Over the weekend Lending Club released its loan data for the first quarter of 2015. For those who are brand new to this investment, Lending Club releases new data about six weeks after every quarter completes. The rest of the loans (IE: those issued before last quarter) update their payment status every month.
Sites like NSR then take this data and package it for the public, and interested parties like myself can dig through it and discover how Lending Club has changed and how past quarters of issued loans are performing (what percentage are defaulting, etc).
Interest rates have continued to drop.
As a result of this new release, I was reviewing the performance of my filters and happened to glance at NSR’s Canned Charts page showing the interest rates of the most recent month. Comparing them to last quarter, I was surprised to see that rates have continued to drop. The interest rate on the average B-grade loan had dropped from 10.45% to 10.09% in just three months.
I then took a step back and examined how loan rates had adjusted in 2014 and 2015 combined. The results were pretty stark.
In his interview in February, Lending Club CEO Renaud Laplanche had confirmed that interest rates had been dropping at Lending Club over 2014, but I had no clue the impact was this large. The average return at Lending Club has fallen over 1.5% in the past five quarters alone.
Borrower Rates on B-E Grade Loans Have Tanked
Pulling back the examination period to two years ago (March 2013), the hardest hit have been grades B through E. The very hardest hit loans are C-grades, having fallen 2.5% in the past two years:
That said, pretty much every grade has been impacted. Here is a sheet cataloging how every loan grade at Lending Club has changed in the past two years.
- A-grade rates have dropped 0.7%
- B-grade rates have dropped 2%
- C-grade rates have dropped 2.5%
- D-grade rates have dropped 1.9%
- E-grade rates have dropped 1.9%
- F/G-grade rates have increased 0.8%
The F/G-grade increase would have been something for investors to celebrate, but they represent just 4% of the loans Lending Club issues, and act as more of a loss leader to get investors interested. In contrast, 96% of the loans Lending Club issues have had dramatic reductions in their interest rates.
Interest Rates at Lending Club since SEC Approval
Things really come into focus if we pull the date back to the first quarter of 2009 when Lending Club emerged from its quiet period with approval from the SEC.
This chart reveals two things. First, how Lending Club has consistently decreased interest rates since late 2012. Second, how they had increased them just two years before that. Lending Club raised interest rates over 3% from late 2010 to mid 2012. Lending Club’s current average interest rate of 13.2% is not a historic low. That belongs to the last quarter of 2010 when the average loan was issued at 11.7%.
Is the Current Rate Decline Slowing Down?
An interesting picture forms when we examine the percent change between quarters and add an overall trendline:
Lending Club largely kept their rate the same in 2009 and 2010. But they began to shake things up in 2011, dramatically increasing rates until 2013 to increase investor demand. Since this point, it has been nothing but a consistent reduction in the overall rate as their needs switched to enticing more borrowers.
Lending Club’s push into lower rates may be slowing down.
That said, the trendline on the far right of the chart is beginning to curve back towards the horizontal axis. The reduction in the first quarter of 2015 is the smallest it has been in a year, and suggests that Lending Club’s push into lower rates may be slowing down.
The Relationship of Interest Rates and FICO Scores
What’s really fascinating to me is how the average of all these quarterly changes is just +0.03%. 2015’s rate decreases are historically matched point-for-point by rate increases. So it’s possible to make the conclusion that Lending Club is simply very dogmatic about its loan standards, and that things on the whole have been consistent for the past six years running.
But that’s really not the full picture, as seen if we overlay the average borrower rate with the average FICO score of these same borrowers:
This FICO number is the average borrower’s credit score. It is a measure of how risky the overall investment is at Lending Club. People with higher credit scores (like 760) are safer investments. Those with lower credit scores (like 660) are riskier investments.
See how the blue and black lines evenly cross each other in the middle of the chart? For five of the past six years there has been a strong inverse relationship with interest rates and the average FICO. If Lending Club increased the risk of their investment by dropping the average FICO, investors would be rewarded in tandem with increased interest rates.
Interest rates and FICO disconnect
But in 2014 something changed (highlighted in yellow). Lending Club began to lower interest rates without adjusting FICO at all. Basically, for the first time in their company’s history they began to decrease the reward for investors without decreasing the risk.
What does this mean for investors? Default rates generally stay the same while interest rates go down. In short, a substantial decrease in our overall return. In his interview, Laplanche did suggest that the new lower rates create more “positive selection” by borrowers that lessens the overall default rate for investors.
“By [lowering interest rates] we believe we can generate more positive selection. For example, this means people who now take a 10% loan offer, but who would have rejected a 12% offer, are typically also higher quality borrowers. So the belief is that part of the rate cut will be absorbed by lower defaults. Even though interest rates have dropped by something like 1%, the reduction in investor returns should actually be less than that.”
Renaud Laplanche, CEO of Lending Club
That said, it remains to be seen if this positive selection pans out out as hoped. In all honesty, these are uncharted waters for Lending Club.
Investor Returns Have Fallen Almost 2% in Two Years
If we take the average borrower rate and subtract 6.5% in defaults and 1% in fees, we can compare it to the current return investors have yielded per quarter to suggest where things may be headed:
The blue “Current ROI” line swings up at the end because borrowers have not had a chance to default on these newly issued loans. The black line is a rough guess of the return investors earn once loans have been paid back or defaulted. This line has seen a 1.88% decline since mid 2013. The new normal for Lending Club investors may be an average return of just 5.7%, and this return could even drop a bit further in the coming year.
In the past, people like myself have cited peer to peer lending’s average return of 5-9% depending on how much risk is taken on (loan grades selected by investors). So if we take the new average and again add 2% boundaries, we get a projected investor return of 3.7% to 7.7%.
Peer to peer lending has changed.
Much of this is speculation. A more accurate projected loss curve should be available in 12-18 months. That said, I think investors need to be acutely aware of these new lower interest rates. Peer to peer lending has changed. Folks shouldn’t enter this investment assuming a 7% return when they actually go on to receive 5.5%.
[It’s important to note that applying a 6.5% default rate across the board is a very inelegant method to predict returns on completed loans. That said, 40% of the loans at Lending Club have a 5-year term, and the default rate for these is much higher than the 5% average for 3-year loans, so I feel 6.5% is a decent (if slightly generous) place to start. If somebody can provide me with a more nuanced projected default rate, I will gladly update the above chart.]
2015: The Year of the Borrower
This article could come off as highly critical toward Lending Club, but that’s not really the case. Instead, I see Lending Club responding naturally to the pain points of their industry. The reason they increased interest rates from 2012-2013 was to increase investor interest. Once investor interest was effervescent and dollars were committed to funding new loans, the new barrier toward growth for Lending Club has been finding new borrowers, and the continued lowering of rates for the past two years is their effort to address this new need.
Indeed, 2015 could rightly be deemed the Year of the Borrower in peer to peer lending. People with credit scores around 695 are qualifying for $13,000 unsecured loans with a fixed rate of 13%. Amazing. These new rates are sure to be warmly appreciated by people who turn to Lending Club for help to get out of debt.
I do wish Lending Club was communicating this reality better to investors. This could be done by sending a simple email to their investor population that outlined the reasons for the new lower rates, along with an honest expectations around future returns.
Overall though, investors need to realize that this investment exists within a market, a continually shifting balance between investor supply and borrower demand. We should not assume that performance during one year is representative for how things will be forever. We may be frustrated that Lending Club no longer gives us C-grade loans at 15.8%, but they do this because there are many investors who are eager to pick up C-grades at the new 13.3% rate.
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Thomas Zhou says
Great article!!! Thank you so much for your hard work and put excellent article regarding the falling interest rate and the returns. I agree with you completely. I stopped to reinvest my funds since last October. I am not satisfied with the return results. Lending Club needs to do more to reduce the default rate. They cannot just issue the loans to anyone.
Simon Cunningham says
Hi Thomas. Its probably worth mentioning that Lending Club’s standards have stayed quite consistent over the past six years. They are actually very strict with who gets a loan and who gets denied. But if the returns are below your needs, I understand your desire to take a step back.
Personally, I’m still quite happy with the returns of this investment.
Thomas Zhou says
Thank you so much for your great inputs. I invested over $330,000 in Lending Club. I have over 12,000 notes. The result is not exactly what I am looking for. My duration is over 14 months and defaults are increasing every day.
I very much admire how you mainly invest in grades C or higher. Personally, I don’t have the courage to buy those riskier notes. I mainly invest in grades A, B, and C. I am still happy with my returns compared with other investments.
I don’t put any stock market $ in peer to peer lending. Where I see p2p value especially today is for excess cash or bond holdings I don’t need for over 3 years. (This assumes one believes in diversification and not putting all your investments in equities – which all analysis show is wise). In this arena earning 3-5% is vastly superior to stashing into cash or money markets earning close to 0%. And bond funds are at risk of losing value as interest rates rise. And if I want to invest in the stock market I can $ cost average with p2p returns back into stock market.
Am I missing something?
Yes I think you are missing something. Recent notes on average are dropping like flies. I’m $200 negative for January 2017 alone to start out the year. That drops my NAR by over 50% in one year. 7 months negative returns. Do you work for LC?
I guess if you want to put lipstick on a pig, go ahead, but I would not recommend LC, unless of course you are on the inside and have access to better notes than are now accessible to common investor. Way too much risk.
While your returns are pretty bad, its not the same for all of us. Mine are not as good as they used to be with a significant increase in defaults (and I am pretty pissed at LC at the moment), they are still pretty acceptable for my goals and investment strategy which is what Jeffs post was about, i.e where LC fits in strategically in a diversified investment strategy.
I am sorry to say this, but comments like “Do you work for LC?” seems to me like a childish way of lashing out at anyone who does not agree with your pain about your loss.
JOHN ARTHUR MACNEIL says
I know we a lot of us have lost money lately . I understand why someone would ask if anyone is working for LC. I think we all should know that we are dealing with fellow investors and not “company men”. It seems to me that LC should not be allowed to post unless they say it is coming from LC. Otherwise it could be perceived as some type of coercion. I lost money this month Jan 2017 -319.00 but I did not put all my eggs in 1 basket. I don’t care if you have 400 notes or 4000 notes if you are taking on more risk (E F and G notes ) you should be rewarded for it.
JOHN ARTHUR MACNEIL says
OOps I forgot to mention I do not work for LC
I agree with everything in this comment thread. From 10/1/16 until 1/31/17 I’ve lost $10 TOTAL. So my return over the last 4 months, with about 300 active notes was -$10. My investments started around this time last year and happened quickly, complete by the end of February I believe.
I’ve been advised it is largely where I am in the cycle – apparently after 12 months things settle down somewhat after the ‘bad notes’ have defaulted as they primarily default within the first 12 months. I’m just getting to this point now, and over the next couple of months. Theoretically, I should start seeing positive returns in the next 2-3 months again as the good loans keep paying. But I’m not convinced this is going to happen, and will be 7-8 months of standing still or losing money. http://blog.lendingrobot.com/research/calculating-expected-return-of-note/
Mike pinpoints the issue – there are clearly those with large amounts of capital who get the preferential treatment, then there are the rest of us. I had invested through Lending Robot to make the investment passive and get a more stable rate of return, but I had a free account. Interestingly, as I mentioned below (I’m the same ‘John’ that has posted a few times in this thread), a friend on a paid account with not much more overall investment has seen much better returns (7% or so adjusted vs. my 2%). It makes sense that services like LR and NSRInvest weigh the quality of the loans to their paid and largest investors who pay their bills.
And now LR has introduced ‘LR Series’ aimed at accredited investors, with an updated algorithm and very large minimum investment. This trickles down – by its nature worse and worse loans are available to the people at the bottom of the food chain.
This is in addition to LC’s own institutional investors (the ‘insiders’ Mike mentions) where the loans as far as I know don’t even hit the open market. True P2P Lending via their marketplace is a very small part of Lending Club’s business – they gear their services to these large investors.
What has changed recently in my mind is unless you’re a very large investor (WELL over 200 notes using the state of the art like LR Series to cherry-pick the absolute best, or premium tools by NSRInvest) it’s an uphill battle to get even the small return Jeff mentions.
That said, using some simple filters on the LR algorithm would have helped prevent most all of my defaults. So it’s probably still possible with work to skew things in your favor. But this makes P2P investing far from passive…
I agree with almost everyone here — P2P lending just doesn’t make sense for a small investor anymore.
Hi Simon. Thanks so much for your well researched and written articles. I am new to LC, waiting on an initial $10,000 funding of my investor LC account. I’m leaning toward starting my portfolio on the secondary market side at FOLIO with 10 + month seasoned notes. Question : How can I easily determine ROI on these as they are all amortized with less interest paid on the back end of the term. And second, do you have an opinion on whether this would be a good “filter” to lower my default rates ? Thanks. Randy
Simon Cunningham says
Hi Randy. Unfortunately I have zero experience dealing with seasoned Folio trading. As for filtering, you can look at the various LendingMemo articles by typing “filtering” in the search box on the upper right.
Thomas Zhou says
Hi Randy. I invested around $2,000 on the Folio market and had very bad experience with that. The return on those is a negative 2.5 percent. My understanding is if they want to sell the note, something is wrong. And since the loan is nearing the end of duration, the interest rate is much less than in the beginning. It seems so attractive for some notes on discount, but be aware of the dangers! Don’t put all your money in the secondary market. That is my honest opinion. Thomas
Simon Cunningham says
“My understanding is if they want to sell the note, something is wrong.”
This is an oversimplification. Often it is the case that notes are only posted for sale if they’re bad. But many many healthy notes with zero negative marks exist on Folio for people who want them. See: https://www.lendingmemo.com/how-to-invest-folio-lending-club/
Secondly, a $2000 investment is difficult to diversify across 200 loans. Frankly, I’m not surprised you had a poor return.
Thanks for responding Thomas. Going in with eyes wide open for sure. Randy
Thomas zhou says
You are welcome Randy. Good luck to your investment. Keep in mind if the notes on Folio are healthy. Why would they want to sell? You will take all the risks for the notes already issued. The longer the duration, the more risk involved. Pay more attention to the payment history on the bottom of the loan. Try to avoid those have any Grace payment. I am sure you will find some notes on discount that will not default. Also, for grade C or above the interest rates pay more in the beginning, and decline every month thereafter based on my observation. Happy investing. Thank you Simon for your contribution in p2p investing. Keep great work. Thomas
The changes in interest rates at the sub-grade level is more revealing than at the grade level. LendingClub changed their rates in November 2014, February 2015, and recently May 2015. The analysis of the changes can be see here:
Although one could argue that interest rates have been coming down in the recent years, we also have been observing lower default rates as the economy improved.
Thomas zhou says
Thank you for the link about the detailed rate changes. May I ask where you saw that the default rate declined? Is it just your speculation or wishful thinking? I am experiencing my default rate increasing even though I mainly invested grade A, B, and C. Thanks, Thomas
The default rate changes is based on my independent research with the LendingClub historical data. The way I benchmark default rate behavior involves comparing a similar age (@12 months). Depending on your time-frame, default rates have generally declined or held near steady in the past 2 years. There are other public data prepared by the government where you can look at for a macro-economic gauge on where default rates are heading. I put one of this into visualization:
However, if you are looking at your personal portfolio and it has aged over time, default rates naturally are higher up until about 16-18 months old and stabilizes.
Thomas zhou says
Thank you for your explanations. I will keep my fingers crossed and hope for the best. My notes are 14 month old. Hope after 16-18 months that the default rate goes down.
Also, did you do any research regarding the notes paid early? How do those affect the total return over the long haul? I have over 12,000 notes. Already have over 1300 notes already paid off. Thanks, Thomas
You should see your default rates stabilize by now (age 14 months). If you have a lot of 60 mo loans, the turning point is closer to 18 months. Default rates actually come down slightly after that point until a portfolio’s maturity.
In regards to prepayments, I’ve done research in that area as well. The occurrence for prepayments depends on the types of loans you select. Typically, higher income borrowers and higher grades (A, B, or C) have a higher rates of prepayments. Overall, with a portfolio weighted age of 14 months, it’s usually just over 10%, which you are inline with expectations (1.3k/12k). After the first 9-12 months, prepayments slow down significantly.
Prepayments are a natural part of p2p lending and it affects your performance by about 0.6% a year (5 days for payment processing + 7 days for reinvestment + 70% loan approval rate; (12/365 days)/0.7 * 12% a year = 0.49% impact), depending on how quickly you redeploy these payments into new loans.
If you have anymore questions, feel free to send an email via my website at https://www.lendingalpha.com My team and I have a lot of insights in this p2p lending space.
David Zetland says
FYI, I am now looking more closely at my returns, which have been negative in 12 of last 16 months (and overall), with the first negative month at 13 months in (i.e., still negative after 29 months…)
I am in the “unlucky to lend in 2015” club :(
Not really surprising considering Lending Club is still losing money as a company.
I’d expect the initial phase of the company is to attract investors and borrowers with high return to investors and low costs to borrowers. Once they have a sufficient pool of both they can start squeezing both ends to get the level of profit they need to survive. It could be they’ve started to squeeze.
Thomas zhou says
Great observation and totally agree with you . Lending Club stock is in a decline as result of company earning and performance. But as far as fixed income, Lending Club still offers a great opportunity. I am very tired of putting money in a CD that only earns 1 percent.
The way I look at LendingClub’s stock is that as long as they can continue to gain market share in the industry-disruptive marketplace arena, they will be a large financials sector player. That implies valuation that isn’t about $5 billion or $10 billion. Rather, it’s a $100 billion potential, at par with the sizes of the major players in the sector.
Mark M. says
Frank, are you an institutional investor? Really interesting data you have pulled. I have 10,000 notes with Lending Club and have minimized my investment. My Prosper loans have been paying better it seems, although a smaller sample size.
No, I’m not an institutional investor. Holding default rate and age of loans constant, Lending Club loans have been yielding a higher return for me in a diversified portfolio (more than 500 notes). It’s possible that you may observe higher returns from Prosper given 1) a younger portfolio age, and/or 2) taking higher risk loans (higher expected default rates) relative to your Lending Club portfolio.
Rates coming down….avg borrower risk going up….COMPETITION is eating away at LC
Exactly! Risk/Reward is simply not there for retail investors. Here is the thing. Credit matters. Again. Credit matters. They haven’t built a brand and they are selling a commodity. With all of the new entrants into the space it is a race to bottom.
Thomas zhou says
Well said Howard.
Michael PEdigo says
Just found this article. Well written and is exactly what I have determined myself without all the hard statistics. I emailed customer service on this as well as my experience of a much higher default rate starting early in 2015 and has not slowed down ($700+ in slow to default notes on 20K investment). September 2015 was my first negative month ever (more losses than interest generated) with Lending Club. They say I’m at about 11.5% but if you adjust for potential losses at 9%….I typically invest in E and F grade loans and mostly 5 year notes. I was told that they have stats that show somebody with a FICO score lower does not necessarily make them a bad risk…..time will tell. I’m not planning to invest any more into the platform until they demonstrate a better ROI for the investor who takes all the risk. Especially now that they have started charging fees for anything 16 days late or longer that actually makes a payment. They also take a nice chunk up front from the borrower….and they could not make one payment and leaves the investors high and dry, while Lending Club walks away with a decent amount in their pocket. If it weren’t for investors, Lending club would not have a platform, so I hope they plan on making some changes to improve the returns in short order. If I were a new investor into peer to peer lending, I would think twice unless you are good with greater risk for not necessarily more reward.
I’m really frustrated with LC as well. I participate in the automated investing and focus on loans graded D-F. My returns in 2015 were quite bad, with each month seeing a charge-off of roughly 0.6% of my outstanding principal balance. It’s impossible to build up solid returns when you’re bleeding out at -7% annualized. As it stands, it’s 1/15/2016 and my account balance is no higher than it was on 10/29/15. That’s 2.5 months with essentially no growth at all.
David Zetland says
Late to this conversation, but I’m also “on hold” due to the high default rate. I spoke with a *clueless about moral hazard* LC rep on the phone (“what do you guys lose if borrowers dafult on me? Nothing.” “Sir, we look at your borrowers very carefully.”
I just had a negative month (interest < defaults) and it's got my attention. Although I have a suspicion there's more defaults in 60 mo loans, I'm definitely thinking that LC is not policing defaults (or adverse selection risk on application). I'm about 80% in D/E/F/Gs.
Randall G says
Contact LendingAlpha.com. They will build a portfolio in your L.C. account at no cost to you. You can choose 3 different risk/return profiles with them. They are running a pilot program now so no fees.They claim a 50% reduction in default rates across all classes, A-F
John A says
Wow! Just got to start investing in LC. (kansas was added in November Have been sitting on the sidelines for years) I think LC and other peer to peer lending groups are a great way to diversify. Even though the interest rates may be going down it is still a better investment than cds. Most of my money is still in the stock market but anything is better than 1-2% . I believe if you invest in the minimum 400 notes to be well diversified in lending club it can only be an \”asset\” (pun intended) to your overall portfolio.
I have been investing with lending club for over 6 years. Obviously, I am quite satisfied. However, I have seen a significant upturn in losses over the last 6 months. I am not having negative months but I went from losing 35% of interest to defaults to losing >60% of interest to defaults.
A Za says
I agree with this. I have been with Lending Club since 2010 and have noticed my ROR go from ~10% to 6% over that timeframe. That was actually how/why I found this article, when I googled “how does defaulting on a lendingclub loan affect my credit score”.
I started investing about a year ago and completely regret my decision. Initial investment was $3K, and I’m at a -3.55% ANAR overall (NAR 2.8%)
162 total loans
Another 12 “Grace”-120 late (these all go to default)
So as of now I’m looking at 15.42% default rate
Lending Club is a HORRIBLE investment. You WILL lose money. DO NOT INVEST
Simon Cunningham says
Lending Club is fine. You’re the person who invested in just 162 loans, which is not very diversified. Read 75% of the articles on this website. They all say to pick up at least 200+ loans, perhaps more if you’re in high-risk loans.
That’s total BS, sorry
Throwing good money after bad is lunacy! You’re suggesting that somehow adding 38 loans would turn my -3.77% ANAR to a 5%+ return is laughable
Maybe you work for LC, I’m not sure. All I can say is anyone who started investing in the last 2 years is most Kirby lucky to not lose money
Simon Cunningham says
I didn’t say it would magically turn your negative return into a positive one. I said it’s a best practice for investing on these platforms. There are no guaranteed positive returns in p2p lending, but for people who invest in 200 notes the statistics of earning a positive return are something like 98 or 99%. Perhaps you’re one of the 1%, in which case, sorry.
I have been reading many different articles about leading club these coupe days. And I am having a difficult time to decide if I should try lending club or keep only investing in my mutual fund in vanguard. I can only invest 2400 usd because my total assets does not qualify although my income is above 85000. I am happy with 5% return rate. Is it realistic to hope for 5 % return rate if I only have 99 notes?
Thank u so much in advance and happy new year!
thomas zhou says
Happy New Year !
A new year, new beginning .
My three years investment experiences with lending clubs shows that it is impossible to get 5% guaranteed returns in 99 notes even you only choose A grade notes. Period. no matter how you diversified . There is no way . I invested over 12000 notes . and the return is not that good. I am more disappointed with the development for lending club by day. From declined customer services to not transparencies for the real returns etc. one indication you can see through their stock values decline .
Being said, I still have hope for p2p , if you want to test the p2p water , and you are not worry about the loss of $2400 . you can still try it by yourself. No matter how many articles you read or study, there is no better way for trying by yourself. Set a strategic plan , decide which grades you will invest with your 99 notes.
Good luck to you,
Thank you for the quick reply! That helps a lot!
I’m going to echo some of what Thomas just said. He has way more notes than me – currently I have purchased over 400 notes, maybe 300 or so are active.
The issue with Lending Club is that it really seems up, somehow, to chance. I invested about 3x the amount you’re considering, and am looking at 3% net estimated one year later, using LendingRobot to invest (Aggressive). A good friend, who invested about 4x your amount, is looking at 9% (which is great for him). We invested within 2 months of each other, starting around this time last year. Same settings.
Another issue to consider is that if you want a ‘passive’ investment, even using a tool like LR isn’t passive. You’ll find yourself monitoring your loans, upset when there are charge offs, wondering if you should sell on the secondary market, etc. It’s not set it and forget it – the stock market isn’t either, but you’re dealing with something that has more or less clear causes/effects.
If you do decide to invest in LC, you should also spend some time seriously researching criteria to use (or if you’re using LR, filters) for selecting notes – that is a way to try to hedge things in your favor. All of my notes purchased now use a set of filters to try to protect against defaults. These filters would have prevented many of the defaults I’ve experienced. There are a lot of recommendations out there, I just took the commonalities and went with what made sense based on what I saw in my own defaults.
I think it’s a very different world now than a couple of years ago. If you look at a chart on LC’s website (can’t remember where) – this P2P lending is a very, very small piece of their overall business and income. Investment banks, hedge funds, etc. get the really good loans – we are literally investing in sub-prime loans, even if they’re graded ‘A’ by LC. I think some of what Thomas speaks of regarding customer service, etc (I must say I’ve only had positive experiences however) is because this is simply not a large priority for them as a company.
Thomas mentions transparencies which are really critical – there is no way in LC that I know of to see a daily balance over time (LR doesn’t offer this either). You can check the balance daily, but I find it doesn’t always make sense. I asked LC why there isn’t at least a chart for this, and the customer service rep seemed surprised and actually seemed enthusiastic about the possibility of offering something like this. But I can tell you, there’s a reason. It’s not hard to do, it would take a week for them to build something nice, but they obviously don’t want this information easily accessible.
One story, and this is anecdotal of course, but it just happened, so I’m going to mention it. Just a couple of days ago I happened to check my account one night, and I had one note in default. The next morning, I had two charge offs. Maybe I don’t understand the fine print (and I must say i haven’t yet investigated the notes involved), but this seems impossible – the note statuses should progress in order. I happened to mention it to my friend a couple of days later (we share our experiences) and the exact same thing happened to him on the same day – and at the time he was as mystified by it as I was. One note in default, the next morning two charge offs. Odd that it happened to me. Odd it happened to him. Very odd it happened to both of us on the same day.
What do i really know about anything, but if you don’t go this route I’d look into finding an ETF through Vanguard that is comparable to your mutual fund – many times Vanguard has the ‘same’ fund in ETF and Mutual Fund versions. You’ll pay noticeably less in fees, and the investment is much more liquid (you can buy and sell ETFs as stocks). Just something else to consider…
At around $1,100 the last few months (up from ~800) in pipeline losses (20K invested). Seen a large spike in grace periods. IMO the NAR is useless information because as soon as you start taking money out of the platform, you are going to get nailed till you completely exit……at that point you are going to be very negative in your loses. I have asked repeated times for LC to add an annual return, and they refuse, why? Because it would show people how poor of a return the platform really is, especially since they lowered their borrowing standards. The only one winning is LC itself (and deadbeat borrowers) as it collects a hefty chunk up front from the borrower and then fees from us on the back end when people either pay or don’t pay….it doesn’t really hurt them when they discharge loans with little damage to the borrower’s credit worthiness and little effort from LC to recover losses, it us that really pays the price. LC needs to be more accountable to its investment base or risk becoming a thing of the past. I don’t see how CC companies could stay in business dealing with these types of losses. When the next recession/depression hits, it isn’t going to be pretty and I think we are seeing the real condition of our economy being a part of LC. I’d recommend staying away unless you have the tolerance for loss. If you have 5 year notes and take $100s in losses each month, if you decide to get out, you will take heavy losses which will likely offset any gains you received in the front end. The use the NAR because it boosts what it “appears” you have made. I told them they need to add APR so you can see your true annual return. It will paint a far worse picture. Folio may be the best way to exit…you might get out with your shirt. But if LC tanks then we will be stick for the ride down.
Brilliant analysis! And 100% spot on!
David Zetland says
I have started selling my notes (liquidating) on foliofn, and LC is now reporting an NAR of -3.62% (it was above 0 before I started selling) BUT I am seeing an NAR of 21.83% on sold notes and a combined return of 0.06%.
The numbers MAY make sense if you’re calculating “to maturity” but it DOES NOT make sense in terms of cash flow. Thus, I think that MAR may be based (a) on estimated defaults (which I’ve found to be FAR higher) and holding to maturity (and perhaps reinvesting returns). In other words, fantasy.
Randall Garber says
I’ve been with Lending Club for 1 year. I have 5 different portfolios with them : High Risk, Seasoned ( greater than 13 months purchased on Folio Marketplace, Unseasoned( used notes purchased on Folio), Low risk ( A and B loans) and a Lending Alpha portfolio. Total value $30,000. I’ve stopped adding to the first three as their performance suffered too many defaults. LendingAlpha.com claims to have one half the typical default rate across all classes. Giving it more time to compare their portfolio’s performance with mine. LendingAlpha is a free service for Lending Club investors. My overall ROI is 10% with all interest and returned principle reinvested immediately.
I also do think defaults have gone up. Im also having a harder time getting quality notes to investing in the C – E range…Im thinking that\’s due to the flow in of institutional cash into the platform.
However I think the way to look at this platform is as an alternative to CD\’s and high yield savings and not an alternative/comparative to stocks.
I currently have about 500 active notes.
In 2015, I lost 24.5% of interest to defaults, and another 1% to fees for a total of 25% of lost interest.
As of August this year, I have lost 35.2% of my interest to defaults.
Been with LC since 2013…I think these numbers are still good.
Savings is easily liquidated and CDs to a lesser degree. LC locks you in for 3 to 5 years. And if you want to liquidate your assets through Folio you are likely going to loose money and it will take time to liquidate…..how fast you need to sell will dictate how much you may loose, but yes rates are better than those avenues.
Mike, what I would say is I don’t think LC should be used as a persons sole investment vehicle.
I would think It makes more sense as a diversification.
What I am basically saying is that I would not put money I might want liquid quickly in there.
My advice is first know your character as an investor and invest within the boundaries of your character. No two investors are the same.
All the funds I have in LC I could care less about touching for the next 10 years. Its also less than 5% of my total assets. See were I’m going? if I lost 50% of 5% of my to total assets, I will say sh*t a few times and move on.
Thanks for sharing. What’s your ANAR?
Im at 10.31
Just checked August statement and actually had my first loss this month of almost $200 for the month. Loss pipeline is still above 1K……Like was said earlier…..you are going to take a real bath when you decide to exit the platform if you do it over time.
I would not recommend the platform for new investors….way too much risk. When the recession/depression finally comes, what bill do you think people will stop paying first when money is tight? Secured debt or unsecured?
I agree with what Mile is saying – if you’re new I’d be very, very cautious (and caution doesn’t really work here – you need 200+ notes for success). I started researching LC around this time last year, and started purchasing notes at the end of January through LendingRobot. I currently have 4 charge offs, 1 default, with 28 notes late. This is out of about 270 notes total for my initial investment (other notes were purchased along the way as notes were fully paid, etc.). Some of those late notes will bounce back, but since I’m only about 9 months in, it could be a very bumpy ride to say the least. A good friend is experiencing something similar – he’s a couple of months behind me in investment but in very much the same position where I was then.
David Zetland says
Just had a chat with LC rep about 7 months of losses (interest – chargeoffs) in a row. She said I was making 6% or so, since inception, BUT my portfolio in their understanding returns (https://www.lendingclub.com/account/lenderBenchmarkReturns.action#what-are-nar) was coming back at 1.6% and the BOTTOM of the range of “other customers.” (I’m about 17 months in, on average).
I think those returns are not for real customers…
Update for those who think LC is still a safe place to invest for the average investor…
Loss pipeline currently ~ $1188.25
Losses 4 of the last 6 months for a total LOSS of $141.48 overn the last 6 months.
Interest earned for 2016 $405.26 on ~20K investment…..worse than my high yield interest checking account at ~2%APR and the last 6 months were the first time I have started taking losses for a month. Looking at the 4 year trend, LC is a joke and it is only a matter of time before it implodes. No bank or lending institution could keep their doors open with statistics like this. Institutionalized lenders that have gotten their hands into Lending Club have made something designed for the common man to help others seems to me to be over. Somebody is making money, but it would appear it will not be the average investor going forward unless something changes. The numbers don\\\’t lie. Let my pain be your gain.
However they have the gall to tell me I\\\’ve made 8.14% NAR since I started investing with lending club and 6.03% adjustad NAR with the $1200 losses in the pipeline….this is a 5-6% decrease in 2016 alone. It is obvious why they won\\\’t display your annual return, because it will soon be negative for many investors. Reinvesting or putting new money in makes it look much better which is why they won\\\’t display APR. Based on the numbers and trend of the last 6 months, I would expect my full year return to be negative for 2017.
Loan statistics since I started investing 9/2012:
Not Yet Issued 0
Issued & Current 776
In Grace Period 25
Fully Paid 595
Late 16 – 30 Days 15
Late 31 – 120 Days 60
Charged Off 329
Loss pipeline status over last 4 years:
Annual Interest gained last 4 years:
I would not recommend LC for new investors period.
Sorry for your losses brother. I remember talking about things turning sour within 2-3 months after I started and being told “oh your just not investing enough!” Like throwing good money after bad is suddenly going to make things better!
You are right…someone is making money. I’m just waiting for the class action lawsuit so I can recoup my losses on the phony promotional returns. I can’t believe they still run that garbage graphic which shows 98% of investors getting a + return. What a joke!
I think we all have seen some type of decline in the quality of the notes resulting in decline of returns. I think the most logical explanation has been individual investors no more being a priority for LC (vs institutional investors).
These are my current stats:
My Notes at-a-Glance 996
Not Yet Issued 1
Issued & Current 507
In Grace Period 8
Fully Paid 396
Late 16 – 30 Days 6
Late 31 – 120 Days 20
Charged Off 57
NAR – 10.87
ANAR – 8.99
I finished the year with these stats: (been with LC since 2013)
YEAR TO DATE
Interest – $1,373.42
Losses (charged off loans) ($631.84)
This numbers are still OK for me, so onward I go getting scammed
As long as you are not reinvesting your cash you should be ok. It looks like notes issued since 2015 to individual investors are of much lower quality than those prior, most likely due to the institutional investor as you stated. I’d be interested in seeing how things looked in 2 more years if you continued buying notes
Most of your points are correct Chris. I am still investing. I have just changed how, with much stricter criterias which result in less buying so I am also now buying off the secondary market (86 so far with a combined weighted average of ~25%) what i think are more seasoned and proven notes as majority of notes that go bad do so early. I hoping this help recuperate the damage when LC switched the game in us without telling us. I guess i will see…its still somewhat of an experiment LC is.
Thomas zhou says
Thank you very much for sharing with us your investing experiences. I have a question regarding your charge off. you indicated you had 329 notes charged off last 4 years. assumed each note worth $25 and 329notes multiply by $25 =$8225 loss in the last 4 years. and the recoveries on those charge off is penny on the dollar . let assume you get 10% of those loss back. the loss will be $8225-822.5=$7402.5. the last 4 year gain add up = $4412.01 (405.26+$1322.26+$1473.98+$1124.47+$86.04)
So, the total gain for the last 4 year is $4412.01. the total charge off (estimated from your data , don’t know the recoveries ) is $7402.5. the real gain for the last 4 year is negative $2990.49. Again, it is ($2990.49) .
So, Mike, can you help me understand why are you still in positive result and your return is 6.03% from lending club? it just doesn’t add up. please help me understand the rationality on the return?
Hey Thomas, a charge of would not necessarily be a charge off an entire note. i.e a charged of note might have been in good standing for 1 year (payments been made) before it defaulted and got charged off.
Thomas Zhou says
Thank you for the explanations. It is true that some charge off might in good standing for quite some months. Now, you can understand my confusions: there is no way to calculate the real rate of rates on lending club notes’ returns. There are so many variables on the notes either pay back early, either charge off in different stage of the months, the recoveries , and fees etc. do you see my points?
The simple rate on the notes are based on the notion that the notes mature in the 3 or 5 year duration and no late payment any sorts. In reality, there are no such perfect settings . Especially if buy or sell notes of folios , it will make the matter worse….
Good question and Wole, a correct response….sorry been busy this week. The observation on how LC calculates things is obviously to put them in the best light possible…..not so you can see how bad your returns are. For the person who just looks at the statement and doesn’t really analyze what is going on, those numbers might look ok still. Realize that those that run LC are on the boards of other large lending institutions and they have obviously worked very hard to make sure LC doesn’t siphon their profits away, which I’m sure P2P had been doing. If you can’t beat them, take them over. The originators of LC are probably very happy with themselves right now. The concept is great, but big bankers aren’t going to be left out which is what we have seen happen with the platform.
As I have mentioned before, LC makes out like a big dog no matter how the loan actually turns out.
#1. They get 1-6% origination fee (5% for B and 6% for C+)…..That is 2K for a 35K loan C or above (that is 2k which becomes theirs, for 35K which is our money). Considering the process is the customer fills out a web form and maybe a credit check is done by somebody making 20/hr (probably a high number) that could do those checks in a couple hours provides LC a lot of quick cash up front. Then they collect from us with each payment. Why do you think they have encouraged an astronomical increase in loan volume? That is how they are making money at our expense.
#2. As you can see below I’ve collected a whopping $2.62 in late fees over 4 years and 329 charged off loans….this tells me that LC has little to no recovery arm and what they do have has no teeth which costs them little. This can be evidenced by the loan history which often shows many calls, but little to no action until they just write off the loan. Have a call center full of $10/hr folks making calls all day makes them look like they are actually trying to do something for their investment community, but at the end of the day, it doesn’t hurt LC if the loan fails, it hurts us because it is our money, not theirs. Who is LC looking out for? Who does LC truly care about?
Payments to Date$33,690.23
I would like to think there might be a lawyer out there that might represent the LC investment community for a breach of fiduciary responsibility to LC investor community, because, yes, I do believe we have been scammed at this point. As long as we are kept separate we each cry in our own bottle, but when we start taking, the ugly picture starts to get painted. Mr. Lawyer, where are you?
Why do you think LC is once again offering 3K to roll your IRA into their coffers? Run away investor, run away quickly!
#3. You can also notice a while back that LC changed their policy on collections and anything after 15 days late they skim off the top. Sounds fair huh…but just another way they skim a little more as most late pays eventually give up and go to default….I’m sure they figured this out and wanted to make sure they get as much as they can before the loan dies.
#4. Even if they do collect, they get a good percentage of those proceeds also.
At the end of the day, LC benefits at every point, but investors takes the loss. You should be happy with 5% over 4 years, although now you are loosing money. They don’t wan’t you to see you are loosing money…because any savvy investor pulls out once they see that they can’t make money. Those of us that have been on the platform in 2011/2012/2013 benefited from good loans and a much higher standard and before the institution lenders got their hands in the pot, but loans the last 2 years are dropping like flies.
As I have said in the past, as people learn that LC has no teeth in recovery, which deadbeats learn…..how many loans where they borrow 35K, make a payment and declare bankruptcy? That should be a criminal act, but today we reward that by forgiving their debt…easy to do when it isn’t your money. As more learn they can borrow and not repay and get a slap on the wrist from their credit score, I wouldn’t want further exposure in this platform for that reason alone. It will not get better, but only worse…and that is because of fallen mans nature.
You can wish things get better all you want, but the numbers don’t lie, nor the trend we have seen the last couple years. If you continue to invest, it will be at tremendous risk. If you can get the same return with a high yield checking account, then what is the benefit of having your money locked in for 3-5 years? If you sell on folio you will take a bath.
If a lawyer reads this and has interest, please feel free to contact me. If there is no case, then par for the course in this life. My rewards are not here and now, but will come in the world to come. I’m looking to that day when the true King comes and all this junk will pass.
As I’ve said before, I doubt the big institutions would be in business if they lost money like LC is loosing for us…but if we continue to invest, we enable LC to continue this farce. Shame on us if we allow new investors to get raped so we can make a few % interest. LC needs to close its doors.
thomas zhou says
You are so brilliant , you just shed off my last hope in continuing investing in lending club. Thank you. Your analysis are spot on to the core. And lending clubs should hire you as the New CEO. I am not joking.
For one, when Lending Club is clearly the winner both from the borrowers and lenders for the fees. How came it still not have bigprofit ? Lending club doesn’t have the traditional institutions overheads ( branch renter, less employees etc…. ) . where is the money ?
Second, I started to withdraw right after lending clubs IPO based on my analysis on my notes. I hand- picked every single notes and well diversified . ( 4 months, every day , I got up and invested all the 312000 in p2p . I also read all the available news and articles on p2p. ….still my notes defaults kept going up. Charge off increased even the notes passed the lending club claimed 18 month danger zones. so, I started to withdraw and reduced my investment . I conclude that the borrower are the smartest and they can found the p2p holes that protect the borrowers than protect lending club, less alone protect the investors. …
Thank you, Mike. You made not my day but make my New Year hopeful because of you who speak for the truths, have the courages to voice the wrong. When more investors take actions. changes will be made to a great concept, the new way of lending ,p2p .
Thank you, Mike.
david zetland says
@Mike — You put your finger on my exact thought. I think there’s grounds here for a class action lawsuit. (I don’t mind taking risks, but I do mind being lied to on the nature of those risks.)
You’ve identified a version of advance fee fraud (brokers getting paid before financing is complete, which divorces the broker’s interests from the lender/borrower) that works by screwing over retail investors (us).
Perhaps the Consumer Financial Protection Bureau will be interested. They’ve already penalized a subsidiary of LC (http://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-springstone-financial-for-deceptive-health-care-credit-enrollment-tactics/)
I’ll ask :)
I agree. Mike is #brilliant.
I’m in on any class action suit. I do feel there was a certain degree of fraud with their projected returns and seemingly lack of fiduciary responsibility. While any investment is risky, it appears as if they were not honest in their note grading system as well as their risk assessment
David Zetland says
I’m glad to be getting these updates… I’ve got over 2000 active loans in IRA/regular portfolios, with are BOTH losing money (interest < writeoffs) every month. I just calculated my return since investment (about 2 years ago) and it's 6-8%. (I'm not running any fancy models but this is an UPPER limit on my earnings, as I am not even controlling for time!)
I've withdrawn some of my cash (I stopped reinvesting months ago), but see this as a "learning experience" on getting that retail shaft from the investment bankers… I'm not going to liquidate as I hope that this is merely incompetence (abuse) rather than outright fraud, and thus not worth losing 10-20% on the illiquid second market. Never again.
(I may write up a paper on this, and I'll be back with detailed requests if I do…)
Thomas Zhou says
Thank you for sharing your investing experiences in lending club with us. I also have a IRA account and the result is quite disappointing today the least. I stoped reinvested in my IRA account . But when I wanted to transfer my cash to other brokers. I was told I have to transfer to self directed IRA and it charge $100 per wire . How did you transferred out your money if I may ask?
David Zetland says
I just transferred “cash” from LC to “Self Directed” (a company that is so close to fly-by-night that I’d never go to them except LC has an exclusive — perhaps ownership — relationship), which cost me $25. The roll over back to Vanguard (why did I think I should doubt them!) was without fees. Took about a month over all, as I needed to mail the rollover form, wait 5 working days, etc.
It seems as if more and more people are realizing what a scam LC actually is. I was able to sell 95% of my remaining notes after realizing a -6% ANAR after 1 year on a wide variety of almost 200 notes (A-G). My default rate was climbing to 30% and things were not looking any better.
LC is a scam – there is no other description more fitting
Thomas Zhou says
I am admired your honesty withy our investments at lending Club. Very sorry for your loss . However,P2P is a new class investment, it is not scam . lending club need to improve in many ares to gain my trust again. but I don’t think lending club is scammer in anyway. For one thing, My checking account earn zero interest on my cash. Most big banks has billions of free cash and their credit card charge so much interest on us. Just one example, bank of America has nearly $450 billion free cash from their customers . do you think bank of America is scammer?
When I say “scam” I’m specifically talking about the blatantly misleading graphic on their homepage that claimed 98.6% of investors with over 100 notes got a positive return, and something like 85% got at least 5%. Apparently they finally removed that as I don’t see it today when I check.
No, BOA does not give you any rate of return, however they don’t promote that a return is possible. They have to follow strict SEC (or whatever governing body regulates them) regulations.
So while you may currently have a positive ANAR, the longer you stay in, the worse and worse it WILL get. You WILL end up losing money, because apparently loans generated over the past 18 Months had a much lower standard than those issued prior. Perhaps this was done to boost the bottom line (ie…we have 22 Billion invested!) If you want to keep your false narrative working, and you run out of good lenders, you start lending to those who wouldn’t formerly pass the test so to speak. I hope that makes sense.
Keep getting scammed if you want. Don’t say you werent warned when everything goes South, your defaults and charge-off’s grow exponentially, and you end up losing 20%+ on your investment. It happens to everyone in LC who invested in notes since 2015 – you will be no different
Thomas Zhou says
Thank you for clarify the scam about the Lending club on 100 notes that claimed 98.6% returns. Yes, you are absolute right on that point . it was misleading.
Yes, you are right on lending club issuing more notes that maybe have low standard . Not because of lending club want to , I guess they have to: more competitions from other p2p firms; traditional banks start to get on aboard with p2p; pressure from the investors because of stock performances etc. ( my speculations only.)
I don’t work for lending club. in all the fairness, more notes do make different on the investments based on my lending club portfolios . here are the results since 2014.
Total (10,895): $56,778.14
Charged Off* (1,339) $27,289.07
Not Yet Issued (0) $0.00
Issued & Current (5,346) $53,484.08
In Grace Period (68) $799.42
Late 16 – 30 days (40) $439.13
Late 31 – 120 days (155) $1,904.24
Fully Paid* (5,278) $0.00
Default (8) $151.26
total (10985): $56778.14
Available cash detail( on Jan 5 2017)
(includes Committed Cash) ( $363,375.00 )
Principal Received: $279,532.87
Note Interest: $65,539.07
Late Fees Received: $19.96
Recovery Fees: ( $497.77 )
Service Fees: ( $3,187.53 )
Collection Fees: ( $226.08 )
Withdrawals: ( $292,738.06 )
Pending Withdrawals: ( $1,050.43 )
Referral Bonus: $0.00
Notes Traded or Transferred
Notes Bought or Transferred In: ( $1,025.42 )
Notes Sold or Transferred Out: $0.00
(as reported by Folio Investing) ( $0.00 )
Pending Settlement: ( $0.00 )
with all due respect, Chris, I can see your frustrations over your loss , I understand your loss on your investment . But more notes do make different on the rate of returns. Since I invested with lending club at the beginning of 2014, I deposit $312,600.00 . On Jan 5,2017. I had withdrawal $292,738.06 to date. and I did not loss 20% on my investment. I am still believing in p2p in some senses. By same token, if I just put the $312000 in bank of American CD for 3 years, at rate of 1% in 2014 . the total rate of return is less than $10,000.
So to speaking, we are looking for big returns , that is why we are investing in the first place; Lending Club need to improve in many areas , it is not perfect in any sense, it is not the best investment opportunities on the market too. It, however, give me the chances to invest a new class assets .
I made my conclusions only based on my investments ,I don’t speak for anyone .
Christ, with all due respects, I think the biggest mistake on your part are you sold your notes on secondly market (Folios) in a rush stage . Period.
First off all congrats on all your success with life. If you invested $300K in LC you must be doing something right
I had to sell. I was bleeding at a negative -6% ANAR and defaults were moving past 35%. Had I not sold, I would have lost 1/2 my investment at the rate I was going.
I noticed you had “recovery fee’s” and “collection fees”. I guess that only comes with a high level of investment. Its hard for me to believe you are not considered an “Institutional Investor” at that large investment, and I can almost guarantee you get much better notes to invest in than us little people lol
Yes, you are right, $300K in BOA CD wouldn’t get you much, but there are many other investment channels where you could put your money.
Anyhow, congrats on your good fortune in life. Not many are at your level!
Thomas Zhou says
Thank you for your compromises. I am really appreciated for your kind words. I feel deeply sorry for your loss on Lending club. I am not trying to show off in any way. I just tried to demonstrate a point on p2p lending in general. I cant find facts on others , I have to use my investment facts to make my points cross.
Thank you very much for your great advices . Last year, I tis tough year for p2p in general and I hope this year will be better.
David Zetland says
Looks like I joined with the suckers. My “investments” were between April and Aug 2015 and now they look like this:
Issued & Current (1,342)
In Grace Period† (51)
Late 16 – 30 days† (20)
Late 31 – 120 days† (126)
Fully Paid* (367)
Charged Off* (336)
With NEARLY AS MANY charged off as fully paid, there’s no way I’ll get my capital back intact, let alone interest.
Very similar to the time I joined, but with a fraction of your investment (168 total notes). I remember watching my ANAR drop from 17%, to 14%, to 11%, to 8%, to 4%, to 1%, to -3% over consecutive Months before I understood fully I got suckered. All the while I kept seeing how so many were saying “Oh you just need to invest MORE!!!” because obviously something magical happens when you throw more good money down the LC money-pit? lol
I ended up aggressively selling on the secondary market. Generally knocking off enough from the principle balance to make it show a 18% return to perspective buyers. I was able to sell 90% of my remaining notes and ended up with a overall loss of about 33% on the investment. Not the remaining notes are either defaulting at a 35% clip or going to fruition. Its less than $500 so I’m not going to worry. My remaining notes are C-D grade. It matters not – they all default and charge-off at around that 35% rate.
I wish you well. I recommend trying to sell as many as you can on the secondary market while its still viable. You may perhaps 80% of your investment back.
Simon Cunningham says
Allow me to address your point:
“All the while I kept seeing how so many were saying “Oh you just need to invest MORE!!! because obviously something magical happens when you throw more good money down the LC money-pit? lol”
As stated in numerous articles, an investor needs a minimum of 200 loans to be fully diversified in peer to peer lending: https://www.lendingmemo.com/diversification-lending-club-prosper/
This is particularly important for investors in low-grade loans (E-G) as they may even need 250 or 300 notes to be historically diversified: https://www.lendingmemo.com/risk-diversification-p2p-lending/
The only exception to this 200 rule, as outlined above is if you’re 100% invested in very safe A or B grade loans: https://www.lendingmemo.com/how-to-try-p2p-lending/
This number isn’t “magical”, it’s statistics. You don’t need to invest “more”, you need to invest a minimum. Granted, Lending Club’s underwriting may have changed, so perhaps these numbers are now out of date and Lending Club isn’t as good an investment as it used to be. But the original baseline needs to be followed for you to have return expectations that fail to be fulfilled. An investor having 168 notes like yourself isn’t guaranteed a positive or negative return. Guarantees don’t exist in investing. But the statistical likelihood of a negative return does go up via the increased volatility taken on with that few notes.
david zetland says
Well, I *am* diversified and my returns are f’ed.
What explains that, Simon? LC’s webpages and graphics (and performance data) are lies, in my opinion.
In theory, it’s hard for me to accept that my 1600 “randomly allocated but correctly risk labeled” tranches of $25 each are yielding very far below expected returns. That’s some pretty interesting correlation.
In theory, LC does not care about this, as they (a) have no skin in the game and (b) bigger customers to please.
In reality… I think that LC is distorting its returns, luring in retail suckers (I have a PhD in economics) like me :(
Simon – your logic simply doesnt make sense. There is nothing “magical” that happens when you only add more notes to your portfolio. Imagine if you were in my shoes…”well sure you had a negative rate of return, BUT if you give us MORE money, then everything will be A-OK!
Sorry – not buying it. 168 Notes diversified from A-G with a heavy weighting in C and D should have been able to produce a little better than -5% ANAR with a 35% charge off rate before I put everything on sale on the secondary market.
Everything should have been scale-able after a certain # of notes, say 100. Again – you’re trying to sell us all on the idea that some magically fairy sprinkles “good ROI” once you hit 200 notes. I’m just not buying that.
By #BOOM I mean – BRILLIANT!! Good work David!!!
LC was good in 2012 into maybe early 2014….then something changed. When I spoke to LC back then, they indicated that their “research” indicated that more risk does not necessarily translate into more losses…..should have run away at that time…. Perhaps we can at least help others to not step into what is now a definite sinkhole for the common investor.
I’m fully diversified as they said we need to do. I limit each note to $25 to minimize my losses. Early on results were in line with LC representations which meant about 30-50% loss on high risk notes translating into ~ 12-15% returns which is reasonable based on the risk in my mind. LC wants you to put more money in because that keep the NAR artificially inflated. My NAR is 6% adjusted for the loss pipeline….9% if not. But $400 interest for 20K investment for the year is nowhere near 6% return. As mentioned before $140 loss for last 6 months….that is a negative return for the last 6 months. Trend would indicated that the negative losses will likely continue; therefore my whole year will likely be negative for 2017. The only thing putting more money in at this point keeps your NAR artificially inflated so you think you are still doing ok. Truly a scam…. Let’s uncover the lid on this scam….
If LC wants to use NAR as one indicator of performance, fine, but add APR also which will tell a much different story, one that would cause many to jump ship.
Bottom line is for LC to increase volume as they have done has required accepting loans that are way too risky. As mentioned before, LC has no skin in the game so what do they have to loose by doing this? They profit from the initial funding of the loan almost as much as over the life of the loan…..we are stuck with 100% of the risk. I don’t know who gets the good loans anymore, but the quality borrowers seem to be reserved for more important investors. I refuse to use automated purchasing because you have absolute no guarantee on the quality then.
The other scary thing this shows is if you can have a 620+ credit score and this is the as good as people can do to repay loans, our economy is truly a house of cards…..just wait for the right wind to blow and this house is going to fall.
Thomas Zhou says
Hi, Dr. David,
I totally agree with you. Keep adding more money in and reinvest the principal will not add the rate of return based on my last 3 year of investment at lending clubs and prosper . I can, however , understand why they encourage us to put more money in and keep reinvested ;…….. Investors will never be able to calculated the real rate of returns and it just will make things more complicated on the numbers so they can maneuver the LC ‘s returns that misleading the future retail investors.
Dr. David, could you tell me what does the word “F’ed “mean? F’ed? Fed? what is F’ed?
Thank you very much,
Thomas Zhou says
Hi, Dr. David , Mike and Christ, Wole,
Thank you very much for your great inputs and observations. Can I just get your emails in case you come to Los Angles . You will get free rides from me . I am Uber and Lyft driver now. I love it. I hope I can give you free rides to show my appreciations. (part time job only).
Also, I still has hopes for p2p industry in general. As I has great returns for the last 2 years in Direct lending Investment Fund , Llc which founded by Brenda Ross , the return for 2016 The first 11 month is 9.95% (it is net profit that deduct all the losses and expenses . it has still Dec rate did not add to as every month statement will be issued 17 business days after the month ended . the rate for my investment for 2016 at Direct lending investment will be 10.79-10.81% (real rate of returns=net profit) . I like direct lending investment . it lend the loans to small business owners who has solid cash flows (Dentist offices, new gas stations,…..) my experiences in Direct lending Investment are very positive : the fastest and most effecient customer services I ever got, 28 business withdraw policies that you can get all of your money back if you want to and so on ; The only drawback is that the entrance is too higher, it is only for credited investors and the minimum investment is 100k to get in.
Simon, Thank you very much for keeping this blog up running and providing us a platform to discuss , communicate , evaluate and share the investment ideas on p2p . I believe that more investors voice their concerns, doubts that will make p2p practice better and will make lending club improve.
Simon Cunningham says
Thanks for the response David. As you said,
“Well, I *am* diversified and my returns are f’ed.”
In this case, I don’t have any easy answers. As the title of this article identified, returns at Lending Club have dropped from how they used to be.
My response wasn’t about situations like yours, but for situations like Chris’, where investors don’t even do the minimum effort of diversification, earn a negative return, and then complain that Lending Club is a scam or whatever.
Imagine if I had bought just a single Lending Club loan, it defaulted, and I lost 100% of my investment. Would I have a right to complain? I have endlessly talked on this site about the need for investors to meet the minimum of 200 loans, so that’s where my frustration comes from. I have lots of sympathy for people like you who reportedly did this and still earned a negative return. That sucks.
“I think that LC is distorting its returns, luring in retail suckers”
All LC’s retail data is open to the public. I’d be interested to see your proposition within the hard numbers.
Another diversification is time. Instead of invest a large chunk sum of money in short time, consider invest continuously in a long period of time. This way you can diversify exposure to different underlying lending model and borrowers.
Wow David, yeah those are horrible numbers and I too will be jumping ship if my numbers looked like that. LC made some major bad changes that has affected the individual investor.
Well people went back to their lives and things died down on this post. I wanted to take a moment and re-affirm my projections have unfortunately proven accurate:
I’m ($368) for the year (2017) thus far. And I was diversified just like instructed. It is obvious that LC decided they could take far greater risks with our money and certainly at our expense. I will not recommend LC to anybody. You see they are trying to spin it and get people to continue to dump their good hard earned money down a rat hole. They do this with offering a “bonus” to bring over your IRA. Don’t do it. They are coming up with new gimmicks like now doing car loans. Sounds good, but look for those loans as a manual investor and guess how many are available? 0, nada, zillch, nothing. So guess who probably get’s those babies? Large $$$$ investors. You think the small fry gets those? Not likely very often. I would not be surprised if they don’t throw a bone on purpose every so often to keep people on the hook.
The rest of my stats are still just as bleak. My loss pipeline still over 1K. NAR now 7% non-adjusted and 5.3 adjusted NAR. That is for high risk notes folks. That is over the life of my investing with LC which is roughly 4 years at this point. This year is going to be negative for sure.
I’m telling you guys. The NAR is designed to keep you clueless on your long term outlook. Look at pipeline losses and current year losses and you get a real slap in the face. The only way you keep your NAR up is to continue to put more money in……that is what they encourage.
You can say 5% is good, but I’m only 60% divested at this point. Take losses for the next 2-3 years and I could very well do good to break even on this adventure. Tied up my money for 3-5 years and in the end very little to show for the great risk taken. That is how it goes in the investment world I realize, but don’t consider LC a good investment.
LC was a good investment 4 years ago before they compromised their lending practices and started taking on institutional investors to grow the business faster, consequently passing on the high risk/poor performing notes to the average Joe who was looking for a fair return for the risk. What do they have to loose in the venture? Absolutely nothing. LC has no skin in the game. Just you and I do, their investors, and LC has taken full advantage of this.
David Zetland says
Great comment. I agree about LC being desperate for new money. My NAR is 3.5% and 0.49% (adjusted), with 10% of principal already marked for default. (I’ve lost money 9 of of last 12 months, with -4% “return” overall.)
LC is screwing retail investors!
Well if you listen to Simon, he would tell you you just need to by more notes! You simply need to diversify more…because again, according to Simon, there is a magical fairy that sprinkles positive returns on your LC investment once you just invest enough!
Hope you can get out without too much of a loss. I highly recommend selling on Folio. You’ll lose some, but better than ending up losing 35% or more! The ponzie scheme is apparently starting to collapse as their advertisements are getting more and more desperate promising bigger and bigger bonuses.
Or just listen to Simon and diversify more by giving your good money to the scam artists who simply turn around and give it to the big money institutional investors.
John N. says
This is the same John that commented on Feb 6, Jan 1 and Oct 4. Good to regroup for our quarterly updates!
I’ve stopped investing in new notes – but haven’t yet pulled any cash out (about 1/3 of total). I’ve tried some selling on Folio, I’m going to more aggressively price down my good notes. Not selling much, I’m using Peercube because of the greater options vs. LC or LendingRobot, but getting hit with a $20 monthly fee. There are just too many notes on Folio – we’re not the only folks trying to get out. This is probaby the last month I’m going to try, and from now on wait it out. Going to get hit at the end of the year for a $100 fee for not having a balance over $10K for my IRA, but not putting good money after bad just to avoid the fee.
My observations largely mimic everything said in the last day or so – I’ve made $30 since last August on over 300 notes ($6.6K invested), and every month I slide back a little more into what I had earned from January – August of last year. It will be a while before I go negative, but it will surely happen at this rate. I lose about 1.5 – 2%/month.
In my opinion, the biggest thing hurting returns (especially of the lower grade notes – I’ve lost the most on G, for me E & F performed the best ) is LC’s practice of soliciting those borrowers for better quality loans. Not sure if you guys caught this – or correlated it with the large number of fully paid loans – but when a borrower has good status for a while, LC sends them emails to offer them a new loan on the remaining balance with a lower interest rate. So they’re harvesting the good loans/borrowers away from us, leaving us with the poor/underperforming notes/borrowers.
For me, I’m viewing it as a good thing because it lets me accumulate cash quicker, and I don’t have to take a loss on these notes. But it’s a shock to know LC is undermining it’s investors so blatantly.
John N. says
Actually, to clarify – because I’m no longer investing, and haven’t for a few months, this is affecting my returns. It’s possible I’d be slightly positive month-on-month for the last couple of months if this was the case. But only slightly.
Good to read your comments! Sounds like you have a plan
It’s just a shame LC turned into such a shit show. Looks like the owners got greedy and decided to screw the little guy investor to make the institutional investors happy. Same story in ever investment
As for me, I went into business for myself. Now a pool of guys are looking at investing in businesses and properties in Colombia. It’s very free market. Not sure when we’ll pull the trigger, but we love it and see real potential
Best of luck sir!
Your insights are interesting. I had not picked up on that. That somewhat explains how I am getting money back so fast when I’m taking a loss. If investors would only realize that by LC doing that it also means we make far less on our investment in a note. Yes we get it back which is better than loosing it, but we don’t make anything on our investment either. Is what they are doing truly legal? I realize P2P lending is a fairly new concept, but I would think ethically they are treading on some pretty thin ice.
Lending Club by doing that also probably makes a new loan application fee (although likely reduced or it would not make sense for the borrower to do it) and sticks it again to their investors. Thy win out like a big dog even if the borrower skips. Well sounds like P2P is going to end up a big looser in the end because of lack of regulation and corporate greed. No wonder banks are so heavily regulated. Only a matter of time before enough people get burned and catch on to the whole shell game. Hopefully there will be a class action suit before it is all over with, and soon before too many more people loose their retirement and hard earned money on this mess.
Sorry to keep hearing about these LC stories. Glad I only invested $3K. After getting hammered with a neg ANAR I sold everything on the 2ndary market and luckily pulled out roughly $2K.
I’m just looking forward to the class action some dirt bag lawyer will bring using their “98% of investors have a positive return” BS web page. I’m all in on that, even if it doesn’t get me any $ back. These scam artists need to be put out of business for running this ponzie scheme
I haven’t bought any notes in awhile. If you want to jump back in Buy only c notes. f&g notes big losers last couple of years (terrible returns for risk) d& e better but still terrible for risk. best returns from 3rd qtr 2014 to 4th qtr 2016—- C notes at 6.45%, b at 6.18%, d at 5.81%, a at 4.92%, E at 4.31% & and F&G at 1.03%. LC’s formula is flawed. Higher risk should = higher reward. owning all of F& G notes would only get you at best very meager returns where as buying not so risky c notes would have gotten you the best returns. Don’t make sense because if they are setting the interest rates of the loans according to the credit risk of the borrower either they need to deny a lot more borrowers or raise the the interest rates on the D thru G loans.
I was heavily in C and D and they had terrible return rates and high defaults. Only my B notes seemed to not default at 30%+
I wouldn’t invest another dime in the LC ponzie scheme
David Zetland says
Just an update for everyone.
I have two portfolios (IRA and normal) that I added over 3,000 loans to ($25 each) in Jan-Aug 2015. As has been discussed here, defaults have been way ahead of LC projections. (At the moment, I have more charged off than fully paid!) Thus, my meagre positive returns from interest have been overwhelmed by defaults in 12 of the past 16 month (note that these are now “over 24 months seasoned”).
I have taken the hint (as well as a large lesson in LC’s business model not aligning with lenders, per comments of others here — Mike and Chris — and my own calls with clueless — or deceptive — LC staff) and have begun selling on foliofn. Seeing CASH instead of RISK has been very satisfying, BUT I am probably going to take losses on remaining defaults and lates.
The irony is that I think buyers of my loans are going to take “unexpected” losses (as I have) as defaults rise above “expected” levels.
I’ll give another update on my total returns once I am completely liquidated (hopefully in a month or so…)
My returns are almost flat this year as the bad notes from 2015 are defaulting and being flushed from my account. I am still however slightly above water even for this year. My account has never gone underwater yet. I have had only 2 months of loss (pretty small amounts).
For me the experiment continues as I try to stabilize my account with better notes while flushing the bad ones form 2015.
To those still sticking in there like me, I seem to have found a commonalty to about 95% of my worst charge-offs (those who make little payments before bailing). They all seem to have high “Revolving Line Utilization”. So I have set my filters to avoid notes above a “Revolving Line Utilization” threshold I am not comfortable with.
Why put all that effort into something with so much risk. The stock market would provide far more gain for the risk. I’d be with you when returns were 10% for high risk notes. Even if you break even each month going forward, Your NAR goes down over time as that is your gain over the complete period you have been with LC. The problem is LC wants to run with the big boys rather than being a niche product. They have to take more risky loans to build their numbers. We are the ones that saddle the losses so they can look big. They are the ones making out here.
There is no guarantee whatever we do with investments I understand.
If you stopped putting money in you would understand in a hurry. That continual infusion of new loans with a honeymoon period helps to prop up your returns. Unless they are doing better now with losses, but my loss pipeline is still over 1K and has not dropped. 2 years ago my loss pipeline was in the 3-4 hundred range.
People say this is better than a CD, and that may or may not be true if you choose to exit which is the point I’m trying to make. Your cash is locked in for at least 3 years unless you bail on the secondary market.
I have a savings account that pays 2% which you can find if you look around which is better than most CDs and your money is liquid if you need it for an emergency.
We live in a free country fortunately. Keep us posted.
Thanks for your POV Mike. Very much understand it.
My purpose with for LC is like you said, an alternative to CD’s. And for me, its truly still experimental.
About 60% of my net worth is in stock and bonds, 25% in high yield savings, and about 12% in other stuff. my LC account makes up very little of my overall net. It money I am willing to risk. With the exception of retirement accounts I rarely buy stocks in “good economic” times. I wait for downturns. Hence, my experiment with LC.
David Zetland says
Greetings fellow sufferers!
In honor of Independence Day, here is an update of my progress in unwinding this fiasco of an “investment opportunity”
(1) I have been selling LC notes via foliofn via repeated updates to re-list and re-price loans. My strategy has been to sell current notes at 0/5/10% discount (dropping 5% per week, or relist). I am now listing grace/late notes at 33/66% discount after two steps down.
(2) In the last month, my principal has dropped by $24,855, of which:
$22086 is gross revenue from sales
$220 are trade fees (1%)
$991 was principal repaid (i.e., normal LC repayments)
$903 was losses (fyi, I made $385 in interest — not included here — FAR less than my losses!)
$874 was capital losses against the note remaining face value.
(3) The reason I am selling is that I prefer cash NOW to continued losses, and I think it’s great to lose $874 rather than lose $903 (e.g.) PER MONTH until maturity on these notes, some of which have 3 years to run (!)
(4) I’m now about 75% liquidated and most of the remaining notes are probably too troubled to sell (notes with late don’t sell well), so I may just let those goto maturity or default, as my risk is now far lower (not to mention my anger)
(5) FYI, LC’s VAR *is* based on holding notes to maturity ASSUMING NO DEFAULT so they are full of shit.
(6) By my rough measure, my yield to date on these portfolios is about 3-4% (approx 1.5% annual), NOT including revenue/losses from my remaining balance, which will add yield if SOME loans continue to repay.
What a shit show.
John N. says
David – could you explain more about your selling strategy? So you list notes at 0% markup first week, and relist by -5% until they sell?
I’ve been trying to make a small profit on current notes, and do occasionally, but overall I think I’m listing too high as I was hesitant to discount them heavily.
Peercube offers the most robust selling tools I’ve found for a monthly fee of $20. For late notes I list them at -.25% of the lowest price other notes from that loan are selling for, and many do sell, but at a far lower markdown – usually more like 90%+.
Peercube also offer some interesting overall stats of the secondary market, and average secondary market returns for current notes have plummeted in the last couple of months. They’re right around 2% last time I checked (last week) but were around 10-15% around March. I have some screengrabs of the last week vs. maybe a month ago, and that alone was a big drop.
We’re not the only ones doing this.
David Zetland says
Hi John — Yes, I tried selling at par, but few went (and I was in a hurry), so I used “principal+accrued interest” as the base price (a button on foliofn) and then a discount of -5% and then -10% for those I relisted…
It would be nice if there was a bot for auctioning/matching notes, but I can see why the platform only allows manual price setting. (I assume that buyers are setting filters on borrowers, yield, etc., to find loans…)
No shock that the secondary market is collapsing as people decide LC doesn’t work for them. (I *think* it’s possible that LC risk/yields are maybe better balanced for loans now, but — as you see in this thread — plenty of people have concluded that LC gives no shits for retail investors. That’s why I’m exiting.)
Randall Garber says
I concur with John..been with LC for 2 yrs with 30 k invested..my monthly net is close to zero now after being $200 + early on in the process, i.e. the honeymoon period before the defaults start coming in…once I stopped reinvesting last year the true picture emerged ! I am cashing out now each month as cash becomes available. I hope prospective investors in peer lending read this blog.
Randall – sorry you had to wake up to the nightmare with $30K invested. It’s little more than a wealth redistribution scheme now that only benefits the institution investors and those who actively pursue bad debt. I wouldn’t be surprised if 20% of bowerers fail to make even a single payment, and suffer zero consequences.
LC was once a great idea until those in charge decided greed was more important than providing an honest investment vehicle for the “Common Man”
You were lucky to get at least some return. My diversified portfolio lost money after a few months, and was -5% ANAR before the first year was out. I ended up losing 25%
So is there a case to be made for fraud here? Is there any lawyer in the firm that would touch this? I just filed a complaint with the SEC. I suggest others do the same. They still show positive returns, but that is likely factoring back to the beginning when their loans were actually returning close to their promised returns. They are still utilizing their NAR which is a complete lie. If they showed returns from last year only, I would imagine the picture would be far more sinister. I am $530 in the hole for the year as expected. I’m not sure you will do better trying to exit. I’m going to ride it out. Hopefully there will be a class action at some point if there is anything left to get from what has become a ponzi scheme.
David Zetland says
@Mike — I think there may be a few lines to pursue:
(1) NAR *assumes* that the loans go to term and do not default “faster than the model predicts,” which may be fraudulent if the model is wrong, let alone biased. (This one may also get into LC’s lax collection methods.)
(2) NAR may show ALL loans by retail and institutional investors get access to different subsets of those loans.
(3) NAR is absolutely fraudulent *if* it assumes reinvestment of repaid principal, i.e., never cashing out.
JOHN ARTHUR MACNEIL says
people that are losing money according to LC site for the last year or so probably invested in e f and g loans (probably heavily invested). my Nar seems to be correct over the time I started investing ..71 % and dropping every month. My only gripe is that the riskier loans were supposed to give better returns are killing my returns.
I am in my 1st year with $20K invested. So far realizing a 14+% return. If I earn 7% the 2nd year and lose 2% the 3rd year, my average annual return over the 3 years is roughly 6% which is in line with the LC projected return. What am I missing?
David Zetland says
\\\”The future of peer-to-peer lending is that the institutions which survive fraud, losses and increased regulatory scrutiny will increasingly resemble the organisations which we used to call banks…\\\”
Nice find. I could answer some of the questions of the writer. Many of these things that take place simply are making somebody money off the back of others. We are finding that the peer to peer lending model works when greed is kept at bay and borrowers remain honest; however when people of means sees somebody else who should not (in their minds) be profiting, profit, they swoop in and close off that door of opportunity. Why? Greed and in some cases corruption. Fallen human nature in all its glory.
The Bible does say: Proverbs 23:4-5 ¶ Labour not to be rich: cease from thine own wisdom. 5 Wilt thou set thine eyes upon that which is not? for [riches] certainly make themselves wings; they fly away as an eagle toward heaven.
Alas, it is true as it always is. Just be thankful for what we have. My riches are laid up in another land for another day yet to come:-) Have a great day!
David Zetland says
Sadly, the Bible is often more aspirational than directional. Thus, we must return to Madison: “If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.”
Bob Bedford says
I’ve had a Lending Club since 2012. I have a metric tracing its trajectory since the beginning, and for much of that time there has been about $50,000. This account did ok to start with, but it stopped making money in about Aug 2016. For the last year, the return has been 0%. Why?
If you are like most of us who have been in for a few years, returns were good early on. Roughly 2 years ago, they changed their lending practices and opened us to far more risk than reward. I’m negative 600+ for the year this year. I came close last year. My account has been consistently taking losses since about mid last year. I stopped putting money in and drawing down my account when I saw the writing on the wall. You will have to dig into your account and look at the numbers. If you log into Lending Club it will tell you what your loss pipeline looks like. If you have never looked at it, I would suggest you do so. You may be surprised as to how many defaults you are experiencing each month. If you are reinvesting interest and paid off notes, you will find that only obscures what is happening on the platform and kicks the losses down the road (or at least the worst of the losses).
Well said Mike. I’m glad I got out when I did. Took a bath and lost 30%, but I felt it was better than losing 50%+
Everything changed when they apparently went all “Institutional” to prop up their numbers, and us peons got stuck with bad loans that were fraudulently sold as “good”. I remember this website graphic which showed “98% of all investors have a positive return” and all the while my ANAR was going farther and farther neg month by month. 30% default rate is the norm now unless you’re an institutional player.
David Zetland says
@all — I am still selling my notes (now sold 1600 out of 3100) and the “returns” there have been 15% or so, BUT LC uses a “gain/loss” algorithm that ASSUMES you hold to maturity and get that stated yield.
That assumption makes selling look bad, as you trigger losses, but my default rate is so high that it’s better to sell than hope for the payback that will never arrive.
In two different portfolios, I have 865 fully paid and 930 charged off. That’s why I am selling…
Yeah, I think I am going to stop buying new notes myself. Quality notes are just not there anymore.
Was looking at notes I bought in 2013 that did well and E grade notes from then look way better that even C notes today. E and F notes I bought then had really low Revolving Credit Balance with most in the single thousands.
Now even C – D notes have pretty high Revolving Credit Balance with most notes about 18k….
Dont care who you are but 18+k worth of Revolving Credit Balance for most people suggest some sort of drowning….
Good notes are just not there anymore and LC’s definition of the “quality” of grades have been redefined drastically downward to hurt the investor since then.
David Zetland says
Hey folks… It took me 4-5 hours to write this summary up, but I think you’ll appreciate it:
Simon Cunningham says
Interesting article. Thanks for sharing David.
David. Hope people listen and not keep being taken with this scam. You could make decent returns similar to their estimates 3-4 years ago. When they first played with their underwriting rules is when things started going downhill, which I believe coincided with opening up to institutional investors. Was a great platform before that happened. I’m still close to 5% with only about 6K left to age out, but still loosing monthly at this point. Even though I stuck to 36 month loans the last couple years thinking that would help, certainly has not been the case. Even the folks on this thread that would not listen. Wonder if they are kicking themselves yet? Thanks again for the article.
Bottom line, there is no reward without risk. Stock market is unpredictable, but the rewards are far better, and their are tools and professional periodicals to help manage your money wisely. Also, if there is a buck to be made, be sure somebody with real money will plug the hole for the common man to benefit.
So made 20% last year in the stock market and -4-5% in Lending Club, and can’t even tell you what my loss is because Lending Club isn’t willing to show you. Anybody that reads this thread. Stay away from LC, unless you like throwing your money away.
Sorry for your losses.
Great article David. You and I had similar nightmare experiences with this scam. I’m just waiting for the class-action that someone is bound to launch.
As you showed, my “blue dot” was also well below the projected returns and averages. Unlike you, I only plunked a few thousand down. I ended up with about a 30% loss after selling everything on the 2ndary market.
IMO – These guys are crooks and should be in prison
Randall Garber says
This will serve as a warning to all prospective LC investors : I had 30k invested w/LC (see previous comment July5,2017) and tried 5 different portfolios to find the best return. I purchased only aged loans on the folio site for one portfolio and several different approaches manually choosing new originations. My best return was with 3 yr loans to 3 yr+ employed professionals with no recent delinquencies…6% default rate over 3 years with 4.5 percent return. AS A WARNING; DO NOT USE Lendingalpha.com to choose your loans for you. They offer a no fee analytical approach, BUT MY DEFAULT RATE WITH THEIR ‘CURATED’ PORTFOLIO IS OVER 15%. As the reader can see from previous comments by others here, the loans made available on the LC site are not vetted properly and not suitable for any retail investor.
LC Borrower says
It’s not the vetting folks, it’s the collection. I am on the other side of this and I must agree with those who suspect fraud.
I am a borrower. In January 2018 I was approved and funded for $15k. I was set up for the funds to be withdrawn directly from my checking account. I assumed that they were. I travel extensively and have everything set up on autopay. I reconcile my account a couple times a year but other than than if I receive a note from a creditor I safely assume According to LC they attempted to withdraw from my checking account in late February and in March but the payments were returned. Other than a “Thank You for your payment” in March, I received no other communications from LC. NOTHING.
In July, I was checking my credit report and saw 90 day late reported. I immediately contacted LC. They told me that the account was charged off! I told them that I had never been notified of a single late payment. I offered to pay anything that was owed. I immediately paid all past due and they collected the funds and have taken payments since then (automatically from my account). However, the account is still charged off. This means that LC is collecting the funds and the investors are not! For the investor, it’s a bad loan. LC did not sell this account to a collection agency because the debt is collectable and current. Moreover, they stopped autopay from my account without informing me.
I suggested to them that it seems like putting this into charge-off was an error and a lose lose for all involved. The investors think that this is a bad debt even though it’s being paid. I get a charge off on my credit report and LC gets a bad investor reputation.
I am convinced that LC purposely lets loans default after collecting their fee. A lot of people rely on autopay for their payments. The least LC can do is to inform them that they are no longer on auto pay and need to make direct payments. Then they should notify the borrower that their account is past due and make every attempt to collect before they charge off a loan. As I told the LC supervisor on the phone, this reeks of accounting fraud. I did a Google search and got to this page. I can assure you as investors that you are onto something. Get lawyers.
David Zetland says
Wow. Oh wow… That’s indeed fraud, if not a violation of fiduciary duty (which I doubt LC has pledged). Thanks for this insight.