(Bloomberg) -- CircleBack Lending Inc., a pioneer in peer-to-peer lending, has stopped making new loans, according to its chief executive officer.
The three-year-old company, which had been selling its loans to Jefferies Group LLC and Pine River Capital Management, saw funding dry up as more of its borrowers failed to repay their debt.
CircleBack CEO and co-founder Michael Solomon said that if the lender can’t raise money, it will transfer existing loans to another company to handle collections and payments. “We are not originating new loans at this time,” he said.
It’s the latest blow for lenders that set out to bypass the traditional banking system through peer-to-peer lending. CircleBack was an early leader in arranging unsecured installment loans to borrowers via the Internet, matching customers with investors willing to fund their debt. It specialized in three- and five-year loans of $3,000 to $35,000 to borrowers with tarnished credit.
Before starting CircleBack, Solomon had run another P2P lender called Loanio, but shut it down in 2011, in part because of funding trouble. CircleBack hired Jefferies earlier this year to explore strategic options including a sale. Representatives for New York-based Jefferies and Pine River declined to comment.
Wall Street investors have flocked to this kind of debt, buying billions of dollars of the loans. Securitization volume this year jumped to about $5.4 billion from $3 billion a year ago, according to data from analytics firm PeerIQ, which tracks the largest online lenders. At least half of all online consumer loans are now being funded with ties to such bond deals, the data show.
In recent months, investors have focused on spotty credit performance of some of the industry’s loans. CircleBack had higher losses than expected in at least one $126 million bond deal backed by such debt, potentially endangering payments to some investors, Bloomberg previously reported. Cumulative losses from a 2015 sale now total about 13.5 percent, according to Morgan Stanley data. Offerings by OnDeck Capital Inc. and LoanDepot Inc. also have been plagued by bad loans.
More than 160 online lenders have emerged in the U.S., up from just a handful in 2009, according to an IBISWorld research estimate cited by the Federal Deposit Insurance Corp. Some investors, such as Steve Eisman, who gained fame in “The Big Short” book and movie for predicting the subprime mortgage crisis, have said some startups don’t have the experience to properly underwrite risky borrowers.