I had a great conversation today with the founders of FirstAgain, a startup online lender from the same folks that brought us PeopleFirst Finance ten years ago.

People First invented "blank check" auto lending earning it  one of the first OBR Best of the Web winners (1998 article reprinted here). The company was purchased by Capital One in 2001.

FirstAgain made its first loan in late 2006 and officially launched its unsecured AnythingLoan in July 2007. But the company is just gearing up to start lending in higher volumes after a $30 million venture investment from Arsenal Capital Partners in January. Merrill Lynch provides the warehouse line.

Founders Gary Miller and Dave Zeller outlined their vision of simplifying online lending for customers that pose minimal repayment risk, the FICO 740+ crowd. Having watched them create a new segment in auto lending a decade ago, I expect they will succeed. The company has already originated more than $100 million in unsecured loans.

What's Innovative?
We've added FirstAgain to our watch list and will report back on its innovations in more detail. But here a two small things that demonstrate its creative approach:

1. The little green tree icon on the homepage (see above) highlights the company policy to plant one tree for every loan originated. While that isn't exactly an earth-shattering benefit, it helps differentiate the company from fly-by-night website operators who'd never think about giving something back to the world.

2. This is the best featurette I've seen in a while: "real" online signatures. Users "sign" their loan docs by moving their mouse to draw their signature online.  The company also offers a typing option, so users type their name on the keyboard and it's rendered on-screen with a standard script font.

I imagine FirstAgain is not the first to do this, but I've never seen it before. While this new doodad isn't quite enough to warrant another Best of the Web, it's still pretty cool, at least if you are on Internet banking geek.

PeopleFirst Finance Pioneers Web-based Blank-Check Lending

www.peoplefirst.com

Last month we chronicled the innovative lending appraoch from CarFinance.com
(OBR June/July). The main downside to its service was the paperwork burden foisted on the car dealer.

Unbeknownst to us, and most of the rest of the world, PeopleFirst Finance has put together a system that matches the ease-of-use attributes of CarFinance.com while reducing the paperwork hassles.

PeopleFirst Finance at a Glance

Launch Date: August 1997

Pricing: Very competitive; on Aug. 12, new vehicles were 7.24% with terms of 12 to 60 months, used vehicles (any age) were 7.74% with terms of 12 to 60 months. (Note: Prices are a half-percentage higher without automatic ACH payments.)

Application Volume: The company will only say that it has done “thousands” of loans.

Minimum Loan Amount: $7,500 (except $10,000 in Arizona and $15,000 in New Jersey)

Maximum Loan Amount: $75,000

Down Payment Required: none

Application Fee: none (optional $15 fee for next day delivery of blank check)

Underwriting Criteria: Applicants must own their homes and have excellent credit.

Application Methods: Approximately 85% of applicants use the online form (SSL-enabled browser required); most of the remainder phone in their application, and a few mail or fax in the application after printing it from the Web site; online applicants receive 1,000 frequent flyer miles from American, Delta, Northwest, or United (see screenshot below)

PeopleFirst uses a good “non-price” incentive to get people to apply online: 1,000 miles on any major airline which only costs the company about $20.

Participating Dealers: The blank check can be used at any franchised new car dealer or any used car dealer authorized by PeopleFirst. Authorizations are generally done with a simple phone call. The company has only turned down one request for a dealer to be authorized. PeopleFirst does not finance purchases between private parties, but does encourage applicants to finance the purchase through a financial institution, then refinance with PeopleFirst for a lower rate.

How it Works:

1. Prospective applicants visit PeopleFirst after seeing their link on search engines such as Excite.

2. Users complete a short online application. Before the application is presented, the company provides clear instructions that applicants must own their home and have excellent credit. These two sentences have resulted in a very high approval percentage on its Web-based loans.

3. Upon approval, PeopleFirst mails the user a blank check with a maximum value that can
be used to buy a car from any dealer for the next 45 days.

4. The user visits a car dealer and negotiates a deal and signs the check. To the car dealer, the check from PeopleFirst is the same as cash and can be deposited immediately.

5. The dealer enters PeopleFirst as the lien holder on the title and cashes the check. The dealer has no other paperwork. Since they are dealing only with A+ buyers, PeopleFirst doesn’t even require proof of auto insurance.

6. PeopleFirst’s bank presents all checks to the company prior to honoring them so that PeopleFirst can reject any checks made out to unauthorized parties.

Fraud Prevention Techniques: The company uses proprietary algorithms to verify the identity of applicants. In large part they use public databases available for free on the Web to verify information contained in the application such as address, phone number, email address, etc.

Fraud Prevention Results: In a year of lending online, the company has yet to lose a penny to fraud. They have had only one close call, when someone impersonating their grandfather was caught by a dealer ID check.
Analysis

We first discovered PeopleFirst last fall when searching for dedicated non-captive automobile lending specialists on the Web (OBR 10/97). At the time, we figured them for a regional player and moved on. It turns out we should have paid more attention.

We recently discussed Web-based lending with co-founder Dave Zeller, an industry veteren with stints and Ford Credit and Security Pacific among others. We were surprised to discover that PeopleFirst was the first to use Web-based “blank-check” auto lending that has been commercialized by their more visible compeitor, CarFinance.com now owned by NationsBank (OBR 7/97).

This is an impressive company that applies common sense both to the front-end customer interface and to back-end processing. For example, customers looking to buy a 1964 Mustang get the same deal as those buying a 1995 Escort. They don’t get involved in judging whether the collateral will hold its value (more likely with the ’64 Mustang), they lend based on the buyer profile, not the automobile. In the back office, they use easy-to-use and free Internet databases such as anywho.com to identify the applicant.

Zeller says his 12 employees, all of which own company stock, can handle an application volume that would have required 120 employees at Ford.

The company is currently lending in 34 states, including all the most populous except Pennsylvania and Illinois, and expect to be in 40 states by year-end.

The company has purposely avoided publicity in order to hone systems before full-scale rollout. It’s never even issued a press release. With one year under their belt and thousands of auto loans booked, they are gearing up to become much more visible including key online marketing partnerships.

The Future: For now, the company is focused on ramping up volume for their core business, blank-check auto lending. Down the road, they see branching into other lending areas, and perhaps testing the IPO waters for additional capital. 8

PeopleFirst displays its BBB Online standing
on its Web site (see sidebar right).

PeopleFirst provides co-branded car buying from American Car Buying Service, which markets a
no-nonsense service for $19 that provides a guaranteed quote that you can use to negotiate.

Join The Better Business Bureau Online

Surprisingly few financial institutions belong to the Better Business Bureau Online. Searching on “bank” or “credit union” turned up a paltry six organization (table below) currently taking advantage of the credibility-building opportunities of BBB Online www.bbbonline.org In comparison, 65 online mortgage brokers were listed.

Members, such as PeopleFirst, have a brief profile of their company including address, phone number and names of principals, posted on the Online BBB site.

Prospective online members must first be members in good standing of their local off-line chapters, then they can join the online sister organization for a nominal fee based on company size.

Every financial institution should join. Members receive several benefits.

1. Allowed to use the BBB Online logo to reassure newcomers they are legitimate (see logo left).

2. Are listed in the BBB Online searchable database so consumers searching on “bank” and “yourtown” will find a link to your Web.