Subprime Lending Becomes New Way to Profit for Banned Brokers

Posted on June 16th, 2014 at 9:00 AM

From the Desk of Jim Eccleston at Eccleston Law Offices:

Mortgage brokers and former stock brokers looking for new ways to make fast profits are turning to subprime business lending, referred to as one kind of “alternative investment.” The subprime business lending industry has swelled to more than $3 billion a year.

For example, World Business Lenders LLC serves underserved small businesses and charges most people 125 percent annualized interest rate on six-month loans regardless of their situation. The borrowers often put up cars, houses or even livestock worth at least twice as much as the loan. When borrowers can’t pay, World Business Lenders seizes their vehicles and assets, and sometimes sends them to bankruptcy. About one in five loans went bust as of last year, and 9 percent of the loans made this year have already defaulted. 

According to a former World Business Lenders employee, the subprime lending industry is unregulated, and as a result, a haven for those banned from brokerage industry. No license is requiring.

Wall Street banks help the subprime business lending industry expand by lending originators money. They package the loans into securities that can be sold to investors, just as they did for subprime mortgage lenders. For example, OnDeck Capital Inc., a lender with funding from Google’s venture-capital arm and PayPal Inc. co-founder Peter Thiel, sold $175 million of notes backed by business debt in a deal put together by Deutsche Bank with interest rate ranged from 29 percent to 134 percent.

Brokers are popping up around the country to originate loans on behalf of lenders like OnDeck Capital and World Business Lenders. The companies pay fees to the brokers of about $6,000 for finding people willing to take a $50,000 loan. And some stock brokers have jumped to business loans after getting kicked out of the securities industry by regulators.

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston

Tags:

Return to Archive

TESTIMONIALS

Previous
Next

I am so blessed to have you and your dynamic team defending me. Your ethics, forward thinking and strategies are amazing.  You guys are the best group of attorneys in the country that I could hire to handle this complicated case.

Cindy C.

LATEST NEWS AND ARTICLES

August 8, 2022
SEC Files Suit Against Georgia Advisor Over Misappropriation of Client Funds

The Securities and Exchange Commission (SEC) is filing suit against a Georgia-based advisor, Christopher Burns, who allegedly misappropriated client funds.

August 5, 2022
SEC Fines RIA $5.8 Million Over 12b-1 Fee Infractions Tied to Wrap Accounts

The Securities and Exchange Commission (SEC) has imposed a $5.8 million fine against Private Advisor Group over 12b-1 fee violations tied to its wrap fee program. 

August 4, 2022
North Dakota Regulators Seek to Close Down Advisory Firm Selling Crypto and Weed Products

The North Dakota Securities Commissioner’s office is seeking to shut down a small West Fargo-based registered investment adviser (RIA) after its owner allegedly violated state securities laws and improperly took custody of $17.8 million in client funds beginning in 2017.