Banking

Hammered by pandemic, consumer lender Aura shuts down

Hit hard by the pandemic-induced recession, consumer lender Aura Financial has suspended its operations.

The San Francisco company, which primarily targets low-income Latino consumers, has raised more than $100 million since launching in 2012, but has faced financing challenges over the past year as its customers struggled to keep up with monthly payments.

Aura’s demise was confirmed by two sources familiar with the situation. The company’s website was recently replaced with a notice informing customers that another firm is now servicing their accounts.

Aura officials did not respond to requests for comment.

James Gutierrez, Aura’s co-founder and longtime CEO, had been trying to arrange financing to help keep the company afloat.

U.S. consumer lenders have generally fared better during the coronavirus pandemic than many observers anticipated largely because consumers have been able to keep up with payments thanks to government assistance and forbearance policies that have allowed them to skip their payments on certain bills.

But blue-collar consumers, including many Hispanic workers that turned to Aura to bridge cash shortfalls, have generally fared worse than members of the professional classes.

“As we know, COVID-19 has created so much hardship in the nation, disproportionately affecting communities of color,” Aura board member Dean Florez said in an August blog post.

At the time, James Gutierrez, the company’s co-founder and longtime CEO, was trying to arrange a financing package to help keep Aura afloat. The pandemic was making it more difficult for Aura, which had raised $50 million in equity funding back in 2017, to access additional financing, according to Florez.

As the virus spread in the U.S., Aura reduced its payments to as low as $5 in an effort to keep borrowers from defaulting on their loans. “We’re really, really focused on just staying their solution, not becoming their problem,” Florez said last summer.

Aura offered loans of $300 to $4,000 through a network of retail partners, including supermarkets, tax preparation services, auto insurance firms and money remittance shops. It was certified as a community development financial institution, a government designation for firms that serve economically disadvantaged communities.

As of 2019, the company’s average borrower reportedly had an annual income of $36,000. The firm, which touted its loans as being more consumer-friendly than payday loans, said that it charged average interest rates between 33% and 34%.

Aura, originally known as Insikt, was the second consumer lender focused on Latino borrowers that Gutierrez founded. He left the first company, currently known as Oportun, in 2012, and subsequently became entangled in multiple legal fights with the firm.

San Carlos, Calif.-based Oportun went public in 2019 and applied for a national bank charter late last year. The company’s net charge-off rate was 10.8% at the end of the third quarter, up from 8.1% a year earlier.

Shares in Oportun, which debuted at $15 per share in September 2019, fell below $6 in April but have since rebounded to above $17.

Gutierrez, who stepped down as Aura’s CEO last year in order to focus on raising funds for the company, said in a recently published interview that he is interested in pursuing another venture that would focus on the same demographic group as his previous two companies.

“I have an innovative idea that would be an entirely digital effort to go after this community with a new set of products,” he said. “Insurance would be a big part of it, auto insurance, life insurance. While some other digital banks exist, there hasn’t been a digital bank created for this population.”



 

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