Finance

Stuffed mailbox? Banks are sending out a lot more letters to get you to borrow more

Key Points
  • Nonbank lenders have been making a big push for consumers to take out personal loans.
  • Ten companies that Credit Suisse tracks sent out 368 million mail solicitations in May, a 10 percent monthly increase and a 41 percent annualized jump.
  • Personal loan debt is at $120 billion through the first quarter, an 18 percent increase from a year ago.
Mohamed Abd El Ghany | Reuters

Lenders are pounding the pavement looking for borrowers who want to consolidate bills, take a vacation or fix up their homes.

Homes are being inundated with mail solicitations from companies like Marcus, Elevate and Lending Club, hoping to supply personal loans to consumers.

In all, 10 nonbank lenders that Credit Suisse tracks sent out 368 million pieces during May, a volume increase of 10 percent over April and a jump of 41 percent from the same period a year ago, according to Credit Suisse, which tracks the somewhat off-the-grid indicator.

Personal loan debt is at $120 billion through the first quarter of 2018, an 18 percent surge from last year.

"We believe mail volume data is an important barometer of competitiveness, particularly in personal lending space where direct mail volume has seen an increasing trend over the past few years," Credit Suisse analyst Moshe Orenbuch said in a research note. "In general, we believe that going forward, personal loan lenders will continue to utilize the direct mail channel as the major customer acquisition source."

Marcus, a Goldman Sachs enterprise that focuses on prime borrowers, sent the most solicitations in May of the companies analyzed. The lender's 49 million pieces marked a 225 percent rise over the May 2017 and a 39 increase from April 2018.

Personal loans often are utilized for debt consolidation, though they can be put to a multitude of uses.

"For us, one of the key insights is based on some research that we did: 77 percent of consumers with high-interest credit card debt are unaware that you can use a personal loan to pay off that credit card debt," said Dustin Cohn, head of brand management and marketing communications for Marcus. "Our objective has been to create awareness."

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Another leader in the group, Elevate, saw a 74 percent monthly increase and a 109 percent jump in year-over-year mail volume where it sent out more than 20 million pieces in May. A company spokesman cautioned that the data may not be totally accurate, but said the rise in its case was due to seasonality coinciding with tax season and is consistent with the company's 20 percent annualized revenue growth.

American consumers have $1.03 trillion in revolving credit, a 20 percent increase over the past five years, according to Federal Reserve data. Typical credit card interest rates average 15.3 percent, a level that has jumped since the Fed started hiking rates in 2015. High interest cards can run nearly double that.

The average personal loan rate is 10.22 percent, providing considerable savings for consumers who hold the high-rate cards.

"For us, this is about better debt management," Cohn said.

For others in the industry, though, the effort may be about pure volume — trying to generate as much business as possible as compressing margins hit profitability.

On the other side, consumers are feeling more confident and willing to spend but many lack the cash on hand, said Mike Chadwick, head of Chadwick Financial Advisors.

Consumers are holding $3.9 trillion in total debt, a 25 percent jump in the past five years.

"Consumers who don't have a lot of excess income are squeezed. There's only so much they can buy," Chadwick said. "For big-ticket items, most people sign an agreement — TVs, dishwashers, appliances, they're paying for years for simple things. I don't know how sustainable the whole thing is."

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