Rebranding as Bristlecone, they began rolling out new lending verticals, like I Do Lending (for bridal shops) and One Road Lending (for auto shops). Loan volumes soared from $15 million in 2014 to $38 million the next year. But as a startup lender with little history of making performing loans, Bristlecone was borrowing at interest rates as high as 20 percent. It was hard to profit at those rates, so it sold some contracts to other companies.
Wunderlich began poaching programmers from a software company that writes code for video slot machines. He staffed his executive ranks with fellow Nevadans like Ferguson and Jeffrey Jones, the son of a commodity trader who’d buried burlap sacks full of pennies in his backyard and had told his kids to dig them up once the copper was worth more than the pennies. He penned a memo on “ranch-style culture” to instill in his new recruits what he called “cowboy virtues”—humility, ingenuity, accountability.
In 2014, Bristlecone landed a meeting with SenaHill Partners LP, a New York-based merchant bank firm that invests in financial technology startups. It didn’t take long for Justin Brownhill, a partner at SenaHill, to sense an opportunity in the company’s data-driven lending model and point-of-sale marketing strategy. Five minutes into the meeting, Brownhill excused himself. “I walked out and grabbed my three other partners and said, ‘I think we have something special here,’ ” Brownhill said.
Wunderlich parlayed that meeting into a seed round of $1.1 million. SenaHill also connected him with a firm that furnished Bristlecone with a $75 million line of credit, lowering Bristlecone's borrowing costs.
Humans have been making interest-based loans for about 6,000 years and debating the morality of the practice for almost as long. In the U.S., caps on interest rates have flushed borrowers with poor credit into less regulated, more expensive corners of the market since at least the early 20th century, when workers in industrializing U.S. cities began seeking small loans to bridge the gap between paychecks.
Back then, usury laws tended to cap annualized interest rates somewhere between 6 percent and 12 percent, rates at which banks had a hard time profiting, according to Joshua Sledge, a director at the Center for Financial Services Innovation who has studied the history of U.S. usury law. Traditional lenders eschewed the growing market—but loan sharks didn’t.
In 1911, a New York-based nonprofit called the Russell Sage Foundation started offering small cash loans on an experimental basis, trying to find an interest rate at which they’d be profitable for lenders and manageable for borrowers. It settled on 3 percent a month, or 36 percent on an annualized basis, and drafted model legislation capping rates there. The limits weren’t universally adopted, but the pricing template endured and still serves as a de facto limit on rates for credit cards issued by nationally chartered banks.
Despite those rules, banking to customers underserved by traditional financial services was a $141 billion industry in 2015, according to a recent report from the Center for Financial Services Innovation—a tally that includes pawn loans, subprime credit cards, overdraft charges, and other products that can carry annualized interest well into the triple digits. Wunderlich presents his leases as something of a lesser evil compared with them.
That argument is more convincing for some products than others. For a subprime customer in the market for a dining room set, a Bristlecone lease might offer a better deal than a rent-to-own retailer, which can charge effective APRs of more than 300 percent. Most payday-loan borrowers, on the other hand, use that cash to pay bills; less than one in 10 uses it to buy something, notes Nick Bourke, director of consumer finance at Pew Charitable Trusts. In other words, Bristlecone’s dog leases might not be replacing more expensive credit. They may just offer a new way for subprime borrowers to buy things they can’t afford.
“We’re all for going to the shelter and adopting a dog,” Wunderlich answers. “But if a person wants a Chiweenie, they’re not going to go to a shelter and find a Chiweenie.”