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Tuesday, Jan 31, 2023
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Lender Hits Road With Rideshare

Uber Technologies Inc.’s massively popular mobile app lets people pay for rides without taking out their wallets. And now it’s letting a local finance company get paid on its car loans without even having to bill its borrowers.

Mid-Wilshire firm Westlake Financial Services, a subprime auto lender owned by billionaire Don Hankey, has a partnership with the San Francisco ridesharing company, providing auto loans for Uber drivers with bad credit.

For Uber, the arrangement means more drivers; for Westlake, it’s a referral source for new loans – ones it collects on electronically: Uber’s software siphons car-loan payments directly from drivers’ revenues and sends the money weekly to Westlake. That means the loans are relatively low-maintenance for Westlake, which is used to spending time and money collecting on its subprime loans.

“We don’t have to worry about the payment, because it comes out of the driving revenue,” said Westlake President Ian Anderson. “Monday nights, the cash comes in.”

Since the partnership launched in September, Westlake has financed 370 Uber cars with loans totaling $7.3 million.

The partnership was hatched when one of Westlake’s bankers mentioned to the firm’s execs that Uber was looking to provide financing for its drivers. They decided to pay a visit to Uber’s San Francisco headquarters in June to find out more.

“We really feel like that’s a business that’s going to continue to grow,” Anderson said. “What we wanted to do was figure out ways to partner with them.”

Credit barrier

The partnership matches Westlake, which already works with thousands of car dealerships and specializes in lending to consumers with bad credit, with Uber, which can tap into a seemingly limitless pipeline of aspiring drivers.

In what’s been termed the “1099 economy,” more Americans are relying on contract work – through Uber, grocery shopping firm Instacart and others – instead of full-time jobs to make ends meet. Not coincidentally, many of those would-be Uber drivers also suffered credit dings during the downturn that – coupled with tighter lending standards overall – have made it tougher for them to qualify for car loans.

“We created Uber’s Vehicle Financing Program in response to consistent feedback from potential driver-partners about barriers to entry in owning a car,” Uber said in a written statement provided to the Business Journal.

Westlake has a dedicated website for Uber drivers, where the basics of the program are laid out. An existing driver can use the site to find the nearest participating dealer, select a car and be approved for a loan in short order. Drivers have to put at least $1,000 down, with Westlake financing the rest.

Today, the Uber-Westlake partnership includes 168 dealers serving Uber drivers in 23 cities.

Tammy Weaver, finance director at Toyota Santa Monica, one of those partner dealers, said the dealership takes down the driver’s Uber information, asks for a $1,000 down payment and then sends everything to Westlake. Westlake’s approval usually comes within 24 hours, and then the driver can come in and pick up their new car, one of a selection of models preapproved for Uber use. The specifics of the deal are mostly preset, so there’s no real negotiation.

“Once they arrive here, they already know the terms and conditions of the deal,” said Sean Homayoun, the dealership’s general manager.

Interest rates on the loans can be as low as 6 percent, but given the credit history of most people who are interested in the program, rates in the teens are more common.

Through the partnership, drivers pay a lower down payment than they otherwise would given their credit. Many drivers wouldn’t even get approved for a loan at all, or for a loan on a new car, without the program. And Weaver said she hasn’t experienced any pushback from drivers caught off guard by the pricey loans.

“A lot of the stuff gets predisclosed,” she said. “I haven’t had any Uber drivers unhappy. These people are all very excited to get their cars.”

Ubersight

Leveraging Uber’s automated payment platform is the key to the whole arrangement. Uber customers give the company a credit card number and, at the end of every ride, the driver gets paid directly through the app. Uber takes the first cut of the fare – which has been reported to be about 20 percent of the total – and Westlake takes the second, ahead of the driver’s take-home pay, until the driver has paid off their weekly installment.

Anderson said this rather severe repayment structure is what makes it possible to finance vehicle purchases for borrowers who would otherwise not be able to qualify for financing.

“It allows us the ability to underwrite weaker credit because the payment is much more stable, coming weekly,” he said.

When drivers are struggling to generate enough revenue to pay Westlake, the firm can bypass traditional debt collection methods, such as hectoring phone calls from customer service reps. Instead, it has the ability to encourage drivers directly through the Uber app to pick up more fares.

“We’re able to communicate with the driver via their phones and kind of push them to drive,” Anderson said.

Suspended deal

Westlake isn’t Uber’s first financing partner. The ridesharing company previously offered loans through Dallas’ Santander Consumer USA Holdings Inc., the nation’s largest subprime auto lender. But that program was suspended earlier this year.

Members of Uberpeople.net, an Internet forum for Uber drivers, overwhelmingly voiced their displeasure with the Santander product’s terms.

And in February, Santander reached a $9.4 million settlement with the Justice Department over the company’s improper repossessions of cars belonging to active-duty military personnel. Other subprime lenders have had problems, too.

GM Financial, the financing arm of General Motors Co., disclosed in February that the Securities and Exchange Commission has been investigating subprime auto loans and its securitization, which has created a booming asset class for investors desperate for yield. Loans made to high-risk borrowers, then quickly sold on the secondary market, have caused economic disaster before.

But while three-fourths of Westlake’s loans are subprime, the company has managed largely to avoid the same type of bad press and public attention as its peers.

Anderson said that the high rates and payment terms of loans to Uber drivers simply reflect the risk of lending money to borrowers that others won’t take a chance on, and that it’s cheaper than the other option available to drivers who want Uber income: renting a car.

“We’ve been able to finance them on vehicles they wouldn’t have been able to finance before,” he said.

He expects the Uber partnership to grow to include more dealerships in more cities, saying it’s been nothing but a smooth ride so far.

“It’s performed better than we thought, based on the underwriting,” he said. “It’s been fairly easy to do.”

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