Lending Club

[deonb]

Investing in LC loans as an IRA option is pretty straightforward. LC can help you to set up fund transfers or rollovers through a required third party financial administrator. Recently I set up a family trust account, also with no hassle.

How do you actually set up an IRA through them?

No matter what I do it says "Your email address is already registered... use a different email address to apply".

I have a normal investing account through them, but the email I'm using isn't already registered - it's a specific email that I created just for them. Even have a different phone number.

Is there a way to attach an IRA account to a normal account?

 

[austinEV]

Austin - great thread, read it several times now.

One question - have you considered what you are currently doing in a LC Investment Account with their Retirement Account option?

Yes, I plan to open a retirement IRA account some day. My cash account is down to ~$9k. Had to liquidate due to a divorce. I was pleased with the way the account was performing, but the great LC experiment is on hold for now.

 

[austinEV]

How do you actually set up an IRA through them?

No matter what I do it says "Your email address is already registered... use a different email address to apply".

I have a normal investing account through them, but the email I'm using isn't already registered - it's a specific email that I created just for them. Even have a different phone number.

Is there a way to attach an IRA account to a normal account?

I think you have to do a totally different login. That was the impression I got, but I have not done it.

 

[bkp_duke]

Yes, I plan to open a retirement IRA account some day. My cash account is down to ~$9k. Had to liquidate due to a divorce. I was pleased with the way the account was performing, but the great LC experiment is on hold for now.

Sorry about the divorce.

Thanks for the info, opened and funding account. Still figuring out what filters I would like to setup or if the automatic investing feature is what I should go for.

 

[Nikxice]

Sorry about the divorce.

Thanks for the info, opened and funding account. Still figuring out what filters I would like to setup or if the automatic investing feature is what I should go for.

When you opened your IRA I hope you were able to take advantage of Lending Club's current 1K bonus offering. I haven't checked the details, but in the past you would have to invest something like 25K over three months to qualify for the bonus. If you didn't sign up through the offering I'm sure it's not too late, you can just call them up and ask about it. Years past I've received a couple of LC bonuses, they're also flexible with investment time frames. My trust account currently has a sidebar ad offering a $400 friend referral bonus. This is for the traditional taxable LC platform, although you can also use a link to create a Folio account. If you or anyone is interested, you're welcome to send me a pm. I would just need your intended LC email address to send you the referral link. Unlike the Tesla referral I don't receive anything, although it sure would be helpful to pay for four new tires this fall!

I view LC much like Cramer looks at Tesla. Hate the stock, love the product. I think the stock will eventually rebound, whether because of performance, merger, buyout, or whatever. The lending market is huge and Fintech is here to stay.

About eight years ago LC conducted a webinar to introduce and promote their new IRA account offering. This was soon after Bernie Madoff went down. It's ironic that the one question I asked Laplanche was in reference to Madoff and any potential opportunity for financial impropriety. He seemed to relish the question and went on to answer quite convincingly about LC's transparency and rigid accounting standards. Turns out he was right. Laplanche got busted trying to fill loans that Jefferies didn't specify and also tried to convince his BOD to invest in a company where he already had an undisclosed investment. The only concern I now have with LC involves some state's usury laws. The Supreme Court has already ruled that a chartered out of state bank isn't subjected to the interest rate cap of another state. (LC looks like a borrowers heaven next to loan sharking credit card companies that have set up shop in states like South Dakota and Delaware.) Until there is more clarity on this issue, I'm not lending to residents of New York. NY has a 16% interest rate cap and they have hinted that they might seek to challenge LC's banking status. In the long run I don't think NY can make anything out of this but noise. LC conducts all transactions, such as collecting borrowers interest, through a bank in Utah. It's an FDIC insured chartered bank in Salt Lake City called WebBank. There's even a past Elon link here, Paypal is probably their largest customer!

 

[bkp_duke]

Nikxice,
Thanks for the advice. At this time I am dropping only 3k into the account to test / play with. I have 6 figures on the side that this could be good for, but I want to become familiar with the ins and outs of the platform before I dedicate those kinds of funds.

Is the 1k bonus applicable to the investment account? Unfortunately my income precludes me from any of the IRA options, unless I did a rollover, and again I'm not willing to go all-in yet.

Thanks

 

[Nikxice]

I just checked the details listed for the current bonus offerings in my LC accounts. The $400 sign up offer is with a 25K investment over three months. That bonus appears limited to the LC investment platform, so it excludes notes purchased through a Folio account. The 1K bonus is only available for a LC IRA rollover/transfer or annual contribution. The minimum investment required is 50K.

Expect to see giddy returns reflected in your first few months of investing. Around 18 months from now is where reality will take hold, as defaults will tend to level off. The average investor is getting between 8% and 8.5%. In my book, anything above that is gravy. Austin also makes a good case for investing in Folio notes. At the moment they are likely discounted due to the CEO turmoil. Best of luck setting up your filters!

 

[austinEV]

So far so good on my calls.

 

[bkp_duke]

Account funding will be complete in 1-2 days, and have also been approved for the Foliofn account.

Was browsing Foliofn and saw a lot of loans that met my search criteria:
- never late/current
- up-trending FICO
- $10+ outstanding principle
- no markup
- YTM 9% or more

There are literally thousands of these, all of which look like good notes that are lower risk.

Is there some critical piece of info that I am missing?

 

[Jonathan Hewitt]

I first got into using Lending club in 2013. I put $10,000 in and due to regulations had to go the Foliofn route. I thought I had good screening criteria and picked a good mix of notes. At first it performed very well but didn't take too long to give me a negative return for many months thanks to an overwhelming amount of defaults. This portfolio has since gone positive and have stabilized out to ~4% annual return. This is much worse than I originally wanted but better than CDs so I guess it isn't bad. I wanted to share this story as I thought there was no way that I would get a negative return if I bought a balanced portfolio that was large enough to remove statistical outliers. I don't want to scare anyone but just want to make sure everyone goes into this with a full understanding of the risk involved.

I can now buy new notes directly in South Carolina. I thought I would give it a second shot and went ahead and bought $500 of those about half a year ago. I have had no late payments or defaults and ~12% return so far on these notes. I'm considering buying some more as my original goal was >8% and even if I start getting some defaults on these notes I think I will still get >8% return. This sample size is much smaller than my first experiment so statistically needs taken with a grain of salt but it is so far is telling me that going the Foliofn route is more risky. I had a friend who bought all the super risky notes on Foliofn and was making over 20% for a little bit but then ended up losing huge.

 

[Nikxice]

I first got into using Lending club in 2013. I put $10,000 in and due to regulations had to go the Foliofn route. I thought I had good screening criteria and picked a good mix of notes. At first it performed very well but didn't take too long to give me a negative return for many months thanks to an overwhelming amount of defaults. This portfolio has since gone positive and have stabilized out to ~4% annual return. This is much worse than I originally wanted but better than CDs so I guess it isn't bad. I wanted to share this story as I thought there was no way that I would get a negative return if I bought a balanced portfolio that was large enough to remove statistical outliers. I don't want to scare anyone but just want to make sure everyone goes into this with a full understanding of the risk involved.

I can now buy new notes directly in South Carolina. I thought I would give it a second shot and went ahead and bought $500 of those about half a year ago. I have had no late payments or defaults and ~12% return so far on these notes. I'm considering buying some more as my original goal was >8% and even if I start getting some defaults on these notes I think I will still get >8% return. This sample size is much smaller than my first experiment so statistically needs taken with a grain of salt but it is so far is telling me that going the Foliofn route is more risky. I had a friend who bought all the super risky notes on Foliofn and was making over 20% for a little bit but then ended up losing huge.

It sounds like you've got a good perspective on the risk associated with owning LC notes. I've stuck with purchasing strictly new notes, mostly for 60 month periods. I just let them play out as is. Some loans pay off early, most pay through term, and a few default. Fortunately, I've actually seen some default near the end of their term, where the principle and interest collected on the loans has me far ahead of my initial investment. As you're aware, a balanced portfolio is the key. Some might interpret this to indicate you need to be diversified between all loan grades, from A thru G. That could be done, but it's really much more important to spread the risk among many loans. I exclusively purchase grades E, F, and G, but each of my loans represent only about one tenth of one percent of my entire portfolio. Over several years I've witnessed only small changes in my ROI. If you've started up again with $500 (I'll assume you purchased 20 notes for $25 a piece) each note represents 5% of the portfolio, so a couple of bad apples can quickly hurt your hopes of an 8% ROI. The nature of this beast requires investing more funds to absorb the impact of those inevitable defaults. That sounds exactly like what you're planning to do. Keep us posted on your results!

 

[hockeythug]

NSR sent out this email regarding the CEO change last week if you are interested.:

Well that was unexpected.

I certainly didn't think I would be reading about Renaud Laplanche's resignation as CEO of Lending Club while drinking my morning coffee last Monday. Since then, the news hasn't gotten any better and emotions are... shall we say, running high? Here at NSR Invest we have fielded a large number of calls from anxious investors over the past several days, so in lieu of our traditional monthly newsletter I figure let's just talk about Lending Club.

But before I weigh in, I need you to keep a couple things in mind. First, this short missive can only scratch the surface of the issues at hand. It is a summary of events as they have been reported, together with a few of my thoughts as of this moment. Second, this is a dynamic situation and facts and perceptions are surely going to change rapidly and continuously for many weeks to come. What I say today may not apply to tomorrow’s situation, to tomorrow's facts, to tomorrow's revelations. What's more, there are always at least two sides to any story, and at this point it feels like we have only one: the alarmist. Or half of one: the alarmist who is still coming up to speed on the story.

To recap, here's a brief overview of what we understand happened at Lending Club that led to the ousting of Renaud. Note that essentially all of this has already been reported in the media, and we have made no effort to independently verify any of the below "facts," nor have we received the benefit of hearing the other side(s) of the story.

What we think we know

1. Renaud Laplanche, CEO of Lending Club, apparently made an investment in a fund that purchases loans from Lending Club. Doing this creates a conflict of interest, as Lending Club is supposed to remain neutral when it comes to serving its client-investors. If Renaud is invested in one of his clients, can he remain truly neutral?
2. Renaud apparently requested that the Board of Directors (BoD) approve an investment by Lending Club in the same fund. This only exacerbates the conflict of interest. What's more, Renaud apparently did not notify the board that he had already invested in the fund. From the company's recently filed 10Q we learn that "The Board did not have the information required to review and approve or disapprove investments made by its former CEO... in accordance with Company policies, including the Code of Conduct and Ethics."
3. After years of saying no to securitization, the company began working with a prominent investment bank, Jefferies, to put together loan portfolios that could be securitized and sold, which supported Lending Club's growth plans. As part of this effort, Jefferies required Lending Club to enhane its disclosures to borrowers, making more prominent a Power of Attorney (PoA) clause. This Lending Club faithfully did. Later, however, a staff engineer was allegedly ordered by a Senior VP to change the origination dates on $3 million worth of loans that were allocated to the Jefferies securitization portfolio, possibly to obfuscate the fact that the loans were not originated in accordance with the new PoA clause; upon investigation, it was discovered that in total $22 million in notes allocated to Jefferies did not meet Jefferies' requirements. Lending Club later reversed the transactions and allocated the loans to other investors, but the breach of contract -- and confidence -- was recognized.
4. According to the Wall Street Journal, LC's BoD "was presented with evidence that Mr. Laplanche knew many of the details of the $22 million loan sale and wasn’t upfront with directors about what he knew." Naturally, this would have caused great discomfort at the board level.
5. On Friday, May 6, Renaud was asked by the BoD to resign, and at least three of his lieutenants were summarily dismissed. Scott Sanborn, who had been President of Lending Club, became also Acting CEO while Hans Morris of Nyca Capital assumed the role of Chairman of the Board.

So that's what we "know" about the situation at Lending Club. To sum it up, it sounds like Renaud made some bad decisions related to conflicts of interest and compliance, and he and/or his lieutenants got caught manipulating data in the loan book. If all of this is true, then my deepest concern is that some members of the LC team chose (and were able) to tamper with the data provided to investors. This is of grave concern to me because our loan selection system at NSR Invest is only as reliable as the data we receive. In other words, if Lending Club were to send us inaccurate data, then our system could very likely make an imprudent judgment about which loans to buy for our clients.

We'll dig deeper there in a sec, but for the moment let me underscore a very important point: in my opinion, none of these apparent transgressions contradict the basic tenets of the Lending Club model, which is to provide responsibly structured, lower-cost loans to borrowers while providing uncorrelated, higher-yielding investment opportunities to lenders. Nothing here undermines the clear market need for p2p lending. In the words of the inimitable Dara Albright, people are "not going to suddenly start liking banks more than root canals." While these are sad days indeed for our friends at Lending Club, I perceive no Achilles Heel in the p2p lending industry.

So if the model works, and the credits are good, and the data is reliable, then what we have here is a headline-grabbing corporate governance scandal and conflicts-management problem. With this perspective, we can continue purchasing Lending Club loans with confidence, and we are doing that very thing for ourselves and for our clients.
Confidence

Every day after the scandal broke we engaged in countless conversations with investors, partners, and key players in the space about the scandal, and what it means for Lending Club, for investors and borrowers, and for our industry. And while everyone was shocked and dismayed, there was also a certain feeling of confidence shining forth... an "our industry is going to come out stronger as a result" kind of sentiment.

And then on May 16, Acting CEO Scott Sanborn, a well-respected executive with a long tenure at LC, issued a letter to investors through Lending Club's investor relations department, asserting that a Big Four accounting firm had been retained to conduct "forensic data change analysis" on 673,000 loans sold to investors over the past 8 quarters, and "99.99%... display either no changes or changes explained by the normal course of business." While the results of the audit are not yet complete, they are indeed encouraging. In fact, the audit simply re-confirms the due diligence performed by presumably scores of institutional investors like Banco Santander, Morgan Stanley, BlackRock, and others, prior to collectively pouring billions of investment dollars into loans originated by Lending Club.

 

[johnnyS]

Is NSR invest a better option than buying notes directly?

 

[austinEV]

Crazy buyers market for notes in the aftermarket. criteria:

• rising credit score
• at least 10 months of payments
• never late
• -2% to 0% markeup
• at least 15% YTM
• Credit score >=720
• $25 notes

And still had hundreds to choose from. I only needed to buy $400 worth, but could have picked up thousands in prime real estate. I guess people are getting skittish about holding notes, but I am confident LC isn't going anywhere.

 

[ZBB]

Its been a note buyers market since the CEO exit in May and continued negative news for the company.

I've stopped buying, but picked up several <$25 notes with a credit score >800 (and rising) and markups between 0-1% in May and June. I also have most of my notes listed for sale, although I list at a markup of between 2.5-7.5% (depending on the rating). I'm also pulling cash back out each month. I don't have a lot of LC exposure, but I'm no longer enthused with it as an investment (although my returns are pretty reasonable -- annualized at about 9% after write-offs/bankruptcies). I'll probably leave $10k in there and let that grow...

 

[Nikxice]

There's probably only a couple of us here that are purchasing original notes vs. Foliofn. I'd have to say that right now the retail market for new notes is a tough slog. It's probably smarter to be buying in the aftermarket. My guess is that institutional investors are getting first dibs on the primo new loans, leaving scraps for the rest of us. Previously my filters would grab ten to twenty new loans a day, lately I'm lucky to get one or two. Even trying to hand pick, I'm seeing a scarcity of worthy loans, currently just a hundred or so loans each day. Who knows, this could explain my theory on new loans being scooped up by the bigs before hitting the retail market.

Bottom line, LC needs to improve their vetting process during loan origination and turn around the mounting pile of charge offs. In the last six months my ANAR has eroded from 9.3% to 8.2%. That might seem great to some, but the trend is disturbing. For years they have been overly optimistic estimating individual ROI. Recently they have started making downward estimates more in line with actual results. For a business that relies on investor confidence, LC shouldn't be taking any investor group for granted. My pet peeve with LC is that they have virtually no skin in the game, while we continue to fund loans that are supported by zero collateral. Last week I was asked to send a sign up bonus email to a close friend. I couldn't do it. These guys at LC have got to get their act together before I will recommend them to anyone.

 

[austinEV]

The aftermarket is still awesome. I just keep sliding my selectors up. Super high credit scores, increasing scores, 18% YTM, 6 months payments made, whatever I want. I am only buying ~$300 a week but its still a buyers market.

Also, I wish I had kept my $6 10/21 calls I should have had the cojones to just hold. I managed to not lose money but still...

 

[adiggs]

I've been following this Lending Club, and by extension P2P Lending for a few years when this first popped up here. Back then, Lending Club wasn't available in Oregon, but that's changed in the meantime.

I've been looking for a recent review of the companies, and so far my searches land me on 2+ year old reviews.

For those participating in Lending Club or others by lending money, how is it working for you today? What concerns would you have today, knowing what you know now, if you were starting out new?

Besides the obvious question about stability and safety of the company you're doing business with, I am particularly wondering about the ability to deploy a reasonably large amount of money (say $100k), and continue to reinvest (if desired) as payments come in. At least one older review I've read talked about having money deposited, but having trouble finding loans to participate in.

I believe the 2 primary players here are Lending Club and Prosper - any thoughts about which is the better one to get involved with if you were starting today?

(I understand it's up to me to do my own research and make my own decisions. I appreciate any and all info!)

 

[austinEV]

I've been following this Lending Club, and by extension P2P Lending for a few years when this first popped up here. Back then, Lending Club wasn't available in Oregon, but that's changed in the meantime.

I've been looking for a recent review of the companies, and so far my searches land me on 2+ year old reviews.

For those participating in Lending Club or others by lending money, how is it working for you today? What concerns would you have today, knowing what you know now, if you were starting out new?

Besides the obvious question about stability and safety of the company you're doing business with, I am particularly wondering about the ability to deploy a reasonably large amount of money (say $100k), and continue to reinvest (if desired) as payments come in. At least one older review I've read talked about having money deposited, but having trouble finding loans to participate in.

I believe the 2 primary players here are Lending Club and Prosper - any thoughts about which is the better one to get involved with if you were starting today?

(I understand it's up to me to do my own research and make my own decisions. I appreciate any and all info!)

Availability: I have tuned out the last 2-3 months but before that it was a real buyers market. But even at it's tightest I was easily buying $3k/$5/$10k per week if I wanted to. I was not doing the auto-invest feature; I have never done that. I bought notes on the aftermarket.

I did about $20k for 2.5 years, and had a very steady rate of return. That to me shows that it is stable. I had less time at >100k, but it was looking ok. Less stable, but much of that time was "too high" to be realistic. (new purchases have a honeymoon where they are not in default since not enough time has elapsed).

here is a spreadsheet. It is open office format, sorry. Just download open office its free. Excel opens it with some problems.

 

[scottf200]

I've been following this Lending Club, and by extension P2P Lending for a few years when this first popped up here. Back then, Lending Club wasn't available in Oregon, but that's changed in the meantime. I've been looking for a recent review of the companies, and so far my searches land me on 2+ year old reviews.
For those participating in Lending Club or others by lending money, how is it working for you today? What concerns would you have today, knowing what you know now, if you were starting out new?
Besides the obvious question about stability and safety of the company you're doing business with, I am particularly wondering about the ability to deploy a reasonably large amount of money (say $100k), and continue to reinvest (if desired) as payments come in. At least one older review I've read talked about having money deposited, but having trouble finding loans to participate in.
I believe the 2 primary players here are Lending Club and Prosper - any thoughts about which is the better one to get involved with if you were starting today?
(I understand it's up to me to do my own research and make my own decisions. I appreciate any and all info!)

I would stick with a ROTH IRA vs taxable account as with the latter you get a 1099-OID and pay regular taxes on it.
Lending Club loosened up some of the credit criteria in the 2015 vintage in the C, D, E, F & G notes it seems and they are having more default/charge offs than they were.
They have tightened things up supposedly now. I would suggest automation tools like BlueVestment, LendingRobot, or Peercube to keep your cash reinvesting. These also add a layer of analysis on top of the "grades" that LendingClub assigned.
I would probably stick in the A, B, C notes and average out about 5%. Think alternative to bonds and something that is more steady than stock market.