LendingClub CEO Warns Americans Underestimate Credit Card Interest Costs

Watch more: Most Americans Don’t Know Their Credit Card Interest Rates, LendingClub CEO Says

LendingClub CEO Scott Sanborn said more than half of consumers don’t know the interest rates on their credit cards. Among those who claim to know their rates, half underestimate what they’re actually paying.

The findings come from LendingClub’s internal research, as credit card interest rates have risen to the high-20% range while essential expenses continue to outpace income growth over the past two decades. Credit card revolving balances have reached record levels during this period.

“Add in the inflationary pressure, which doesn’t seem to be going away as fast as anyone would like,” Sanborn told PYMNTS CEO Karen Webster during a Monday Conversation session. “It’s putting pressure on consumers, who are managing…but things are tight.”

Sanborn said the conditions have created the largest total addressable market for personal loans that the company has seen. LendingClub estimates that 52% of Americans are currently carrying credit card debt at historically high interest rates.

Evolution from Peer-to-Peer Platform

LendingClub began as a peer-to-peer lending platform in 2006 before acquiring Radius Bank in 2020. Sanborn said the bank acquisition was a key strategic move to empower consumers to make what he called “smart financial decisions” and transform the company’s operations into a comprehensive financial ecosystem.

Following a strong second quarter reported at the end of July, the company reactivated key marketing channels that had been curtailed during interest rate shifts and the 2023 banking crisis. These channels include online advertising, display ads, paid search, and direct mail campaigns.

“Our early results came in stronger than we expected,” Sanborn said, attributing the performance to the significant interest rate savings LendingClub can offer to consumers carrying high-rate credit card debt.

New Banking Products and Customer Response

LevelUp Checking launched just over a month ago with features designed to reward responsible financial behavior. The account offers 1% cash back on essential purchases, including gas, groceries, and pharmaceuticals, plus 1% annual percentage yield on account balances and 2% cash back for customers who make on-time loan payments. The cash back on loan payments effectively reduces the interest rate customers pay on their loans.

Since the product launch, sign-ups increased sixfold compared to previous account opening rates. Approximately 60% of new checking accounts have come from existing borrowers who are setting up direct deposits and automated loan payments, indicating strong cross-selling success between LendingClub’s lending and banking operations.

LevelUp Savings has attracted $2.7 billion in deposits in what Sanborn described as a short period. The savings product offers higher interest rates for customers who maintain consistent saving behavior over time.

“These offerings are good for the consumer, better than the competition, and best when they’re used together,” Sanborn explained, referring to the integrated approach across checking, savings, and lending products.

The banking product growth is being supported by what Sanborn called robust momentum in the company’s core lending businesses. Second-quarter loan originations rose 32% compared to the same period last year. The company attributed this growth to strong credit performance among existing loans and high demand from institutional loan buyers.

Conservative Credit Strategy During Market Volatility

LendingClub has maintained what Sanborn described as “a pretty cautious credit stance” that has contributed to more than four years of outperformance relative to competitors. The company’s current approval rates are approximately one-third lower than the levels maintained before inflation began affecting borrower finances.

When the interest rate environment first shifted upward, asset management companies that had been buying loans from LendingClub’s marketplace moved to the sidelines because their cost of capital increased dramatically. “So we pivoted to banks,” Sanborn explained. “And we went upstream in terms of credit we were sourcing, because that’s what bank buyers want.”

This pivot toward higher-quality borrowers proved beneficial when the 2023 banking crisis occurred. “Luckily we were ‘up’ credit at the time when inflationary pressures were also hitting borrowers,” Sanborn said. “That really benefited us and we’re selling that higher quality credit now to both banks and asset managers.”

The conservative underwriting approach has enabled LendingClub to maintain strong loan performance even as economic conditions have created stress for many borrowers across the industry.

Direct Payment Process for Debt Consolidation

In its core business of refinancing credit card debt, LendingClub directly pays off customers’ existing card balances rather than providing cash to borrowers. This process ensures the funds are used as intended for debt consolidation and prevents customers from accumulating additional debt on top of their new personal loan.

“If you tell us you’re going to pay off your credit card debt, we say, great,” Sanborn explained. “Here are your cards…we will pay those directly for you.” This approach helps consumers reduce their overall cost of debt while maintaining the same total debt level, consolidating multiple credit card accounts into a single point of interaction through the LendingClub platform.

Institutional Partnerships and Market Positioning

LendingClub recently announced a significant partnership with BlackRock that includes a structured certificate product with an investment-grade rating from Fitch Ratings. Sanborn described BlackRock as a “blue chip counterpart” for the partnership.

The BlackRock deal includes up to $1 billion in forward flow commitments for future loan purchases, initially targeting lower-cost capital sources such as insurance companies. This partnership is designed to help power LendingClub’s online marketplace for loan sales to institutional investors.

Sanborn said these partnerships distinguish LendingClub from what he called “episodic entrants” in the lending market who “come in with guns blazing using inferred bureau models” without the depth of experience that comes from extended market presence.

He noted that LendingClub has two decades of operating experience, dozens of internal credit models, and $100 billion in loan originations over 17 years of operations. This track record, according to Sanborn, provides advantages over newer competitors that rely primarily on standard credit bureau data and models.

Technology Development and Future Plans

The company is developing what Sanborn called a proprietary “dynamic application” system that will control LendingClub’s full mobile technology stack. Unlike most banks that rely on third-party technology solutions, LendingClub’s internally controlled system is intended to enable more data-driven, customer-focused experiences.

Additionally, the company is building a mobile marketing platform to support customer acquisition and engagement efforts. These technology investments are part of LendingClub’s broader strategy to differentiate its customer experience from traditional banking and lending competitors.

“We’re really pleased with the progress we’re making,” Sanborn told Webster. “We’re very bullish on the future of LendingClub and we’re running ahead of our own expectations, which is great.”

The company’s strong second-quarter performance and successful product launches have exceeded internal projections, according to Sanborn, positioning LendingClub for continued growth in what the CEO sees as an expanding market opportunity driven by consumer financial pressures and limited awareness of debt costs.