Revolving lines of credit (LOCs) provide borrowers with ongoing access to funds through multiple channels like open/closed loop card solutions or more traditional ACH draw disbursement requests. LOCs not only provide borrowers with financial flexibility but also offer significant advantages for lenders. By incorporating LOCs into their portfolio, lenders can unlock multiple revenue opportunities, strengthen customer relationships, and mitigate risk. Below are key benefits lenders gain from offering lines of credit:
- Increased Revenue Potential: Lines of credit offer lenders diverse revenue streams. Variable interest rates can provide higher returns compared to fixed-rate installment loans. Plus incremental fee options, such as draw fees and annual fees, contribute to overall income.
- Customer acquisition, retention, and cross-selling: Lines of credit can be an effective way to attract new customers and build long-lasting relationships. These products offer an accessible entry point for borrowers, creating opportunities for lenders to offer additional products and services, fostering long-term customer loyalty and reducing the need to rely on constantly acquiring new borrowers.
- Diversified Loan Portfolio: Offering lines of credit allows lenders to diversify their lending portfolio. The variety of line of credit products helps manage overall risk and provides a stable foundation for revenue growth, including the potential for expansion into credit card offerings.
Despite these benefits, many lenders hesitate to introduce LOCs due to the operational complexities associated with their management. Unlike fixed-term loans, LOCs require continuous borrower engagement, including draw requests, repayment recalculations and credit limit adjustments. Legacy loan servicing systems, which are often designed for traditional lending products, struggle to handle these demands efficiently. Therefore establishing a new line of credit program requires the right infrastructure to avoid inefficiencies, increased operational costs, and potential regulatory risks.
But if launching new products come with its own dedicated infrastructure each time, maintenance and operations costs can skyrocket. Disparate servicing systems in particular can cut into profits as you grow, not to mention increasing the operational burden of borrower front-end experiences and agent back-office support. In our decades of experience, we’ve learned that It's much more efficient to have one back-office system that can handle multiple types of lending products in an efficient and scalable manner. It streamlines lender costs, reduces maintenance burdens, and provides a consistent experience for agents and borrowers alike.
Finding a flexible, scalable system can be challenging. Many existing systems are designed for a specific purpose, limiting their ability to handle different lines of credit products. So, when choosing a system, lenders should consider not just their current needs, but also their future growth plans. A system that can adapt and scale is essential for success in today's lending environment.
Peach's system is designed to handle a variety of loan products, including lines of credit, credit cards, and installment loans. This flexibility means lenders can manage all their lending products in one place. We considered the unique requirements of each product type from the start, building in the necessary features to support both current market demands and future growth opportunities, enabling lenders to succeed. For more details on how we support different line of credit solutions, read more here.
Ready to talk about how Peach can support your LOC launch or migration? Contact us today
lender’s priority list. But that doesn’t mean compliance is straightforward, even for lenders with the most earnest intentions. Often, legacy infrastructure is the culprit, making it difficult for lenders to take the actions clearly outlined in the law. Even regulations that haven’t changed for some time—like the—still present significant challenges for many lenders.
The SCRA grants active-duty service members the ability to request certain protections during the period of their deployment, enabling them to devote their energy to serving the country. These protections include a reduction in interest rate to a maximum of six percent on any pre-service loans. While the SCRA in its current version has been law since 2003, the number of recent enforcement actions indicates just how difficult it is for many lenders to comply with the SCRA’s interest rate protections.
Blunt tools in the absence of a scalpel
For example, in October of 2022 the Department of Justice (DOJ) announced that the financial leasing arm of GM agreed to pay over $3.5 million to resolve allegations in relation to
Peach’s approach to SCRA
At Peach, we brought real-life lending experience to the design of our platform. So from day one, we recognized the importance of being able to make retroactive changes to loans. (There are numerous applications beyond SCRA, including our Supported Portfolio Migration.) In the case of SCRA, Peach has long enabled lenders to retroactively change interest rates and waive past fees—as separate, manual actions.
Peach’s approach to SCRA
This was functional, but the ideal way to implement SCRA is to make these changes simultaneously. We now support this capability by leveraging the power of Peach's Loan Replay™ engine, which can make changes to the ledger at any time, and then recalculate a loan’s history in light of those changes. The new combined functionality is as user-friendly for your agents as processing a payment.
Peach’s approach to SCRA
Specifically, the new SCRA feature allows your agents to perform the following adjustments simultaneously on a loan of an active-duty service member:
- Lower interest rates to 6% (and lower the recurring payment during the active-duty period to account for the interest rate reduction)
- Waive fees, if necessary
- Enact these changes retroactively, if necessary, and replay the loan history with the rate and fee adjustments
- Preview the intended changes
“We launched our first product on Peach in six weeks. Eighteen months later.”
John Smith, CMO
Our SCRA functionality is available via API as well as through our white-label agent tool. The white-label agent interface can be seen here:
Peach’s approach to SCRA
Our SCRA functionality is available via API as well as through our white-label agent tool. The white-label agent interface can be seen here:
For those working directly with the API, this can be as simple as sending the following request body to the SCRA endpoint:
You’ll receive a response with either the actual post-SCRA adjusted payment plan or a preview of it. Below is a comparison of a payment plan prior to the SCRA adjustment, and the expected payments after the SCRA adjustment. The SCRA period is in effect for the first two months, and thus you will see the interest rates lowered to 6% in the response body (and the recurring amount due lowered by the amount of the interest rate reduction for the two relevant months). The origination fee has also been canceled.
The breadth of loan data needing to be adjusted means that rewriting loan histories requires the right design and abstractions, and having a built-in layer of abstraction to handle retroactive changes is the only feasible approach. Because of our team’s combined experience in the real world of lending, we know that the need to edit past loan events is inevitable. So we’ve designed a system that makes these changes as painless and automated as possible.
