Two CEOs Say Fed’s Rising Interest Rates Make Lending Below 36% Cap More Difficult

During earnings calls last week, the CEOs of two lending platforms said that the Federal Reserve’s rising interest rates may make it more difficult to lend to some borrowers who otherwise may have been able to access credit through their platforms. Both platforms, Upstart Holdings and Oportun Financial, have pledged to not make loans with APRs above 36 percent.

As reported in American Banker, Upstart’s decision to stay below a 36 percent APR cap may mean some consumers are moved from the “approval band and into the decline band,” said CEO David Girouard.

“There are a lot of people that, three months ago, might have been approved close to 36 percent that today would not be approved at all,” he said. “That’s just the nature of the business.”

On the earnings call, Upstart also said it was revising its expected revenue for the year to $1.25 billion from $1.4 billion. In so doing, it added that rising inflation and interest rates would also lower loan volumes. Vincent Caintic, an analyst at market research firm Stephens, said that the reduced revenue guidance was directly tied to the expected lower loan volumes.

Oportun CEO Raul Vasquez said on his earnings call that it would be “short-sighted” to “try and capture the full increase” of new demand as interest rates rise with loans above the previously pledged 36 percent cap.

Last week, the Federal Reserve lifted its primary interest rate for the second time this year as it attempts to tame increasing inflation. The 0.5 percent rate increase was the largest since 2000 and officials indicated that further increases are likely in the coming months.