SAN FRANCISCO–A start-up fintech is offering cash advances to people so they can maximize their 401(k)s to offset the money they’re storing away. The company then takes a percentage of the money employers contribute.
Called Lendtable, the company was founded by Mitchell Jones and Sheridan Clayborne, both of whom are in their 20s. Jones, who interned at Goldman Sachs, said he watched as his own parents never put away money for their own retirement. They aren’t alone; surveys show a quarter of Americans have no retirement savings at all. Jones told Protocol.com that the main issue for most Americans is cash flow.
“The average American is choosing to rationally pay for their student's education or put food on their table or have a roof above their head,” Jones told the publication.
Jones and Clayborne met through a mutual former colleague and said they launched Lendtable as a way to help cash-strapped employees prepare financially for retirement. The company recently raised an $18 million funding round with participation from the SoftBank Opportunity Fund.
But in its analysis, Protocol.com noted consumer finance protection advocates fear that what Lendtable is pitching could make it so people who are already struggling financially end up in over their heads.
“Like anything, the devil is in the details, and if it sounds too good to be true, it usually is,” warned Brent Adams, senior vice president of Policy and Communication at the Woodstock Institute, a consumer finance protection nonprofit, told Protocol.com.
How it Works
Clayborne told Protocol.com that when an employee signs up for Lendtable, they use their 401(k) in the exact same way that they normally would.
“After the employee contributes a percentage of their paycheck, Lendtable replenishes that money with cash,” the report explained. “The unique business model has attracted employees from companies like Microsoft, IBM, Google and Amazon, who can enroll in the program without their employers’ involvement.
How it Makes Money
“At first glance Lendtable’s business model looks like any other loan, but unlike most loans, the startup doesn’t charge compound interest, doesn’t require collateral and doesn’t run credit checks,” the Protocol.com report continued. “Instead, Lendtable makes money by taking a percentage of an employer’s 401(k) match. At the end of one year, Lendtable customers have to pay Lendtable back, plus up to 20% of the match customers receive from their employers.” Lendtable also charges $5 monthly “good standing” fees to ensure customers’ bank accounts are active, which count against the balance customers owe, the report added.
For employees below the age of 59 and a half, the penalty to withdraw from a 401(k) is 10%. In the end, Clayborne told Protocol.com, that leaves employees with the vast majority of their employer’s match still left in their retirement accounts.
Other Things to Consider
“But experts say there are other fees to consider, including income taxes on early withdrawals — a fact that Lendtable does not disclose in its FAQs,” Protocol.com continued. “The company also allows repayment of its fees via credit card.”
Melody Brue, a fintech analyst for the market research firm Moor Insights & Strategy, told Protocol.com this feature “can put someone in a bad situation, managing payments that could damage their credit if lack of disposable income was the reason for using Lendtable in the first place.”