Mitchell Jones grew up in a predominantly Black, lower-middle income community in Dayton, Ohio, where his parents taught him to get a good education and save his money. “I didn't have any money, so I tried to get a good education,” Jones said.
He found himself at Yale, which led to an internship at Goldman Sachs and his first exposure to investing, a newfound interest he was eager to share with his parents. But Jones soon found out that his parents had never invested the money they made over their 20-year careers.
They certainly weren’t alone. A quarter of Americans have no retirement savings at all. For some, it's likely because their employers don’t offer retirement accounts. But for others, Jones said, cash flow is a problem. “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 said.
But in bypassing their 401(k)s, these workers can miss out on money their employers would have contributed to their retirement accounts. So last year, Jones and his co-founder Sheridan Clayborne, whom he met through a mutual former colleague, launched Lendtable, a startup that helps people maximize their 401(k)s by giving them cash advances to offset the money they’re storing away. The company then takes a percentage of the money employers contribute.
The two co-founders — both in their 20s and decades away from retirement themselves — view Lendtable as a way to help cash-strapped employees prepare financially for retirement. Lendtable is part of a growing wave of fintech startups creating new financing models that are more accessible to the average consumer, and recently raised an $18 million funding round with participation from the SoftBank Opportunity Fund.
But 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.
When an employee signs up for Lendtable, they use their 401(k) in the exact same way that they normally would, explained Clayborne. After the employee contributes a percentage of their paycheck, Lendtable replenishes that money with cash. 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.
But investors weren’t immediately sold on the idea. Most of them didn’t even understand that receiving the full 401(k) match was a real problem. “When you think of the prototypical VC, this isn't someone who's low-income. Their parents don't work at Walmart, they're not paycheck-to-paycheck,” Clayborne said. Clayborne himself said he skipped three grades of high school to “start building companies and making money” in order to help support his family, and enrolled in Northwestern University at age 15.
It wasn’t until a year after Clayborne and Jones founded Lendtable that VCs fully recognized the opportunity. Those VCs included SoftBank’s Opportunity Fund, a fund dedicated to investing in Black and Latinx founders.
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. 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.
For employees below the age of 59 and a half, the penalty to withdraw from a 401(k) is 10%. In the end, Clayborne said, that leaves employees with the vast majority of their employer’s match still left in their retirement accounts.
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. The company also allows repayment of its fees via credit card. That has benefits, since it doesn’t require people to withdraw from their retirement accounts, but Melody Brue, a fintech analyst for the market research firm Moor Insights & Strategy, said 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.”
Kirsten Hunter Peterson, a director at Fidelity, said a better option — for employees whose plans allow it, that is — would be to take out a 401(k) loan to repay Lendtable’s advance and fees. Those don’t involve penalties or taxes but do require repayment over time, with interest and fees that vary from plan to plan. “We see that as a more positive behavior” than taking out a withdrawal, she said.
Lendtable also offers other, more complicated ways to pay the company back — including converting a 401(k) account from pre-tax to post-tax or rolling it over into an IRA, both of which have fewer liabilities for withdrawals. And if all of that doesn’t work, “then we're happy to accommodate our users over a monthly cadence,” said a Lendtable spokesperson.
‘That’s a loan’
The seeming lack of transparency around fees is one reason that Woodstock Institute's Adams is skeptical of Lendtable’s business model. “There are many layers of complexity on this that are potentially harmful to consumers that are not transparent in the product as it's described,” he said.
Lendtable acknowledges not all of the fine details of its services are on its landing page, but says it would be difficult to generalize this information when it varies by customer. But it does provide customers with this information in contracts and as they move through Lendtable’s process, the spokesperson said.
Adams also disagrees with Jones and Clayborne’s insistence that Lendtable isn’t providing loans. “Our view of a loan is: If money is provided to a consumer with a promise for the money to be repaid, that's a loan,” he said. Lendtable says the company doesn’t make money when a customer doesn’t, making it different from a loan.
Whether Lendtable is or isn’t a loan is more than just semantics. Other business models, including income-share agreements and “buy now, pay later” have recently come under regulatory scrutiny for also claiming not to be loans. Adams argues that income-share agreements may have a stronger case for that claim than Lendtable does. In those agreements, he said, “If you don't earn any income, you don't pay it back.” With Lendtable, you do.
But Brue thinks Lendtable could offer more long-term and sustainable benefits to workers than those models, if done right. “If the company can make the economics work, it could be a real winner on many levels, affecting future wealth, access to other financial services, employee retention and more,” she said.
Clayborne believes that even with Lendtable’s fees, the overall benefits for employees are still net positive. “To be clear, prior to using our service, they were getting 0% of their 401(k) match,” he said.
In order to succeed, Lendtable needs to not just get the economics right for its customers, but it has to educate employees who have never used a 401(k) before, ingest thousands of different policies, verify that employees actually work at their companies and monitor their contributions.
And the company’s vision extends far beyond 401(k)s. It also has services related to employee stock purchase plans and retirement plans for nonprofits. In the future, the company wants to help workers maximize every type of financial benefit their companies offer. “Lendtable is the seed capital right now for your investing journey,” Jones said. He envisions Lendtable working with health savings accounts, unused paid time off and additional types of stock plan benefits in the future.
But as Lendtable grows, so too will the scrutiny surrounding it.