Dive Brief:

• Upgrade, the debt refinancing company led by LendingClub founder Renaud Laplanche, launched a credit card/unsecured loan hybrid Thursday that lets borrowers break down their balance into installment plans ranging from 12 to 60 months, according to a company press release.
• The Upgrade Card will reward users for paying down their balance — 1% cash back for each on-time payment made. That contrasts with credit card issuers that give borrowers incentives for spending. The annual percentage rate on the card starts at 6.49%, much lower than a typical credit card but may go as high as 29.99%.
• Laplanche's former company, LendingClub, debuted its own product on the same day — a digital platform, LCX, that allows same-day settlement of fully funded whole loans.

Dive Insight:

The Upgrade Card is aimed at borrowers who encounter an unexpected emergency but can't handle a heavy debt load. It also seeks to give users an alternative to amassing credit card debt, which has reached $868 billion nationwide, according to an August report from the Federal Reserve Bank of New York. 

The company's press release cites a Bankrate payment calculator that shows Upgrade Card users would accrue $2,100 in interest (at 18% APR) on a $10,000 line of credit paid off in 24 monthly installments. The same balance, given a $250 minimum payment on a credit card charging the same APR would take 28 years to pay off, including interest costing more than $14,000, according to the release.

"Our initial idea went from how do we help people refinance their card balance to how do we just replace that card entirely," Laplanche told PYMNTS.com.

Upgrade charges no penalty for paying off a balance ahead of time, and also charges no late fees, according to PYMNTS.com. If a borrower misses a payment because of a temporary issue such as a job loss, the company will work with them.

"But it has to be extraordinary circumstances," Laplanche told American Banker. "We ... are going to help you get more affordable credit at a lower rate with no fee and none of the tricks of the credit card, a payment schedule with which we encourage you to pay down the balance every month, and a rewards program to help you do that. But you've got to do your share."

Cross River Bank is partnering with Upgrade on the card, which comes with a personal line of credit that ranges from $500 to $50,000. The card's underwriting technology uses machine learning to analyze FICO scores, credit history data, income, employment and debt-to-income ratio. It also considers some alternative data such as utility bill payment history and cash-flow analysis. 

Referring to his early days at LendingClub as a benchmark, Laplanche told American Banker the underwriting "benefits from 10 or 12 years now of advances in big data, ability to process large amounts of data, and access to more data points that were not necessarily available 12 years ago.

"And frankly just our own experience — we’re 12 years wiser," he added.

The rollout marks somewhat of a comeback for Laplanche, who was forced to resign from LendingClub in 2016, when a board review found that the company sold an investor, Jefferies LLC, $22 million in loans it didn't want. The application date on $3 million of those loans had been altered to make them meet the investor’s criteria, the board found, according to The Wall Street Journal.

Laplanche ordered an internal probe, but the board found he didn't tell investigators everything he knew and failed to disclose a conflict of interest, the Journal reported. LendingClub repurchased the loans at face value and resold them to another investor. The Securities and Exchange Commission in 2018 charged Laplanche with fraud and improperly adjusting fund returns and barred him from the securities industry. He and Carrie Dolan, LendingClub's former CFO, paid more than $4.2 million to settle the charges.

Legacy firm, new offering

LendingClub's institutional investor platform, LCX, follows the August release of its Select Plus platform, which allowed sophisticated investors to purchase loans made to borrowers that would have been previously rejected.

"Our most sophisticated investors are coming back to us and saying, there are loans you wouldn't approve, but if you did approve them, we'd buy all of them," Anuj Nayar, LendingClub's financial health editor, told American Banker.

Unsecured personal loans are increasingly being packaged into an asset class for institutional investors, similar to the way mortgages are bundled into mortgage-backed securities.

"This is a huge step forward in the evolution of unsecured consumer loans as an asset class," Valerie Kay, chief capital officer of LendingClub, said in a press release.