Lending Club’s full disclosure…
We had never heard of a company called Lending Club before, but when we came across this filing from late Friday, we decided to take a closer look. Turns out that Lending Club, which basically allows people to make loans to one another, has already gotten a fair amount of press coverage, including this piece by Felix Salmon, which embraced the concept back in late April.
What made Friday’s filing so interesting are the requests that people post to the Lending Club site seeking funds — requests that turn up in the company’s SEC filings. Here’s one such request:
Promised daughter I would take her on a Disneycruise. I had funding for the trip but evaporated with the down turn of the stock market and companies I invested with in their stock. Please help me keep a promise to my daughter for this trip I booked over two years ago before the market crashed.
The filing then goes on to disclose how much the person is looking for ($7,000), the interest rate (12.84%), the person’s credit score (679-713), their current and past employers, their educational background and their gross income. While the person’s name isn’t listed, it seems like an awful lot of information to have out there in the public domain.
Here’s another request from another borrower looking for $18,000 at 11.58% interest.
I own a high end rug business in Austin Tx. We have a great business catering to both the Austin and San Antonio area. We have a great reputation in the design community. We need some extra money for new inventory…we’re always trying to stay ahead of the trends. We’ve Never missed a payment!
We won’t go into every request, but most of them have to do with loan and credit card consolidation, with a few business requests sprinkled in — someone looking to buy a hot dog franchise in Beverly, MA, is another one that jumped out at me. But they make for some interesting reading about the sorts of things people are looking to borrow money for in the current economic climate. It also makes me wonder if the people posting these requests for money online from other participants in Lending Club, knew that so many details would find their way into SEC filings.
Now Felix, when he wrote his piece, noted that the fact that Lending Club had “gone through all of the legal pain to get full SEC registration” made it less sleazy than some of the other lending schemes out there online. But if I was that borrower looking for money to pay for my cruise, the idea of having so many people know so many details about my life would kind of creep me out.
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June 8th, 2009 at 12:13 pm
P2P lending has become very popular in the last several years. I have lent out money on a site called Prosper.com. You do have to be careful as the loss rates can be much higher than a bank would incur (mainly due to less rigorous standards on behalf of the lender). The plus side for the lender is that they have an opportunity to earn a higher interest rate versus a CD or deposit account (or the stock market for that matter). The plus side for the borrower is that they have an opportunity to get a loan at a reasonable rate (versus a loan shark). So weighing the pros/cons, it appears to be in the best interest of the borrower and lender for that information to be disclosed. Otherwise, the borrower would not get the money.
June 8th, 2009 at 1:38 pm
I think you may be giving the impression that LC posted these borrower listings into the SEC filings on LC’s own initiative.
It’s my understanding that that’s not correct.
Instead, as I understand Prosper’s latest S/1-A filing, including the borrower listings is an SEC requirement. (I haven’t followed LC’s filings. Maybe it’s there too.) I could be wrong – this is just my recollection.
Now whether the borrower is aware of this or not is indeed an excellent question.
I do agree with JimBob that this information helps the borrower get their loan funded. But I want to caution, tho’, that this does NOT mean these loans perform better than borrowers who say next to nothing in their listings. (OK, so maybe P2P lenders – I’m one of them – aren’t the brightest.)
Perhaps one of the best examples of a borrower that successfully sold himself only to default was a guy who was the former state senator from New Hampshire and former Chairman of the Sandown Board of Selectmen. (Can name names here?) Sounds safe, yes? He was looking for funds to open a jazz club in Sandown, NH. Within 1 year, he defaulted on his $25K Prosper loan.
June 8th, 2009 at 1:44 pm
Having lent for sometime on Prosper (and soon to Lending Club since Prosper is still in SEC filing) the amount of personal information provided by the borrower is VERY important to us lenders to make a decision on making a bid on the loan. No PERSONAL information is ever shown but borrowers ARE encouraged to tell their story. I tend to stay away from those who do not give details but even so is not a guarantee that they will stay the course of the loan. Long story short – know the risk – READ the credit info and the reason for loan!
June 8th, 2009 at 1:56 pm
Michelle:
Our members’ privacy and the protection of their sensitive personal information are of top important to us.
We review credit carefully and frequently delist loans where the story does not seem to match the credit profile. Ultimately, people choose what to invest in. An interesting fact is that more than 85% of our approved loans obtain full funding.
Our investor community show an average net annualized return of 9.90% as of this morning.
Rob G from Lending Club
June 8th, 2009 at 1:57 pm
I don’t have a problem with full disclosure between borrower and lender. That not only makes sense, it seems like not doing so would be pretty dumb. After all, I’d want to know what the money will be used for — a Disney cruise or a hot dog cart.
But I just wonder if the level of detail provided in this filing and other similar filings isn’t just a bit creepy. How many high-end rug stores are there in Austin, that, when paired with some of the other info in the filing, would take more than 5 minutes to figure out? It’s also hard for me to imagine, @NewHorizon that the SEC would consider these disclosures material, though I may be wrong since I’m not entirely sure what rules Lending Club is operating under. They’re not public in the sense that their shares trade, but clearly they’re required to disclose certain info in the filings.
June 8th, 2009 at 2:15 pm
“After all, I’d want to know what the money will be used for — a Disney cruise or a hot dog cart. ”
Just please be careful about this. There are borrowers who’ll say anything that gets them the $$$. There’s nothing stopping them from saying they want a loan to start a business, for example, and then use the funds to go on a Disney cruise.
Certainly, one should quickly pass on the hot dog cart listings. But veteran Prosper lenders who’ve been following loan performances have learned – often the hard way – to otherwise heavily discount the text of the listings.
June 8th, 2009 at 2:30 pm
Your second paragraph says Lending *Tree*, not Lending *Club*. A minor mistake–but minor errors damage one’s credibility.
June 8th, 2009 at 2:39 pm
@ Nora: Everyone needs an editor. Thanks for being mine. I’ve gone ahead and fixed it. Only happened because I was looking at some docs for Lending Tree earlier today and obviously my brain got in the way of my fingers!
June 8th, 2009 at 2:52 pm
I publish charts showing loan performance on major P2P websites such as lendingclub and prosper. You may be shocked to learn how many of these loans go bad.
Your concern about how exposed all that disclosure would make you feel is perhaps appropriate, but you should also think about this from the lender’s perspective. Much of what borrowers write is fiction.
June 8th, 2009 at 2:52 pm
Oops. Forgot to give you the URL where I publish those charts
http://fred93blog.bloogspot.com/
June 8th, 2009 at 3:01 pm
Typo in Fred’s URL – one too many “o”s.
Either click on “Fred93″ on his post or go to
http://fred93blog.blogspot.com/
He’s got great stuff there….
June 8th, 2009 at 6:56 pm
Thanks NewHorizon, and sorry for the slipped fingers.