Lending Club
Encyclopedia
Lending Club is headquartered in San Francisco, California
. Its CEO is Renaud Laplanche. Lending Club was the first peer-to-peer lender to register its offerings as securities with the SEC, completing its SEC registration in October 2008. As of July 18, 2011 Lending Club has originated a total of $313,155,950 in 30,868 loans and declined $3,385,032,579 in loan applications. During June 2011, Lending Club originated a record $20 million in loans.
Lending Club's reported average return is calculated by taking total interest received, adding any late fees received, subtracting service fees and the outstanding principal for defaults experienced, and dividing by total outstanding principal for the period.
. credit grades are subdivided into 5 subcategories within each grade (e.g. A1-A5) which receive slightly different interest rates. Lending Club has adjusted the interest rates periodically based on the past default rate of each grade.
Lending Club charges borrowers an origination fee
on loans. In 2010 the fee was 3% on A loans, 4% on B loans, and 5% on loans of grade C and higher. As of October 15, 2010, the fee for 3-year loans was 2.0% on A loans, 4% on B loans, 4.5% on C loans, and 5% for loans of grade D and higner. Borrowers may prepay the loans at any time, including paying the entire loan in full, without penalty. Loans are only available to U.S. residents in 42 states.
Lending club charges lenders a service fee of 1% of all amounts the borrower pays.
Lenders must also use an address in a state where Lending Club is licensed to operate.
According to the prospectus, Lending Club loans are obligations of Lending Club, and not of the ultimate borrower. Lending Club promises to pay the noteholder monies it receives from the borrower less its service fees. Holders of Lending Club notes have the status of unsecured creditors of Lending Club. Accordingly, there is a risk that the investor may lose all or part of the investment if Lending Club becomes insolvent or declares bankruptcy, even if the ultimate borrower continues to pay.
Lending Club also offers an Individual Retirement Account
.
s to lenders.
On June 20, 2008, Lending Club filed an S-1 statement with the U.S. Securities and Exchange Commission (SEC) seeking the registration of $600 million in "Member Payment Dependent Notes" to be issued on its Web site.
On August 1, 2008, Lending Club filed an amendment to its Form S-1 outlining new interest rate formulas as well as more details on a "resale trading system"
On October 14, 2008, Lending Club announced its completion of the SEC registration process, posted the filed prospectus on its website, and resumed new lender registration. Notes issued on or after October 14, 2008 represent Lending Club securities rather than direct obligations of the ultimate borrower and are tradable (can be bought and sold) on the Foliofn trading platform.
Lending Club has periodically amended its prospectus as it has fine tuned its offerings.
The prospective seller sets a price and the note is added to a list of notes for sale. The seller can change the price of unsold notes. Prospective buyers browse the list and can choose to accept any of the offers they have funds for (price cannot be negotiated). Foliofn charges a 1% fee on note sales. Many Lending Club members have used the Foliofn service to sell their non-performing loans.
U.S. residents can purchase notes even if they reside in states where they cannot invest in loans directly.
Lending Club's Prospectus (issued July 30, 2010) states that unlike its 3-year notes, whose maturity automatically extends if the borrower has not paid in full at the end of 3 years, Lending Club will not extend the maturity date of 5-year notes beyond 5 years. Accordingly, if a lender delays payment on a 5-year note beyond 5 years, Lending Club would not have an obligation to pay the lender any monies it received from the borrower after the 5-year final maturity date. The prospectus explains that final maturity at five years is "based on a potential tax issue that could result from an extension to greater than five years. If the maturity date was extended beyond five years, a portion of the interest paid on the Notes would likely not be deductible by LendingClub."
and Canaan Partners
, followed by a $12 million Series B round led by Morgenthaler Ventures in March 2009. In April 2010, the company raised an additional $24.5 million in a Series C funding round led by Foundation Capital
and joined by existing investors including Morgenthaler Ventures, Norwest Venture Partners and Canaan Partners.
Since its registration with the SEC, Lending Club has dropped presenting itself as a social network and representing that social affinity will reduce default risk. It currently presents its LendingMatch algorithm as simply a search tool "that creates a sample portfolio of Notes in response to search criteria selected by the investor, such as term, target weighted average interest rate, employment length, home ownership status, etc." It no longer presents its algorithm as a relationship or social networking tool, and its prospectus does not present social relationship criteria or social affinity as being favorable credit risk factors.
San Francisco, California
San Francisco , officially the City and County of San Francisco, is the financial, cultural, and transportation center of the San Francisco Bay Area, a region of 7.15 million people which includes San Jose and Oakland...
. Its CEO is Renaud Laplanche. Lending Club was the first peer-to-peer lender to register its offerings as securities with the SEC, completing its SEC registration in October 2008. As of July 18, 2011 Lending Club has originated a total of $313,155,950 in 30,868 loans and declined $3,385,032,579 in loan applications. During June 2011, Lending Club originated a record $20 million in loans.
Efforts to reduce default risk
Lending Club also attempts to focus on high-credit-worthy borrowers in order to reduce default risk, declining approximately 90% of the loan applications it receives. It also categorizes, grades, and prices loan applications itself, leaving only the choice of which applications to fund and how much to fund each borrower to the investor.Loan performance statistics
Performance statistics on Lending Club loans are published and updated daily. As of January 22, 2011, Lending Club reported a nominal average interest rate of 11.37%, defaults of less than 3%, and an average net annualized return (net of defaults and service fees) of 9.64%. As of July 20, 2011, every single investor with 800 or more Notes from unique borrowers has experienced positive returns, while 91.75% have returns between 6% and 18%. .Lending Club's reported average return is calculated by taking total interest received, adding any late fees received, subtracting service fees and the outstanding principal for defaults experienced, and dividing by total outstanding principal for the period.
Borrowers
Borrowers create loan listings by supplying details about themselves and the loans being requested. Lending Club obtains a credit report about the borrower in order to score the loan and assigns it a credit grade (A-G) and an interest rate. Factors taken into consideration include the borrower’s credit score, credit history, the amount of the loan being requested and the borrower’s debt-to-income ratioDebt-to-income ratio
A debt-to-income ratio is the percentage of a consumer's monthly gross income that goes toward paying debts. A debt-to-income ratio (often abbreviated DTI) is the percentage of a consumer's monthly gross income that goes toward paying debts. A debt-to-income ratio (often abbreviated DTI) is the...
. credit grades are subdivided into 5 subcategories within each grade (e.g. A1-A5) which receive slightly different interest rates. Lending Club has adjusted the interest rates periodically based on the past default rate of each grade.
Lending Club charges borrowers an origination fee
Origination fee
An origination fee, or activation fee, is a payment associated with the establishment of an account with a bank, broker or other company providing services handling the processing associated with taking out a loan....
on loans. In 2010 the fee was 3% on A loans, 4% on B loans, and 5% on loans of grade C and higher. As of October 15, 2010, the fee for 3-year loans was 2.0% on A loans, 4% on B loans, 4.5% on C loans, and 5% for loans of grade D and higner. Borrowers may prepay the loans at any time, including paying the entire loan in full, without penalty. Loans are only available to U.S. residents in 42 states.
Lenders
Lenders can search and browse listings and select loans they want to invest in based on borrower or loan characteristics. The minimum investment is $25 per note. In Lending Club lenders simply choose loans with Lending Club's pre-established interest rate on a take it or leave it basis, based on the information supplied about the borrower, amount of loan, loan grade, and loan purpose.Lending club charges lenders a service fee of 1% of all amounts the borrower pays.
Lenders must also use an address in a state where Lending Club is licensed to operate.
According to the prospectus, Lending Club loans are obligations of Lending Club, and not of the ultimate borrower. Lending Club promises to pay the noteholder monies it receives from the borrower less its service fees. Holders of Lending Club notes have the status of unsecured creditors of Lending Club. Accordingly, there is a risk that the investor may lose all or part of the investment if Lending Club becomes insolvent or declares bankruptcy, even if the ultimate borrower continues to pay.
Lending Club also offers an Individual Retirement Account
Individual Retirement Account
An individual retirement arrangement is the blanket term for a form of retirement plan that provides tax advantages for retirement savings in the United States...
.
SEC registration
On April 8, 2008, Lending Club temporarily suspended new lender registration, canceled its affiliate program and entered a "quiet period" while it awaited approval to issue promissory notePromissory note
A promissory note is a negotiable instrument, wherein one party makes an unconditional promise in writing to pay a determinate sum of money to the other , either at a fixed or determinable future time or on demand of the payee, under specific terms.Referred to as a note payable in accounting, or...
s to lenders.
On June 20, 2008, Lending Club filed an S-1 statement with the U.S. Securities and Exchange Commission (SEC) seeking the registration of $600 million in "Member Payment Dependent Notes" to be issued on its Web site.
On August 1, 2008, Lending Club filed an amendment to its Form S-1 outlining new interest rate formulas as well as more details on a "resale trading system"
On October 14, 2008, Lending Club announced its completion of the SEC registration process, posted the filed prospectus on its website, and resumed new lender registration. Notes issued on or after October 14, 2008 represent Lending Club securities rather than direct obligations of the ultimate borrower and are tradable (can be bought and sold) on the Foliofn trading platform.
Lending Club has periodically amended its prospectus as it has fine tuned its offerings.
Note trading platform
In a partnership with FOLIOfn Investments, Inc. Lending Club offers lenders the ability to put notes up for sale before the notes have reached maturity. They are the first peer-to-peer lending network to offer a secondary market for peer-to-peer loans. Only notes issued after Lending Club's SEC registration (October 14, 2008) may be traded.The prospective seller sets a price and the note is added to a list of notes for sale. The seller can change the price of unsold notes. Prospective buyers browse the list and can choose to accept any of the offers they have funds for (price cannot be negotiated). Foliofn charges a 1% fee on note sales. Many Lending Club members have used the Foliofn service to sell their non-performing loans.
U.S. residents can purchase notes even if they reside in states where they cannot invest in loans directly.
5-year notes
In May 2010, Lending Club began offering borrowers the option of 5-year (60 month) notes in addition to 3-year (36-month) notes. Lending club charges additional interest and/or orignination fees for five year loans, and has been periodically modifying and fine-tuning the amount of additional premimum to charge for 5-year vs. 3-year notes for the different credit grades.Lending Club's Prospectus (issued July 30, 2010) states that unlike its 3-year notes, whose maturity automatically extends if the borrower has not paid in full at the end of 3 years, Lending Club will not extend the maturity date of 5-year notes beyond 5 years. Accordingly, if a lender delays payment on a 5-year note beyond 5 years, Lending Club would not have an obligation to pay the lender any monies it received from the borrower after the 5-year final maturity date. The prospectus explains that final maturity at five years is "based on a potential tax issue that could result from an extension to greater than five years. If the maturity date was extended beyond five years, a portion of the interest paid on the Notes would likely not be deductible by LendingClub."
Capitalization and funding
In August 2007 the company raised $10.26 Million in a Series A funding round led by Norwest Venture PartnersNorwest venture partners
Norwest Venture Partners is a global, multi-stage investment firm focused on investments in early to late stage venture and growth equity investments in U.S...
and Canaan Partners
Canaan Partners
Canaan Partners is a multi-billion dollar global venture capital firm focusing on investments in early stage companies in the technology and healthcare sectors....
, followed by a $12 million Series B round led by Morgenthaler Ventures in March 2009. In April 2010, the company raised an additional $24.5 million in a Series C funding round led by Foundation Capital
Foundation capital
Foundation Capital is a venture capital firm located in Silicon Valley. The firm was founded in 1995, and manages over $2.4 billion in investment capital. It raised its seventh and largest fund of $750 million in April 2008...
and joined by existing investors including Morgenthaler Ventures, Norwest Venture Partners and Canaan Partners.
Social affinity v. objective credit risk factors
When initially founded, Lending Club positioned itself as a social networking service and set up opportunities for members to identify group affinities, based on a theory that borrowers would be less likely to default to lenders with whom they had affinities and social relationships. It developed an algorithm (LendingMatch) which it presented as a means to identify common relationship factors such as geographic location, educational and professional background, and connectedness within a given social network.Since its registration with the SEC, Lending Club has dropped presenting itself as a social network and representing that social affinity will reduce default risk. It currently presents its LendingMatch algorithm as simply a search tool "that creates a sample portfolio of Notes in response to search criteria selected by the investor, such as term, target weighted average interest rate, employment length, home ownership status, etc." It no longer presents its algorithm as a relationship or social networking tool, and its prospectus does not present social relationship criteria or social affinity as being favorable credit risk factors.
See also
- ZopaZopaZopa is a UK-based company providing an online money exchange service, allowing people who have money to lend it to those who wish to borrow, instead of using savings accounts and loan applications at traditional banks. The process is sometimes referred to as peer-to-peer lending...
- a similar service based in the UK - Prosper Marketplace - a similar service in the US
- P2P FinancialP2P FinancialP2P Financial is Canada’s first internet-based business financing company. The company operates P2PFinancial.ca, an online website where businesses can request to get financing from potential investors. P2P Financial was founded in June 2009 by Matthew McGrath, a former vice-president of private...
- a similar service in Canada
External links
- Company Website Lending Club official website
- Company Blog Lending Club Blog