Tuesday, January 20, 2009

Pertuity Direct Review

Pittsburgh, PA., Pertuity Direct has launched operations with the blessing of the Securities Exchange Commission (SEC). This startup, founded on a value of “mutually responsible banking” offers many ways to differentiate itself from the many players in the p2p lending market.

I’ve long followed microcredit but domestic peer to peer lending is fairly new to me. As someone who, shamefully, still hasn’t moved to online bill paying yet (it’s my new year’s resolution, honest), I’ve been just a smidgen nervous about this fascinating new format to borrow and lend in.

Pertuity Direct eases a neophyte’s fears by offering essentially a “peer to peer” mutual fund, rather than commitment to one single loan holder. For those of you p2p purists, this option is also available.

Pertuity Direct screens borrowers well, requiring a minimum 660 FICO score, but showing that most borrowers have at least a score of 720. Interest rates for borrowers range from 8.9% to 17.9%. Fees for lenders are estimated to be about 3.17%.

For borrowers there are additional advantages, including lower interest rates than many other peer-to-peer sites and no auction process to determine the interest rates. For borrowers this means that loans are funded within 2-3 business days after applying. Fees are relatively low, including a 1-2% closing fee, a $15 late payment fee and a $15 (average) fee for late payments. Borrowers can also benefit from 1% discount for Electronic Funds Transfer payments. Another interesting feature is “Pertuity Bucks” which are given to lenders to award as they see fit to responsible borrowers. These can only be awarded to borrowers in good standing, but are applied to the loan to pay down the balance. (When was the last time any creditor rewarded you for paying your bills on time?)

There are some nice perks to being a lender on Pertuity Direct as well. Pertuity allows for monthly or quarterly automatic deposits into your account from your bank account. They also allow you to withdraw your funds early (before one year) at a fee of two percent.

Pertuity Direct is managed by a team armed with credentials that would impress anyone in the business. CEO Kim Mushota spent 11 years with PNC, and Lisa Lough, the VP of Marketing came by way of E*Trade. The Senior VP of Finance, tom McNally comes from Capitol One.

My greatest complaint is that Pertuity Direct does not yet appear to be “Mint.com” compliant; meaning I can’t view my Pertuity Direct investments inside my mint.com financial overview. (Why can’t everyone just get along and play nice?)







Tom said...

I think the predictable liquidity is a nice feature. Lending Club has a secondary market now but you are at the mercy of the market and potential buyers of your loan. It's nice to know you can withdrawal your funds from PD at any time for a small fee.

I think borrowers will also be pleased with the quicker funding process.

One downside, for me, is the $500 minimum for new lenders. Lending Club makes it easy with $25.

Anonymous said...

3% seems a bit absurd, to service the loan. That's almost 50% of the roi of lending to high-quality folks. So you're looking at 5.5% return if everything goes perfectly and nobody defaults on you. Why not just get a mid-term CD and lock in a comparable rate?

Tom said...

I think PD understands they have to charge lower fees to high-quality borrowers. Here's the fee schedule for borrowers from their website:

* 1-2% closing fee (depending on credit score)
* $15 failed payment fee
* $15 late payment fee (on average, may be slightly lower/higher in some states)
* 1% Electronic Funds Transfer discount

So, I think, a high-quality borrower will be charged a 1% closing fee but may receive a 1% EFT discount.

Matt wrote a good article about why a borrower would choose social lending over banks. The rates for an unsecure loan are pretty high through banks.

Tom said...

Here is how the 3.17% fee for lenders breaks down from the prospectus:

Management Fee: 0.30 %
Shareholder Servicing and Distribution Fees: 0.25 %
Other Expenses: 1.80 %
Acquired Fund Fees and Expenses: 0.02 %
Loan Servicing Fees: 1.00%
Total Annual Expenses: 3.37 %
Less Advisory Fee Waivers: (0.20)%
Net Expenses: 3.17%

A good portion of the other expenses includes collections for late or defaulted loans.

steve rabago said...

Hey Tom, I think PD's approach is novel and innovative. In this age of cloud computing I am not sure how a software service can get away with pricing based on a percentage of the amount borrowed. After all they're not taking risk, they are administering loans. At ZimpleMoney.com we are charging a flat fee for servicing a loan and we think users will experience less losses since borrowers and lenders exist in the same social communities. Steve, ZEO, ZimpleMoney.com

JessicaW said...

I'm reassured to see the amount spent on collections. A/R isn't easy to do, but it's important for your lenders to know they're chasing down the deadbeats.

Rick said...

I was interested in Pertuity until I saw the 3% fee for lenders. Lending Club only charges 1%. They also are giving away $50 to new sign-ups if you are invited by an existing lender.

Tom said...

The $50 Lending Club bonus is a great idea. Not only does it attract new members, the new members have money in their account to start making loans to borrowers.

I wonder if Pertuity Direct is going to announce any referral or other bonuses. All other p2p lending companies - Prosper, Fynanz, Loanio and Lending Club have used them effectively to build their user base.