying that there are "the rules", and then there is what people on Wall Street do to make tons of money quickly. Stewart says it best when he says that Main Street was fooled into taking a long term investment strategy in their 401(k) portfolios while Wall Street and Banks took all that money, leveraged 35:1, and traded in and out multiple times a day and became millionaires. When all the dust settled, the Main Street consumer saw their kids' education funds and retirement nest eggs drop 40%. Tough luck.

Just another instance of a Main Street consumer essentially saying "enough is enough" with the conventional financial services business model - where the bankers make all the money and the consumer draws the short straw - and craving a return to the fundamentals. This evening, I talked to a well known finance professor at one of the leading business schools in the country and in his words, "The banking and capital markets model is broken - it's time for a new paradigm".

I agree.

Posted By:
Kim Muhota
CEO, Pertuity Direct

Treasury Needs To Look At Social Lending As A Solution

Mon, 09 Mar 2009 15:16:00 GMT

Well, once again, Saturday Night Live proves to shed some enlightenment on fixing today’s economic woes. Warren Buffet's got nothing on them.

Just when I thought there was no way to get through to the Treasury (they are a little busy these days) to get them to see the light about providing TALF money to social lending companies, my prayers have been answered.

My pitch to Mr. Geithner and team? Unlike banks, social lenders don't have balance sheets to fix and capital ratios to adjust. We are the perfect conduit to funnel Treasury money directly into borrowers' hands to enable the Fed to achieve one of its main objectives: creating liquidity in the credit markets. If only Tim Geithner did have an 800 number up and running...

Posted By:
Lisa Lough

You Are An Investor - Even When You Are Not Investing

Fri, 06 Mar 2009 09:49:00 GMT

Having recently gone through the exciting election period through 2008, you might recall the "Get out and Vote" campaigns that many of the political groups had - and their main premise, which is true, is that by not going out to vote for someone you might want to see in office, you are effectively casting your vote for the other candidate. By not voting, you ARE voting.

I am not a political junkie, but as I watch all the upheaval in the marketplace today, I think the analogy is especially true. All the people who have "pulled their money out of the stock market" and decided not to invest are in fact, still investing. The difference is that they are investing in a different asset class, with theoretically different risk characteristics. There is a continuum of investment risks and potential returns that everyone thinks about. And we do so actively or passively. On one end of the spectrum, you can take some risk, put your money in the stock market, and potentially get very rewarding returns. On the other end, you can play it "safe" and put your money in a bank, FDIC insured, and get a very low return. To be clear, the latter is still an investment decision - let's call it a passive investment decision. In other words, my conservative grandma is an investor, just like me. That risk/return equation has been fairly stable for many years. But in today's market upheaval, many people are looking at that equation and its starting to fall out of balance.

Here's how I see the disequilibrium:

The Active Investor:
Investing in the stock market (directly or via mutual funds etc) carries more risk but can potentially generate better returns. Today, the amount of risk inherent in the stock market is more than even the most sophisticated investor can bear... no pun intended. In the first two months of 2009 alone, the DOW has lost about 20% - 25%!

The Passive Investor:
You put your money in a bank CD and maybe you get 1%, if you are lucky, and its FDIC insured. But today, you see headlines like in the Wall Street Journal today where a bill is being considered to give the FDIC access to a $500 billion loan to cover potential losses. The FDIC recently raised a firestorm by asking all its member banks to pay a higher premium - which most of them do not want to do because they say it will wipe out 50% or more of their 2009 profits. I was stunned to read yesterday that the Chairman of the FDIC, Sheila Blair, said that the FDIC could be insolvent by the end of the year. That's obviously a nightmare scenario that no one wants to live through, but in that event, your deposits would not be insured.

In the middle of all this mess is the American Consumer - who has really done no harm, but is being adversely affected - and has historically been in a position where they can do nothing about it. We are all seeing our credit card rates being raised 10% or more with no notice, credit lines being called in, 401(k)s being wiped out, jobs being lost, homes losing value, and much more. It's a painful cycle.

I would propose a more proactive solution for the American Consumer: Social Lending platforms are the answer. Through social lending, borrowers and lenders can cut out the banks and credit card companies and come together to transact responsibly and all get ahead collectively. At Pertuity, we call it Mutually Responsible Banking. It's what banking used to be when there were no unfair tricks to the trade and "profit optimizers" in the middle of the equation - where the depositor would provide money that would be used to lend to good borrowers who would always pay their loans on time. Social lending simplifies what has become an overly complex web of trusting consumers, banks, bankers, investors, speculators, buyers, sellers, arbitrators, traders...

Social lending takes out all the noise. It's finance the way it's supposed to be.

Posted By:
Kim Muhota
CEO, Pertuity Direct

Even Saturday Night Live Has Financial Advice

Wed, 04 Mar 2009 11:10:00 GMT

During this time of economic turmoil, what could be more important than some financial advice from the SNL crew? Check out a recent video from the show that provides some sage guidance on debt management:

In light of the recent trends with credit cards companies - where hiking rates to 20%+ for good customers, suddenly cutting credit lines and hitting us all with more of those fees is now the norm (while they can still get away with it), there is certainly something to be said about racking up less credit card debt. Along those lines, a recent article from Huffington Post noted the savings rate has jumped to 5% - the highest level since 1995. In January we saved $546 billion (the largest amount on record in the past 50 years, although not adjusted for inflation). Surely this is a result of consumers' fears over the economy and job losses, but any tiny piece of good news is welcomed these days.

Posted By:
Lisa Lough

Uncrunch.org

Wed, 25 Feb 2009 12:27:00 GMT

Following up to my recent blog post on innovating to help get the country out of the credit and liquidity crisis, I am very excited to see that Uncrunch.org is continuing to make strides in being a part of the solution.

Today, VirginMoneyUSA announced that they are also going to be a part of the Uncrunch effort. Uncrunch.org is aimed at helping provide viable alternatives to the American public, given the current upheaval in the credit card and banking world. After listening to the State of the Union address last night, I am struck by the very unique opportunity that we each have to take the economic recovery into our own hands and drive things forward collectively.

Social lending presents the ideal mechanism for such an effort. Why wait for the big banks to get themselves moving again when we, the consumers, can quickly get engaged and become a part of the social lending networks out in the marketplace today. Pertuity Direct and some of the other companies in the space have built platforms that I view as the right solution at the right time. We at Pertuity Direct feel strongly that this is where financial services is migrating towards: i.e. a marketplace where consumers are not simply dealing with a cold hard financial services institution that is unfairly extracting profit from everyone - but instead, one where real people benefit from transacting with others like them via our Mutually Responsible Banking platform. That's what Social Finance is all about.

Posted By:
Kim Muhota
CEO, Pertuity Direct

Responsible Banking and Social Finance

Fri, 20 Feb 2009 10:37:00 GMT

An interesting article in the 2/18/09 American Banker by K.Kuehner-Herbert talks about two banks in Texas that are aggressively marketing to the public the fact that they did not receive any TARP money. In fact, they have billboards saying, "Just say no to bailout banks. Bank responsibly."

It's a pretty interesting campaign - although there are people who are crying foul and saying that this type of campaign paints the wrong picture. No matter, I find the second half of their slogan interesting. It is close to our "Mutually Responsible Banking" philosophy. We built our company around leveraging mutual responsibility to insure that all our customers win and come out ahead. It's great to see someone else focusing on bringing back "responsibility" into the banking picture: something that many people argue was one of the key drivers, the lack of which led us into the subprime and credit crisis. I agree.

Most people I have talked to agree that there is a tangible shift occurring in banking and finance where the days of high powered types on Wall Street wielding greed and a relentless focus on profitability at all costs is gone. The concept of credit card companies charging fees and unfairly raising interest rates because of mistakes of others is also not being tolerated widely. Consumers are starting to demand that their financial services provider demonstrate responsibility towards them. It is what I think will continue to evolve into a new paradigm: Social Finance. And we are right in the middle of it.
Posted By:
Kim Muhota
CEO, Pertuity Direct

Innovating To Reduce The TARP Hoard-Mentality

Thu, 19 Feb 2009 10:58:00 GMT

An article in yesterday's Wall Street Journal by M. Crittenden and M.Thiruvengadam indicates that the most recent Treasury report shows that the top 20 banks receiving TARP money have still not shown an increase in lending.

I think it is fair to say that the initial goal of the TARP was met - i.e. avert a financial Hiroshima and keep the banking system alive. Beyond that, I would assert that it is time to get innovative with TARP to make sure that the end consumer gets the benefits. And fast.

The Treasury's ControlYourCredit.gov website is a great step. In addition I would also submit that the Treasury ought to consider innovative platforms like Pertuity Direct where TARP money can be deployed directly and immediately to qualified borrowers who have demonstrated responsible credit behavior.

Our platform is ideal because it removes all the layers of cost, bureaucracy and hoard-mentality that some banks are demonstrating with the billions that they have received, and gets that money to work immediately and ultimately provides the fuel that the economy needs (credit) to get going again. Pertuity is not going to hoard the cash to possibly acquire a failing bank, to pay out bonuses, to "fortress" our balance sheet etc. The money goes straight to the consumer. Period. The consumer starts to live a normal life again, pay down their debt, and the economy continues to hum. That's the type of innovation that the Treasury should be looking at.

Posted By:
Kim Muhota
CEO, Pertuity Direct

Now You Also Get To Pay Interest On Your Annoying Fees

Wed, 11 Feb 2009 09:31:00 GMT

This article by Kathy Chu on USA Today on how one major bank has started to charge credit card customers, who have lower interest rates, with a monthly fee ($10) for carrying large balances is troubling to me in many ways.

First, there is the obvious - "why should I pay an extra $10 in fees simply because I have a balance?" issue. But if you read further, you will see that consumers who called the bank to ask about the additional fees were given the choice to either get charged a higher interest rate or simply pay the fee. But the best part of it is that they add the fee to your balance so the fee accrues interest! The bank does say that this only applies to a small percentage of their customer base. The underlying problem is that this is one more trick to the trade that is likely going to become more prevalent as an additional revenue stream for the credit card company.

If you remember the analogy I used in one of my earlier posts about the coach passenger subsidizing the first class passenger: well, this is parallel to the airline charging you an extra $25 for your carry-on bag at check in (which is already annoying enough) and then asking you to either throw your bag out of the plane mid-flight or pay an additional $25 because the airline just realized that too many other passengers had carry-on bags as well. Something about that does not feel fair.

I will be posting a video blog by the end of this week with some additional thoughts on "tricks of the trade" that credit card companies use.

Posted By:
Kim Muhota
CEO, Pertuity Direct

They Control Your Money

Tue, 10 Feb 2009 14:03:00 GMT

"They control your money. They control your government. They control your life. And everybody pays."

I almost fell out of my chair when I heard this tagline for the new movie starring Clive Owen and Naomi Watts, "The International". If you haven't seen the trailer yet, it is about a bank that uses your money for lots of bad things including... wait for it... murder! Does anyone else find this amusing?

What I find most interesting is how banks have become public enemy #1. While it is easy to point to the lack of transparency of TARP money, million dollar office renovations and recent stock price performance as the main reasons Jon Thain beat out Alan Rickman for best villain at the MTV movie awards (OK that did not happen but it seems like the direction we're headed in), what's lost is that banks have struggled for consumer approval since the first bank was open.

The core of the banking business model is to get your money and protect it from loss and then make profits by lending it out to your neighbor at a rate often more than ten times what you're making on it. That's not a secret or some evil conspiracy. That's the purpose for a bank. And to help make this work they are great at creating a mirage of service that makes you feel warm and fuzzy inside. This is the reason why my kids think a bank is about lollypops and why banks give away silly gifts when you open a new deposit account (my favorite was some fancy orthopedic pillow I saw at a well-known "international" bank with a branch near our Pittsburgh office).

Banks work hard on their image and message. The amount of money the big banks spend on building their brand is amazing. Heck, without banks, half the sports arenas in the country would be named after someone actually related to sports. Try watching more than 5 minutes of TV without running into an advertisement for one of the top banks. They are fighting over us consumers and don't believe we have a choice beyond which top ten bank to deal with. I believe there is a choice. I know companies like ING Direct, Paypal and Mint believe there is a better way too.

So if this continues we'll see Citicorp as the organization trying to take down Jason Bourne, Bank of America as the lead villain in the next Indiana Jones and James Dimon behind the hockey mask in the upcoming Friday the 13th. As Clive Owen's character says, "There has to be a way to bring down this bank."

Posted By:
Tom McNally

Social Lending Networks for Students

Mon, 09 Feb 2009 10:04:00 GMT

The liquidity crisis continues to impact just about everyone. What started as the "subprime" crisis in 2008 evolved to the credit crisis and has now become a full-fledged liquidity crisis. Now, even well known schools are trying to figure out how to keep their students in the classroom due to lack of student loans. Parents are flooding financial aid offices with applications for aid and many students are being turned away and some have to leave school.

It's a tragedy that one of the most basic needs required to keep this country moving forward and competitive, education, is being impacted by our current environment. It’s time to start to thinking about non-conventional means to drive change in the education arena. One of the last paragraphs in this Wall Street Journal article is most intriguing. Syracuse has created a fund-raising initiative (and has raised $850K so far) that is aimed at helping their students stay in school. How powerful would it be if you could create university based social lending networks - where endowments and alumni from a particular university would invest in a capital pool that is geared only to students from that university. It would meet a number of important goals: students would get much needed funding to go to school (via well priced loans), and the alumni would get to have a real and tangible impact to their alma mater via investment in that capital pool (as opposed to a charitable donation). That's where we see student lending, especially in today's environment, evolving towards.

Posted By:
Kim Muhota
CEO, Pertuity Direct

Many Banks Still Not Lending Despite TARP Funds

Tue, 03 Feb 2009 10:03:00 GMT

According to this MSNBC article, many banks have shown a sharp decrease in lending. The decline is apparently larger for banks that received TARP funds in the last couple of months of 2008. This is probably because many of the banks that received TARP money were already in a "troubled" state - so they have significant issues to overcome before they can start lending again. The Treasury did a great job in acting quickly to stop the banking universe from collapsing. The next step in the process should be to direct the capital to the end consumer and find mechanisms to insure that the consumer is benefiting directly. One suggestion would be to deploy some of that capital towards vehicles that are investing directly in consumer receivables, such as asset backed securities and commercial paper conduits. This will have a more meaningful and tangible impact to the consumer immediately - i.e. credit will start flowing again and the consumer can start living normally again. Unlike the first half of the strategy where banks got a "bail-out", this part of the strategy would be more like an "investment" - the consumer gets access to credit and ultimately will pay it back. Everybody wins.

Posted By:
Kim Muhota
CEO, Pertuity Direct

Social Lending and Banking - Commentary On Harvard Business Review's Breakthrough Ideas

Mon, 02 Feb 2009 09:28:00 GMT

http://hbr.harvardbusiness.org/web/2009/hbr-list/forget-citibank-borrow-from-bob:

The article on the link was recently posted on the Harvard Business Review. I love the "Forget Citibank" title. The banking world has changed and every honest bank executive will tell you so. Banking as we knew it will not likely be the same. The most compelling statement is that "within five years, all major banks will have their own peer to peer network". I agree with the statement but I think banks are not traditionally the most innovative group of people - so they have a lot of work to do in the next 5 years to figure out how to leverage their branch networks and customer base to create social lending networks. As fewer people go to bank branches, bank executives continue to build more branches. As a result, consumers are paying a premium (via unfair interest rates) for services that they do not even care to use. That does not sound like the definition of a winning or sustainable business model. This deal, that consumers have had to live with for years, would be similar to your airline charging you more for your ticket in coach because the guy in first class wants fine wine and a filet, medium-well. I am done subsidizing first class.

Posted By:
Kim Muhota
CEO, Pertuity Direct

Okay, Now It Happened To Me. Keep An Eye On Your Credit Card Company.

Tue, 27 Jan 2009 13:44:00 GMT

As someone who's worked in financial services (at a credit card company for 6 years, no less) you would think I would know better. But no, the credit card company got me too.

As we have been talking to people about the launch of Pertuity Direct, one of the areas we point to is the need for better lending alternatives. This need, we've noted, is created by a few prominent trends in the lending industry - lack of liquidity (resulting in hard-to-get personal loans with interest rates starting at 14%+ in many cases) and the aggressive penalty (or "repricing")pricing policies of credit card companies.

"Repricing" is a credit card industry term, and basically means what it says. Credit card companies will use clauses in their terms and agreements to aggressively increase a customer's interest rate whenever they want, if a customer action allows them to. And, in most cases, they are not required to give the customer any notice about it at all. In our example, we've been talking about the high-quality, responsible borrower who may have missed one credit card payment when they were away on vacation, or maybe paid a day late... only to then see an interest rate of 24% on their next statement.

Since we've been actively talking about this issue, you can imagine my surprise when I recently looked at my credit card statement and saw an interest rate of 23.15% and almost fell out of my chair. Guess who went on vacation last fall? Unbeknownst to me, I'm actually living the example we talk about - but just didn’t know it. My issue? I erroneously underpaid my minimum payment by $30 last October. Although I have my automatic bill payment set up in my online banking account (which generally makes sure I make my minimum payment on time, until I go in and usually pay the full balance) that month I must've carried a higher balance and did not make the full minimum payment (it's not even that I skipped a payment!). My nice old 9.9% interest rate suddenly went to over 23%. When I called the credit card company, the answer I got from customer service was basically "Tough." I immediately decided to close that account.

Unfortunately, I was not keeping my eye on my interest rate and it took me a few months to realize what had happened. Trust me, now is the time to take a hard look at the interest rates on your credit cards and other debts. If they are high, it's a good opportunity to think about consolidating your debt into one lower-interest rate loan. Not only can you roll everything into one payment, but a lower interest rate obviously means you can save a lot of money in the long run, and possibly pay down your debt much faster.

Here are some interesting credit card facts from the Center for Responsible Lending:

One out of every 10 credit card balances carries a penalty interest rate the cardholder doesn't understand or know about. Issuers do not go out of their way to notify borrowers they've been put in a "penalty box", and over 50% of consumers paying penalty rates do not know it. If the credit card industry truly wanted to promote less risky behavior among borrowers, they would tell cardholders about any interest rate changes.

While penalty rates have been climbing, "penalty shock" (defined as the increase over the regular rate) has increased even more sharply, with penalty shock more than doubling between 2001 and 2007. In 2008, the average penalty annual percentage rate (APR) was 16.9 percentage points higher than the average non-teaser purchase APR.

For a household with the average amount of $10,678 in credit card debt, being penalty repriced on all their balances would result in an additional $1,800 in interest costs per year.

The prevalence of penalty rates in credit card terms has been rising, with a penalty rate in the terms of 94% of new credit card solicitations issued in 2008. This is compared to 82% in 2003.

So what can you, as a consumer, do? Take a close look at your current credit cards (or any new credit cards you apply for) and make sure you are aware of how you can be affected:

Pay attention to your statements.
Make sure you look at your APR on your statement every month. It's there. If your interest rate has been jacked up you'll see it. Credit card companies do not need to proactively notify you about the change, in most cases.

You will either need to appeal to the credit card company to reduce your interest rate (although, speaking from personal experience, this doesn't seem to be very successful these days) or work on moving your balance somewhere else. If you can't qualify for a better option, work on paying down this debt as fast as possible.

Realize that minor infractions (or sometimes, no infraction) can affect your account.
These days, just one late payment can do it, even if it’s not your fault. Other things like increased balances on other accounts, or other information reported on your credit bureau can impact your interest rate.

Read the fine print.
On your existing credit cards, as well as with any new credit cards you may be applying for. Make sure you know the penalty pricing policies and what to watch for. In addition, if you are getting a short-term teaser rate, doing a balance transfer or taking a cash advance, make sure you understand how they work and what you need to be aware of. Many come with fees.

There are a whole host of other credit card practices that can affect you as well…such as hidden fees and how credit card companies apply your monthly payment to your balance - so be careful.

Fortunately, regulators are taking a hard look at these practices right now. In the meantime, be diligent about your debt and know what you are paying. In today's economy, no one can afford to pay more than they need to.

Posted By:
Lisa Lough

Why Social Lending - Why Now?

Thu, 22 Jan 2009 09:53:00 GMT

We are excited to announce that Pertuity Direct has now come out of beta mode and is officially launched. We've spent the last two weeks fine tuning all the components of the business to make sure everything works perfectly by allowing a small group of customers to give the company a test drive. The great news is that we got some very good feedback and have already started to incorporate it into the customer experience.

Pertuity Direct is now available to all via our website: www.pertuitydirect.com. We also just sent out our press release this morning and you can view it here. Come and see how we are delivering against our tagline: Financial Services - Done Better. Our goal is to give you access to a platform where you get a better deal, using a business model and approach that will be familiar to you. Learn More.

Many people have asked why now is a good time to get into the social lending marketplace. We believe, without a doubt, that there is no better time to take advantage of the secret that most banks and credit card companies have held dear for a long time - that this is a great business to be in if you want to make money. Even in tough economic conditions, this business is pretty resilient. The key is to have good underwriting standards and a solid credit policy. And that's exactly what Pertuity Direct's model has. No guess work, no bidding. Just a simple, safe and efficient customer experience - we handle the heavy lifting around making sound credit and loan pricing decisions.

Take a look at the graph below as an illustration of how stable the consumer loan marketplace is over time. The blue line shows the S&P stock index over the last 20 years (and as a reference point, the S&P was down about 40% in 2008). The red line shows aggregate (unsecured) credit card defaults for some of the large banks in the market over the same period. This is real data.

The interesting insight here is that if you are a lender, you can figure out what your credit risk expectations are with relative confidence, based on current trends, and price appropriately so that you get a fairly stable/predictable return over time. We are coming into this market with that mindset.

The trouble that banks are facing today is that they priced their fixed rate loan portfolios (e.g. auto, installment, student loans) two or three years ago, under very liberal underwriting guidelines. They are experiencing the results of decisions made a couple of years ago. In contrast, getting into the business de novo today is, in fact, ideal because we ground our credit policy with current economic realities in mind. When the economy gets better later this year or next year, portfolios that were originated in today’s economy and under a conservative credit policy, are expected to perform even better than anticipated.

What about the social part? Pertuity Direct's business includes a Social Lending Network that allows lenders and borrowers to connect on our platform. So, not only does everybody win from taking advantage of the secret that big banks have known for a long time, but you also get the satisfaction of positively impacting people directly through a model that is centered on Mutually Responsible Banking.

It's the right place and the right time for Social Lending to really take off, given the current market conditions - no liquidity, high loan rates and low returns on investment options. Take advantage of it and try us out. We would love to hear your comments and thoughts, so please send us your feedback at feedback@pertuitydirect.com.

Kim Muhota
CEO, Pertuity Direct

Pertuity Direct: Introducing "Mutually Responsible Banking"

Thu, 08 Jan 2009 12:32:00 GMT

Welcome to Pertuity Direct. What started more than six years ago (while I was a student in business school) as an idea about creating a marketplace where borrowers and lenders could interact in a safe, efficient manner is finally now a reality! We have evolved from a concept, to a business plan (vetted by asking some old-school, traditional bankers who we trusted to poke holes in the model), to what is now an exciting opportunity to take on the big boys with a business that gives the customer a better deal and a better experience.

Social Lending truly has the potential to change the way people borrow and save, and the timing could not be better. The liquidity crisis (otherwise known as "the credit crunch") is affecting everyone from the individual with great credit, to the small business owner with a thriving company, to the multi-national Fortune 500 Corporation. Major financial institutions that we have known for more than a generation such as Merrill Lynch, Wachovia, Lehman Brothers, and Washington Mutual, are no longer.

Conventional wisdom tells us that in times of great upheaval come the greatest innovations. Well, in the world of consumer finance, Social Lending is the innovation; and we built Pertuity Direct to make sure that this innovation is accessible and compelling to the average main street consumer - with safety, privacy, simplicity and security as the foundation of the company.

Pertuity Direct's Social Lending Network is different from anything else in the market. The social lending networks we are building will expand to specific affinity groups borrowing from and lending to each other; for example, professional associations like doctors and firefighters, small business owners in specific geographic regions, and university alumni groups etc. We call it Mutually Responsible Banking. Learn more about Pertuity Direct’s Social Lending Network here.

Our team is comprised of executives that have collectively worked in the U.S. financial services arena for a few decades with companies like Capital One, E*TRADE and PNC. We have executives who have experience building innovative and scalable web-based financial products, executives who have managed consumer credit and multi-million dollar loan portfolios, as well as brilliant engineers and systems architects. Our team is dedicated to changing the consumer finance landscape and loves to be on the cutting edge of financial innovation.

This is the first of many communications from me and the management team. We will use this blog to give you updates as the business expands. So stay tuned. Sign up for our RSS Feed.

In the next couple of blogs, I will talk about things like why Social Lending is most relevant now, how our business gives the average consumer access to an asset class that only high net worth individuals and their investment bankers could previously tap into, and our vision for the future of consumer finance, plus much more.

In the meantime, we are working long and hard to make sure that our company continues to grow and get even better. We value your comments and thoughts, so please send us your feedback at feedback@pertuitydirect.com.

So, again, welcome to Pertuity Direct. Become a member. Open an account. Enjoy the experience.

Kim Muhota

CEO