It’s a question many of you, our investors, have asked—how does the LendingClub return work? Below, our teams have directly addressed the top 10 questions CIO Sid Jajodia received during a past webinar.
Q: Does LendingClub sell non-performing loans to collections companies?
A: Yes, on occasion, we sell loans that have reached charged-off status to third-party buyers. We pass the proceeds from the sale onto investors, net of any applicable fees related to the sales process.
Q: What alternative data points are you going to use in the fifth-generation risk model?
A: One attribute is instead of using aggregates, the fifth-generation credit model uses a very granular view of credit data, designed to discern individual borrower actions vs. a simple aggregate. For example, it looks at borrower’s credit card balance per credit card vs. their total credit card balance across all cards they may have. The new model is 24% better at differentiating the likelihood of a borrower charging off than the fourth-generation model. This means the model better assesses and prices an individual borrower’s risk in addition to the risk of the total population.”
Q: With the recent Equifax data breach, do you expect to see a spike of fake borrowers that use stolen personal data to open loans? Is LendingClub taking additional measures to protect investors?
A: We take protection of our customers seriously and are always looking to improve security of their data, so we routinely enhance our processes. The Equifax breach happened between mid-May and July, if LendingClub processes used to protect our customers had been impacted, we would have likely seen a spike in identity fraud at that time. We saw a decrease in identity fraud. We’re monitoring the situation closely and have seen no indication of any compromised LendingClub accounts based on this attack. To protect investors, we have policies in place to repurchase loans in the case of identity theft. These policies will continue to apply to any loan facilitated by LendingClub as a result of identity theft caused by this breach. We are a 314(b) participant, which enables us to identify and share bad actor information with banks.
Q: My retired mother is interested in investing, but it’s unclear how/when to cash out the investment. Can you explain that process?
A: At any time, you can navigate to the transfer page and transfer any available cash in your LendingClub account to your linked checking account. However, the availability of cash in your account depends on whether you have Automated Investing turned on. If Automated Investing is turned on, the platform will reinvest the available cash in your account, based on the investment strategy you set. Investors can adjust their Automated Investing settings or cash out their available cash.
Q: Why is there a large default (rate) after 9 months?
A: Charge-offs are a lagging indicator of missed borrower payments. LendingClub does not charge off loans until they are 120 or more days past due, except in select cases, such as if a borrower files for bankruptcy or dies. We’ve observed that the typical peak loss period of a pool of loans happens between 9 and 18 months, depending on grade and term.
Q: Is NAR a simple interest or an internal rate of return (IRR)? Based on the formula on your website, it seems that NAR is a simple interest rate that does not include compounding?
A: We calculate Net Annualized Return, or NAR, by taking the weighted average of monthly returns (net income as a percentage of the outstanding balance at the beginning of a given month), and compounding the average to express as an annualized return.
Q: How does LendingClub attract new borrowers?
A: There are numerous channels through which a borrower may come to LendingClub. These include: direct marketing like direct mail and email, referral partners like review websites, digital marketing, word-of-mouth, and referral programs where existing customers can refer friends.
Q: What is the max amount that can be invested into an account?
A: There isn’t a set maximum amount, however, LendingClub reserves the right to set a maximum amount.
Q: What is the typical turnaround between the time a loan is approved and when it is fully funded and/or issued?
A: On average, turnaround times from approval to issuance are 3.5 to 4.5 days.
Q: What information do you verify on a borrower application?
A: LendingClub uses a robust loan approval process. The statistical models we utilize consider hundreds of data points when evaluating a borrower’s loan application, and occasionally identify applications that need additional confirmation. Two ways we do this are to seek income verification and income source verification. Please refer to our Income Verification webpage for more information.
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