Forbes - How Two Men Made Billions Exploiting People With Bad Credit
The discussion delves into the origins and operations of Credit One Bank, a subprime credit card issuer, and its parent company, Sherman Financial Group. Founded by Ben Navaro and Brett Hildebrand, Sherman initially focused on debt collection before acquiring Credit One Bank. The bank targets subprime customers, offering credit cards with high fees, which is a unique business model compared to traditional banks that rely more on interest income. This model has contributed to the rapid growth of Credit One, making it a significant player in the subprime market. The investigation highlights how Credit One's operations are intertwined with Sherman, with Sherman purchasing a large portion of Credit One's loans, funded by major Wall Street banks. This setup has allowed Navaro and Hildebrand to amass significant wealth, with Navaro's net worth estimated at $4.8 billion and Hildebrand's at $2.8 billion. Despite their wealth, the founders have maintained a low public profile, with Navaro engaging in philanthropy and Hildebrand investing in tech sectors. The story also touches on the ethical implications of their business model, which profits from a vulnerable customer base.
Key Points:
- Credit One Bank targets subprime customers with high-fee credit cards, unlike traditional banks that focus on interest income.
- Sherman Financial Group, Credit One's parent company, buys most of Credit One's loans, funded by major Wall Street banks.
- Ben Navaro and Brett Hildebrand have amassed billions through this business model, with Navaro worth $4.8 billion and Hildebrand $2.8 billion.
- The founders maintain a low profile, with Navaro investing in philanthropy and Hildebrand in tech sectors.
- Credit One's business model raises ethical concerns due to its impact on vulnerable customers.
Details:
1. 🎾 Meet Ben Navaro: Tennis Dad & Businessman
- The segment opens with Forbes' investigation of Credit One Bank, revealing it as a lesser-known yet significant player on Wall Street.
- Credit One Bank is portrayed as a 'best-kept secret' in the financial sector, suggesting its substantial yet understated influence.
- The investigation aims to uncover the bank's operations, financial strategies, and market impact.
- Ben Navaro's involvement with Credit One Bank is highlighted, providing insights into his dual role as a businessman and a tennis enthusiast.
- The content sets the stage for exploring the intersection of Navaro's business acumen and personal interests, particularly in the context of Credit One's market position.
2. 💳 The Rise of Credit One Bank
2.1. Ben Navaro's Influence and Achievements
2.2. Credit One Bank's Market Position
3. 📊 The Business Partnership & Model
- Ben Navaro founded Sherman Financial Group in 1997, creating one of the largest debt collection businesses in the U.S. This laid the groundwork for acquiring Credit One Bank, a rapidly growing subprime credit card company.
- Credit One Bank's success is partly due to its branding, which often leads consumers to mistake it for Capital One, thus enhancing its market presence in the subprime credit card sector.
- The strategic partnership between Ben Navaro and Brett Hildebrand exemplifies a dynamic business model: Navaro, the charismatic leader, drives strategic direction and acquisitions, while Hildebrand, an MIT math and economics graduate, focuses on developing sophisticated financial models and infrastructure.
- Their partnership leverages Navaro's deal-making skills and Hildebrand's analytical prowess, resulting in a robust business model that supports Sherman Financial Group's rapid growth and market dominance.
- This synergy has enabled Sherman Financial Group to maintain a competitive edge by utilizing data-driven strategies to optimize operations and expand market reach.
4. 📈 Investigating the Subprime Credit Market
- Consumer debt in the US has reached an unprecedented $5 trillion, excluding mortgage housing debt, indicating a significant financial burden on consumers.
- Over 100 million Americans either have poor credit or no credit history, making them ineligible for credit cards from most big banks. This underserved segment represents a substantial portion of the population.
- Credit One specializes in serving this vulnerable segment that other banks avoid, positioning itself uniquely within the subprime credit market.
- The investigation seeks to understand how businesses like Credit One operate and their influence on broader US debt trends, highlighting the importance of such financial institutions in providing credit access to underserved demographics.
5. 💼 Unraveling the Fee-Driven Business Model
- Credit One relies predominantly on fees rather than interest for revenue, unlike most banks.
- Fees are charged for actions including credit limit increases and name changes, setting it apart from other banks.
- This model contrasts with traditional banks, where interest income is the primary revenue source.
6. 🏦 From Debt Collection to Credit Issuance
- Credit One offers credit cards with a $300 limit and a $100 annual fee, posing a challenge for financially struggling individuals to manage these cards effectively.
- The business model potentially leads individuals into greater debt due to additional fees associated with the cards.
- Founders Ben and Brett transitioned from debt collection to credit issuance, strategically leveraging their experience to create Credit One Bank.
- Sherman Financial Group, established by Brett and Ben, started with a debt collection business, Resurgent, which grew to be among the largest in the U.S.
- Realizing the profitability of originating debt, they acquired First National Bank of Maring County, rebranding it as Credit One Bank, thus linking debt collection and credit issuance.
- Credit One Bank targets subprime customers through mass mailings, sending over 10 million mailers monthly offering unsecured credit cards with small credit lines.
- Their strategy involves a high-volume mailing approach to engage subprime customers, despite the potentially high-risk financial profiles.
7. 🔄 Credit One's Ties with Sherman & Wall Street
7.1. Financial Model of Credit One with Sherman
7.2. Partnerships and Wall Street Connections
8. 💰 Profits and Wealth of Credit One Owners
- Credit One's successful business model benefits large financial institutions, with Sherman being a valued partner to big banks like Wells Fargo.
- The owners, Ben and Brett, initially owned the debt collector Resurgent, which was sold in 2021 due to Credit One's profitability and legal issues they faced.
- The primary source of wealth for Ben and Brett is Credit One, with their net worth estimated at $4.8 billion for Ben and $2.8 billion for Brett, primarily from their stakes in Credit One and Sherman.
- Ben and Brett's wealth is significantly bolstered by dividends, with Ben earning $2.5 billion and Brett $1.2 billion from these dividends.
- Legal challenges were a key factor in the decision to sell Resurgent, highlighting the complex environment in which Credit One operates.
9. 🚗 Lavish Lifestyle of Executives
- Executives have access to a credit line of $1,000, highlighting a stark contrast with the company's massive profits of 2.5 billion in pure profit, indicating potential misuse of company resources.
- The company's financial statements, like Credit One's balance sheet, obscure actual profits due to loans held on Sherman's balance sheet, suggesting a lack of transparency in financial reporting.
- Ex-employees reported witnessing luxury vehicles, such as Lamborghinis and Aston Martins, in the company parking lot, exemplifying the executives' extravagant spending habits.
- The Credit One headquarters, valued over $70 million, reflects the company's investment in opulence rather than operational efficiency.
- Celebrations for achieving loan milestones included renting out a Las Vegas casino and distributing $500 in cash to employees, illustrating a culture of excess and possible misallocation of funds.
- The lavish lifestyle of executives is at odds with the financial constraints faced by their customer base, potentially damaging the company's public image and employee morale.