Steadfast FinancesShutting Down My Lending Club Investments

Shutting Down My Lending Club Investments

Filed in Banking , Investing 101 , Peer to Peer Lending 182 comments

In a decision I consider nearly as bad as the “New Coke” experience, Lending Club has decided to limit the questions an investor can ask potential borrowers. The resulting policy only allows investors to ask a limited series of pre-approved questions.

For me, this is unacceptable.

The primary reason for the change in transparency was to protect the borrower’s identity. Via Lending Club’s blog

Lending Club investors have the ability to ask questions of potential borrowers before committing investments into their loans. This ability has raised concerns in terms of protecting the privacy and identity of both borrowers and investors. These concerns led us to adjust our Q&A mechanism for the benefit of both borrowers and investors.

Starting tomorrow, investors will only be able to ask questions from a predefined set that was created based on the most frequently asked questions logs over the last 2 years and reviewed and edited by our compliance team. As an investor, feel free to submit additional questions that you would like to see added to list to feedback@lendingclub.com.

I agree 110% that a borrower’s identity needs to be protected. No problem. I’ll bend over backwards to comply.

The Problem

What I vehemently disagree with is that Lending Club has positioned themselves so that my questions have to be pre-approved even though I’m investing my money. Moreover, I only get to select from a series of pre-approved frequently asked questions that were filtered through Lending Club’s compliance department.

Bottom line: if Lending Club doesn’t “approve” of my question, sucks to be me.

This isn’t a quarterly earnings analyst call with Goldman Sachs or General Motors, nor is it a politician’s press conference, where softball questions are predefined and the deck is stacked to make the party of interest look their best. It is a — it was a — place where a borrower could apply for a loan, investors could review the borrower’s personal finances, and ask any question they wanted (without compromising either party’s identity) to make a decision on the borrower’s creditworthiness as well as make a decision on the probability the borrower would repay the loan plus interest.

If that meant asking the borrower a few tough questions, calling BS on the the borrower’s cream puff answer(s), or he/she decided to tap dance around the question without answering it, we investors apparently no longer have a say in the matter. We just take what we’re given, and told to take it or leave it.

In my opinion, this greatly compromises an investor’s ability to outperform the benchmark index and raises the rate of default.

I’m Out

I had high hopes for Lending Club as they were the most progressive thing that happened in finance for many, many years. I’ve also been one of their most outspoken supporters over the last 2 years by posting my returns and assisting more new investors find their way than any other blogger I know by organizing a 100+ person investment club.

However, based on the new policy of reduced investor transparency, I will not be investing new funds, nor will I be reinvesting funds that are repaid.

I will also be closing down the Lending Club investment club of 100+ members, and the new P2P Lending Investor blog & forum is dead in the water. Apologies to those that found value in the club, but I don’t like anyone telling me what I can or can’t ask when it comes to my money and my investments.

In hopes of remaining neutral, I will not advise anyone to follow along with my decision, but instead of writing a dozen blog posts trying to persuade Lending Club to reverse their decision, it’s far more simple to vote with your money.

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Posted by CJ   @   22 April 2011 182 comments
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182 Comments

Comments
Mar 20, 2012
4:17 am
#1 John DAWSON :

RE: Post No. 168 – State Default/Charge Off Rates
FIVE States Borrowqer loans Default/Charged off MOST frequently:
NV UT GA FL MO
TEN States Borrower loans Default/Charged off LEAST frequently:
NC RI CT LA KS NM DC VA AL OH
Note: WY 100 loans issued; 0 (ZERO) Defaults/Charged off.
Summary: Where Borrower lives influences if loan performs to term (Good) or sours (Default/Charge off).

Mar 20, 2012
4:25 am
#2 Mike :

Great info, John. I’m surprised that CA didn’t make the top ten list. Maybe I’ll limit my loans to WY from now on…

Mar 23, 2012
9:35 am
#3 John DAWSON :

Matt,

1.00 = L C 50 state average for Borrower loan defaults.

CA Number 9 of 10 top States for probable loan defaults:
NV 1.77 UT 1.49 GA 1.38 FL 1.36 MO 1.36
DE 1.30 CO 1.14 MN 1.10 CA 1.09 MD 1.07

NV (1st) GA (3rd) FL (4th) high b/c unemployment; all experienced high number FDIC bank failures caused by soured mortgage loans. CO, MN experienced disproportionate number FDIC bank failures of small community banks lending in agricultural areas.

Stable federal emloyement/active duty military driven high growth Washigton, DC Metro area includes DC .71, VA .73 and MD 1.07. Compared to L C 1.00 state average, DC, VA Borrowers 29%, 27% LESS probable to default; MD Borrowers 7% MORE probable to default.
MD Borrowers experienece approximate 40% higher default rate than do VA Borowers.

What surprised me is UT (2nd)) highest probable for defaults. UT promotes itself as low unemployment, better than average economy. UT experienced minimal FDIC bank failures. What’s occurring behind-the-public-persona in UT means that Lenders must not be aware of underlying reasons causing high default rate.
John Dawson 03.23.2012

Apr 3, 2012
12:11 pm
#4 John DAWSON :

Contributor asked Question: Correlation between Loan Titles, Borrower answers and Defaults?
My answer: Quite probably.
Reveiewed my Defaults. If Loan Title includes HELP, FRESH START, STARTING OVER (ESPECIALLY “AGAIN”), PICK/SELECT ME, etc and/or Answers include L C ONLY POSSIBILITY, BANKRUPTCY AN OPTION, DESPERATELY NEEDED IN ULTRA SHORT NUMBER DAYS, LARGE $ VALUE ($20K+) LOAN WILL BE PAID IN MUCH SHORTER TIME FRAME THAN APPLICATION REQUESTED, et al are “RED FLAGS” flying high in stiff breeze over all-too-probably Defaulted Loan. Borrower is Default searching for convenient Loan Portfolio wherin to deposit her/him self. My reommendation to Borrower is: Thanks, but NO thanks.
John DAWSON 04.03.2012

Apr 21, 2012
7:51 am
#5 JOHN DAWSON :

Called L C Collection Department. Purpose: Determine why $30K loan’s $15K balance Charged Off after 1 missed payment. Collection History said Borrower filed Chapter 13 Bankruptcy; NOT economically feasible to collect balance. Chapter 13 Bankruptcy is WAGE EARNER REORGANIZATION PLAN. Debtor’s debts are restructured into lower monthly payment and Borrower ultimately pays off debts. Idiot I spoke with said Collection Department automatically charges off ALL Bankruptcy Filing loans. Summary: L C collects 4.50% origination fee, provide lip service to Lender then promptly screws all Lenders when Borrower files Chapter 13 Bankruptcy.

Apr 21, 2012
8:12 am
#6 Mike :

I wonder if that is why I was able to sell one of my notes that had filed for bankruptcy a while back. I can’t recall if it was Chapter 7 or 13, since this was before they disallowed selling a note in bankruptcy. Maybe the buyer thought he/she would be able to recoup. Now I just sell any note that is ‘incipient’ grace period.

Apr 29, 2012
12:28 am
#7 Xin Tendo :

NAR for my portfolio has dropped to 5.8%. Average maturity of my portfolio is about 1 year.

Issued & Current 78
Fully Paid 10
Charged Off 6

Average loan size 27$

I used a low-scrutiny method. Just gathered the recommended filters from various finance blogs and made a few portfolios. 5/6 chargeoffs are 60 month loans.

May 10, 2012
3:05 am
#8 JOHN DAWSON :

Xin Tendo:
Best Borrower occupations: Professionals- Legal (Attorney, Paralegal, Secretary, Courts), Medical (Physician, Dentist, Chiropractor, Psychologist, Psychiatrist, RN’s, Special Technicians- XRay, Ultrasound, Sonographer, EKG, Lab, Chemo, etc), specialized Government (FAA- ATC, DOJ- ATF, FBI), Public Utility (Lineman, Electric/Gas Generating and Water Plant Ops, etc.), Railroad, Special Teacher- Special Edu, Reading, Speech, etc.)and Senior Military Officer and NCO. Once secure US Post Office jobs quickly disappearing. DOD budget cuts will be same for DoD civilians. Law Enforcement- Corrections-Police-Sheriff jobs subject to budget elimination.
Notes inventory now 650+. NAR averages 12.20 to 12.35 PCT. Fully paid = 16% of Notes. Charged Off = just below 5% of Notes.
04.15.2012 L C “Improvement” to DownLoad File conspicuously omits Occupation/Position description.
John Dawson 05.10.2012

Jul 15, 2012
4:22 pm
#9 john :

I think you are a cry baby. They clearly did this to save on staff to review custom inquiries. It has nothing to do with privacy.

Jul 26, 2012
11:26 am
#10 Mike :

John is retired USMC. What is your definition of cry baby?

Jul 29, 2012
1:45 am
#11 John Dawson :

TO JULY 15, 2012 4:22 PM ANONYMOUS CONTRIBUTOR:
Reviewed ASININE comments that conveniently failed to identify yourself. P2P Lending is NOT grand liberal SOCIAL experiment; instead is BUSINESS that ultimately
MUST be PROFITABLE. Questions that L C Management instituted April 15th 2012 are self-serving “lip service” instead of important questions, i.e., Q asks Borrower concerning Public Record(s) but does not inform Borrower what a Public Record entails, Q asks Borrower “What are the expenses“, but does not inform Borrower Q concerns MEDICAL expenses, etc.
Concerning your comment that I am a “cry baby”, you most probably never served one day in U S Military Branch of Service. Instead during Viet Nam War, et al, your lazy fat civilian butt permanently glued to soft sofa before color TV. On Election Days you probably voted straight ticket for liberal politicians promoting elusive “Great Society”.
Summary: During a long walk do take a one way detour off a very short pier.
John Dawson 07.28.2012

Jul 29, 2012
2:52 am
#12 Dan B :

I’m really impressed, amused & bemused that you guys are still talking about this same Q&A thing. Keep this up for a couple more years & you all will be giving the Prospers.org people a run for the money for keeping a dead & decomposed topic alive! Of course they actually think that they stand a chance of getting some money at the end of the day. As for you guys, well not so much. :)

Meanwhile, as my 3 year anniversary at LC quickly approaches, these Q&A changes have had no effect on my mid teen returns or on my note selection procedures.

BTW, I could come up with an impressive list of terms to describe Retired USMC John Dawson, :) but cry baby wouldn’t be one of them.

Feb 3, 2013
1:33 am
#13 Xin Tendo :

My NAR has stabilized ~7%, have not reinvested since early 2011.

Learned a lot of lessons playing this game, first and foremost, that using anything other than robust data will get you clowned.

I now invest using this man’s ‘genetic algorithm’.

http://blog.dmpatierno.com/post/3161338411/lending-club-genetic-algorithm

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