Goldman Revs Up Legal Machine to Take On Main Street Borrowers

For decades,Goldman Sachs Group Inc. avoided getting tangled up in the finances of everyday Americans, preferring to deal with the world’s most influential governments and corporations.

Now, Goldman finds itself suing a school guidance counselor, a used car salesman and a real estate agent after initially choosing not to aggressively pursue delinquencies at its four-year-old Marcus consumer division. In all, Goldman has filed cases over the past few months against more than 100 borrowers from Alaska to Connecticut in the first wave of lawsuits from the unit.

While just a fraction of the lawsuits filed by other lenders, the change of course represents a milestone in Goldman’s transformation as the worst pandemic in a century wreaks havoc on the personal finances of millions of Americans. Since the financial crisis, Goldman has evolved from a Wall Street giant that put the emphasis on its pedigree to a bank engaged in the wider rough and tumble of mass-market finance, where lenders annually sue thousands.

“The aim is to create with the customer a sustainable payment plan that fits their situation and need,” said Andrew Williams, a spokesperson for Goldman Sachs, adding that more than 82,000 borrowers havedeferred their payments. “In very few instances, after exhausting other options, we work with a law firm in accordance with industry practices. In many of these instances, the use of a law firm is the only permissible way to contact the customer.”

As one of Goldman’s most senior executives once put it, there are “different risks when you are touching the retail customer.” In the wake of the 2008 credit crisis, when U.S. senators took Goldman to task for selling mortgage derivatives, executives emphasized that its clients were “sophisticated.”

Even after Goldmanfinally made its push into retail banking with the 2016 debut of its Marcus consumer unit, the company initiallypledged to play nice. Two years ago, the unit’s chief at the time, Harit Talwar, said he hoped Marcus would be viewed as a “lovable teddy bear.” Lloyd Blankfein, then the firm’s chief executive officer, predicted “we will be the ones on TV you’ll feel sorry for” if borrowersdidn’t repay.

Three Jobs

Stavros Siskas was working three jobs to dig out from around $300,000 in debt when Goldman loaned him $30,000 last year. The New Jersey elementary school guidance counselor, who also waited tables at a steakhouse and worked at a summer camp, used the loan to pay down costlier credit card balances.

It worked for nine months, as he sent Goldman $592.64 at a time. Then the pandemic hit. Restaurants in New Jersey halted indoor dining, his summer camp didn’t open and his spouse lost work as an orthodontist’s assistant, causing him to fall behind on the loan, he said. Siskas allegedly missed his payments from March to June, court documents show. Goldman is now suing him for $27,803.67.

By going to court to get its money back during the pandemic, Goldman can minimize losses on soured loans. It’s attempting to get back to business as usual in other ways as well, carrying out fresh rounds ofjob cuts after promising to refrain from broad firings during the pandemic.

Best Run

The suit comes at a time when Marcus is generating its highest revenues since getting off the ground, attracting growing customer deposits, expanding its credit card tie-ups and finding new avenues to offer its wares. The business’s consumer loanstotaled $4.1 billion at the end of September.

The wave of lawsuits began around then, according to court records, when the firm sued customers in Texas and Ohio, before expanding to New Jersey and beyond. The day before Thanksgiving was particularly active: Goldman filed more than half a dozen lawsuits, from Los Angeles County to Queens, New York.

As coronavirus spread through the U.S., lenders of all sizes said they’d try to ease the financial consequences of missing work. Foreclosures and evictions were halted, and credit card lenders offered options to postpone bills.

Prosper, Encore

Prosper Marketplace Inc., one of the biggest lenders of unsecured personal loans, put about 50,000 borrowers in temporary plans to avoid default, spokesperson Sarah Cain said. LendingClub Corp., the largest online lender, offered more than 217,000 borrowers short-term plans to avoid default, and executive Anuj Nayar said the firm hasn’t “needed to resort to lawsuits.”

Even so, both companies sell loans that they’ve given up on to debt buyers, who’ve sued distressed borrowers in recent months.Encore Capital Group Inc., the nation’s largest publicly traded debt collector by revenue, has bought $4.8 billion of different types of debt this year through September at 11 cents on the dollar. Lenders generally prefer to sell soured loans to debt buyers rather than try to collect on them because it’s more efficient, according to Eric Neglia, who leads Kroll Bond Rating Agency’s analysis of consumer loans.

Social Finance Inc. has filed more than 300 lawsuits against borrowers since the beginning of March, court records show. Litigation is a last resort, spokesperson Rachel Rosenzweig said. Researchers at the Pew Charitable Trustsestimate that most debt collection lawsuits end with default judgments for creditors because customers don’t respond. Borrowers can have their wages garnished or assets seized, and are sometimes imprisoned.

Side Business

Siskas, the guidance counselor, started a side business this year: He’s nowofficiating weddings, charging $50 for a ceremony over Zoom and $125 for on-demand services. In July, Goldman wrote off the $26,729.56 balance on a loan that had cost him 9.99% annually.

To hear him tell it, the bank is wasting its time going after him. So many creditors called during the spring that he changed his phone number. He and his spouse rent their home and Siskas said he has no assets. He said he’s about to file for bankruptcy.

“If you don’t own anything, there’s very little they can do — I really couldn’t care less,” Siskas said. “If that’s how they want to spend their resources, it’s a little low right now, taking people to court.”

— With assistance by Sridhar Natarajan

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