Free Updates

Exclusive content to your inbox for FREE!

Do You Have Questions for Lending Club and Prosper?

by Peter Renton on August 13, 2012

The headquarters of Lending Club and Prosper is San Francisco

Later this week I am visiting San Francisco for meetings with Lending Club and Prosper. I have a number of issues I want to discuss with them but I thought I would use this opportunity to see what you wanted to know.

I will be meeting with many people in the management teams at both companies, so this is your chance to have your voice heard. You can send your questions to me privately by using my contact form or just let me know in the comments below. I will do my best to get an answer for you. Next week, I will report back on what I found out.

Photo credit: davidyuweb via photo pin cc

{ 84 comments… read them below or add one }

Dan B August 13, 2012 at 7:43 pm

Since you’re meeting with a number of people, I have a list of enduring questions/mysteries that perhaps you can get answers to. They are in no specific order, but I’m confident that the collective intellects can surely tackle each & every one with competence & grace :)

1. Why are the most militarized borders in the world called demilitarized zones?

2. Why does Lending Club continue stating that they have only 4 loans from 2012 on “payment plans”? I mean come on, really?

3. What is the best time of year to safely traverse the Straights of Magellan by sailboat?

4. When I make a ACH transfer deposit at Prosper my money is available INSTANTLY for investment. At Lending Club I have to wait 4-5 days before I can invest. Why is that? Why can LC not offer the same convenient service as Prosper?

5. When will Lending Club offer the ability to sign in to multiple accounts with one email address?

Bonus Trivia Question………..Name the only woman (in modern history) who has been First Lady of 2 different countries. Yes, it actually has happened, & no, not simultaneously. :)

Reply

Sarah August 13, 2012 at 9:43 pm

I would like to know if there are any plans for a major FolioFN makeover – it really, really needs some better filtering and sorting tools… really badly. It’s terrible.

Reply

Investor Junkie August 14, 2012 at 9:47 am

Same here!

Reply

Justin August 14, 2012 at 5:15 pm

I agree. It would be nice to even have the FolioFN data downloadable like the other Lending Club data is so we can apply our own filters in Excel

Reply

Em August 16, 2012 at 10:54 pm

I’ve been working on a little GreaseMonkey script for LendingClub + FolioFn. It adds some rudimentary filtering and highlighting. You might find it useful:

http://userscripts.org/scripts/show/103295

Reply

Frugal Investor August 13, 2012 at 10:08 pm

Since I live in MA, I would like to know what prosper & lending club are doing about opening up more states. I buy Lending Club notes on the secondary market, but that is all that I can do. This is very tedious and I have to pay a lot of fees so would like to be able to invest directly, and I am sure there are others who would like this capability as well.

Reply

Sarah August 14, 2012 at 6:23 pm

Yes, I’m in Mass. as well and would like to know if they are pushing to be available here…

Reply

Tariq August 13, 2012 at 11:24 pm

Do either companies have any plans to develop APIs for applications to interact with?

Reply

Michael August 14, 2012 at 8:37 am

Prosper has an API. Lending Club will at some point.

Reply

Frankie C August 14, 2012 at 1:17 am

Why is the web UI of LC so mediocre and so stagnant? Why isn’t it a work in progress with ever increasing Web 2.0 goodness?

Why is the web UI of FolioFN so absolutely terrible? If you talk to Renaud Laplanche, please use the term “merde sans nom” when referring to that web site.

Does LC really have the staff to service its ever-increasing loan volumes? Specifically on the collections side? Looking at collections notes, I can’t help but think “if it were my money, I’d be on the phone with these defaulting losers 10x a day until they paid!”. Then I pause and realize it is my money…

Reply

Michael August 14, 2012 at 8:40 am

Absolutely agree on this! the recovery rate is abysmal. Since its so bad, why even bother? What I would LOVE if the P2P platforms would just file judgements for money in the states they defaulted in. I would feel better knowing future access to debt its cut off for 5-20 years depending the judgement, until they make their debts right.

Reply

Danny S August 14, 2012 at 7:12 am

1) Does Lending Club have an estimated date to reach profitability (or at least breakeven)?

2) Does LC have any plans to offer 1 year notes

3) Does LC have any plans to increase maximum loan amounts for certain well qualified borrowers to a higher amount such as $50k

4) Will LC consider providing info on its most active investors (similar to what Prosper provides)

Reply

Dan A August 20, 2012 at 6:45 am

Hi Dan, when I last spoke with John Steward at LC back in the Spring, he felt that LC would be in profitability by March of 2013. HOWEVER, since some heay hitters (investors) have come on board, that will probably change and delay that projection. Since LC is continually reinvesting their (our) money, at some point down the road, I expect LC to literally explode with growth. I am excited! On a personal note, I am planning on retiring from full time work next April 1 (April Fools Day) and rely on my profits from LC to replace my current income. Obviously, I don’t have all of my eggs in 1 basket here but at 1500 notes and growing at over 10% interest, things are looking good!

Reply

Peter Renton August 14, 2012 at 7:33 am

Thanks for your questions everyone. These are great, I will try and get them all answered….even yours Dan B.

Reply

Larry Ventura August 14, 2012 at 7:47 am

1) piling on with Dab B on this one. I have three accounts. With no common log in I have no way of knowing if i already own a note (other than using third party tools) in another account.

2) Web2.0 item. I’d like to review available notes and mark some as Recheck later, or hide permanently, or whatever. We need individual filtering/tracking in LC

3) better transperencey on what is happening with payments. I have called in to find out whats going on with a loan, especially check payments, and ,my rep knows nothing. And what he does know, he can’t tell me.

4) better documentation of the payment plan process. I have a bunch of loans on payment plan, but no way of knowing if the borrower has agreed to the new terms, or is still “on the run”.

5) would love to see a better folioN but LC doesn’t own it…so build their own, or lean on folio to improve.

6) I would like to see investor stats on LC. They could still be anonymous, but i would like to know percentage wise where i stand in terms of investment size/return/etc….

7) quicker/easier deposit/withdrawal.

Thank you very much Peter.

Reply

Frankie C August 14, 2012 at 8:27 am

2) Completely agree, that’s exactly the kind of UI features we need. And that kind of stuff is not hard to create for a web dev team. There has been zero UI improvement this year. This somewhat concerns me, because I can’t help but wonder if there’s anyone at LC who actually works on these things…

3) Absolutely. That goes in line with my comment about collections staff. I need to get the feeling that LC really cares about collection on my loan. I am not sure that’s currently the case. And eventually, borrowers are going to figure that out also.

4) Agree on that also. I’ve seen a loan go on and off payment plan every few days during its first month of default. Without the borrower ever being contacted (according to notes).

Reply

Peter Renton August 14, 2012 at 8:49 am

More good questions here Larry. When I spoke with LC last year about the multiple accounts (I have four) issue and the ridiculous need to keep email addresses unique they said they are working on it but that it would be 12 months or more before it would be done. I will be checking in to see if progress has been made at all….

And as for Folio while LC doesn’t own it they do control the interface and could easily make changes here if they wanted to.

Reply

Larry Ventura August 14, 2012 at 7:51 am

Ugh, apologies to Dan B. no idea who Dab is :)

Reply

Larry Ventura August 14, 2012 at 8:52 am

Thanks for the clarification on folioN Peter. I didn’t realize LC had some control on that.

Reply

Michael August 14, 2012 at 8:52 am

Lending Club has as a main data point on your login screen, your total interest paid. I find this incredibly useless as something to promote since it does not take into account charge offs and is therefore meaningless. I would say a major change that should be implemented is a net gain/loss metric either instead of the total interest paid or get right of the total interest paid on the main page completely. It’s very misleading to investors that have had a few defaults.

Reply

Larry Ventura August 14, 2012 at 9:43 am

One more Peter.

This could be mitigated by a better interface, but given my investment size, I’m buying $100 notes. I would love to be able to break those apart to sell on folio. Much harder to sell the same loan in a $100 size than a $25 size.

Reply

Anil Gupta August 14, 2012 at 10:21 am

Peter,

Good opportunity for you to influence both companies.

I would like to see a near-term product roadmap from both companies and what new products and services are being introduced in next 3-6 months. I doubt they will share this info but worth asking.

Any plans to introduce collateral backed loans such as mortgage, home equity, cars, and business receivables?

Any plans to introduce social tools for borrowers and lenders?

Any plans to introduce pre-payment penalties for borrowers who pay in full within a few months of loan issued?

How is LC and Prosper engaging with state regulators in broadening the states coverage for their residents to invest in P2P loans and also influencing the crowdfunding rules in discussions at SEC. Any plans to enter equity based investing for small business?

When Lending Club plan to introduce APIs and also make available information consistently across available spreadsheets for currently available loans on Statistics page and Browse Notes.

Any plans to reward borrowers and lenders during IPOs of both companies, preferential allocation, etc.

Thanks.

Anil

Reply

Investor Junkie August 14, 2012 at 11:06 am

How about a credit card linked credit for borrowers?

Reply

Zach August 14, 2012 at 1:11 pm

1) In recent months, it has become apparent that fewer and fewer borrowers are taking the time to write a loan description. As an investor, it provides useful information to make an educated investment. Additionally, there is a strong correlation with defaults as to whether or not the borrower writes one or not. What can LC do to encourage more descriptions?

2) Lending Club should create a database of common questions investors would ask in the QA, and based on the borrowers credit history, loan type etc., populate automatic questions during the application process to get much more information right away from the borrower. For example, if a borrower has a delinquency in the last 2 years, automatically populate that question and encourage borrowers to answer them (as to why that delinquency is appearing on their credit).

3) I agree on the instant transfers from Bank Accounts. For Lending Club’s protection, they could ask investors to keep a back-up credit card on file in the event your ACH pull doesn’t go through.

4) Collections procedures need some attention. I see many cases where the borrower has been contacted dozens of times, have not filed for bankruptcy, but still Lending Club doesn’t take legal action against the borrower. Even if the borrower doesn’t have much in assets, they can get a judgement to garnish wages too. Why was Jack Cohen’s position never filled (as far as I know)?

Thanks!

Reply

Roy S August 18, 2012 at 8:17 pm

I agree with your first point, and I really like your second point.

The problem with your first point, however, is that all loans on LC are being fully funded. There is no disincentive to write up a description if you know your loan will be funded regardless of anything you say. Really, saying anything may hurt you more than help.

To your second point, I think that would just require more work for LC and Prosper with no tangible benefits (see previous paragraph). There used to be a Q&A section on Prosper (I don’t know about LC, because I don’t use their platform), but they disabled it because people would end up giving out identifiable or other information that they shouldn’t be giving out.

Long story short, it’s less work for them to not have to monitor what information borrowers are doling out, and there doesn’t appear to be any real tangible benefits to either company. While this would be more beneficial to the lenders in making better investment decisions, I don’t really see anything changing.

Reply

Lender McGee August 15, 2012 at 10:25 am

1) Would Lending Club or Prosper License their software for 3rd party use on other non competing crowd funding platforms like payday loans, car loans, etc?

2) Who developed LC and Prospers’s websites were they all done in house?

3) Who was the legal team that handled the filing for LC and Prosper’s SEC application?

4) Do they expect to be able to offer loans in all 50 states anytime in the near future?

Thanks Peter!

Reply

Ras August 15, 2012 at 11:30 am

Pls ask LC to create a filter for monthly income. Thanks

Reply

CA-Lender August 15, 2012 at 12:28 pm

Peter,

I just took a quick look at Prosper’s June 30th, 2012 Q-10. Without sounding alarmist, it looks like they had around $4M in cash on hand and a burn rate of a little under $1M per month. Without analyzing the Q-10 too deeply, it looks like they will run out of cash sometime in November 2012. Can you find out if they either have another round of financing planned, or if they some ideas increasing cash flow?

As for suggestions, I had a whole bunch of them, but at the moment the only one that I remember is a minor change to the monthly statements: add a YTD total for interest received and charge offs on the monthly statements to help investors with mid year planning.

@Dan B: Graca Machel

Reply

Dan B August 15, 2012 at 12:52 pm

CA-Lender………..A man who knows his history……….or is curious enough to keep learning. Either way, good job. Married to Samora Machel Pres. of Mozambique & later upon his demise, to none other than Nelson Mandela.
Incidentally, Mozambique is also the answer to the trivia question of which country has an assault rifle depicted on its national flag.

Reply

Peter Renton August 17, 2012 at 9:51 am

And by the way CA-Lender, Prosper has way more than $4 million in cash. The actual number is $11 million in operating cash (you need to include short term investments as well) which is more like 10-12 months of capital. Still, I will provide an answer to this question next week.

Reply

Peter Renton August 15, 2012 at 1:30 pm

Thanks everyone, these are great questions. Now, I won’t be able to get to every one but I will endeavor to get as many covered as possible. Look for some answers next week.

And Dan B/CA-Lender thanks for the history lesson. I had no idea that Nelson Mandela’s wife was also the first lady of Mozambique.

Reply

Dan B August 15, 2012 at 2:38 pm

One of his wives, actually.
Well, just think, one day people can com here for investment info, history lessons, horoscopes, relationship advice etc. etc. & I’ll gladly accept your thanks…………………………… & monetary compensation for setting your site on that trajectory.

Reply

Charlie H August 15, 2012 at 5:55 pm

Will LC introduce end of year statements that are income tax friendly?
Totat interest
Total charge offs

Reply

Dale T August 15, 2012 at 8:57 pm

…with FOLIOfn sales data in there too!

Reply

Charlie H August 23, 2012 at 12:13 pm

No Doubt!

Last tax year was painful.

I spent ~ 3 hours on just the folioFN part of the return last year.

Reply

Ras August 16, 2012 at 5:47 am

Suggest that LC add the exact name of each account on every page. Ie) Ira acct or trust acct etc

Reply

Sean August 16, 2012 at 5:26 pm

Based on your 8/15 post, I would ask LC for clarification about large investors securing a significant percentage of loans. You noted that there appears to be a 75% cap, and it would be good to verify that, but it would also be useful to learn whether two large investors can completely pull a loan off the table as soon as it is offered, or whether there are additional checks in place to ensure that the $25 – $100 note investors have a shot at them.

Reply

Em August 16, 2012 at 11:13 pm

They could change the rule so large investors have to wait to invest in a loan until it is at least 25% funded, i.e. large investors could fight over the last 75% instead of the first 75%.

But from LendingClub’s perspective, why would they care how a loan gets funded? (just as long as it gets funded.)

Reply

Em August 16, 2012 at 11:48 pm

Here’s a question for them:

Why does loan processing sometimes run until the next morning? I’ve seen my account update as late as 8 A.M. (EDT) presumably from the night-before’s payment processing. Are LendingClub’s servers really up to task of processing this much data? And if the number of loans outstanding doubles every year, will a day’s processing eventually take longer than 24 hours to complete? What happens then?

Reply

Dan B August 17, 2012 at 12:10 am

FYI, the scenario you describe occurs every Thursday night…………..but I’ve never seen it happen on any other night. The reason it happens on Thursdays is because LC processes 2 days worth of payments on that day as opposed to 1 days worth on the other weekdays.

Reply

Dennis August 17, 2012 at 1:10 am

Peter:

Seems like most questions are directed at Lending Club. I’m guessing that there are many more Lending Club junkies than Prosper. I have a queston about Prosper that I’d really like to hear an answer to. Why is there NO transparency on what actions are being taken for Prosper notes in collections. Lending Club details all actions they take to get late borrowers current. In my opinion Lending Club does a great job at this. On the other hand, Prosper details ZERO info. For all I know Prosper does nothing. Is there really a collections agency??? I’d really like to know that something is being done, anything… I’m finally experiencing a growing number of lates at Prosper with 8 now in collections (out of almost 400 notes) and another 9 late. I have almost 3 times as many lates with Prosper as I do with Lending Club with near identical NARs (risk) and near identical number of notes. I’m growing increasingly frustrated with Prosper. Thanks.

Reply

Frankie C August 17, 2012 at 1:04 pm

I can’t compare with Prosper, but as discussed in earlier comments, LC does not do a great job in that area. There is some transparency. That is the extent of the positives.

Reply

Henry Miller August 18, 2012 at 6:53 am

I have two notes that defaulted without making a single payment; this is a clear badge of fraud. Possibly identify theft. Does Lending Club do anything with first payment defaulters other than garden variety collections? More importantly, has LC ever discovered identity theft and reimbursed lenders accordingly? Also getting a loan right before filing bankruptcy without the intent to repay is also fraud. Has LC ever challenged the quick bankruptcy filing of a borrower, or does LC give them a free pass? Others have noted these issues in comments elsewhere; and many lenders have experienced these losses.

Reply

CA-Lender August 18, 2012 at 10:39 am

@Henry,

I recently posted my thoughts in the SLN forum about quick BK filings right after getting a P2P loan: http://www.sociallending.net/forum/index.php?topic=182.0;topicseen

Here’s the post:

Isn’t there a time frame for debts that can be written off in bankruptcy? I vaguely recall that there is a 6 month “seasoning” for loans that can be forgiven in BK.

Reason I ask: here is a listing on Prosper, that funded on in late February 2012, not a single payment was ever made, and this note was charged off yesterday, exactly 4 months from origination:

https://www.prosper.com/invest/listing.aspx?listingID=552145

I don’t know how many of the Prosper charge-offs are these type of notes, but if it’s significant, maybe it would be worthwhile for Prosper to hire one person that goes to the BK hearings and disputes the BK of any note that is not aged over the proper time frame.

Reply

CA-Lender August 18, 2012 at 1:07 pm

@Peter,

I have a suggestion for Prosper regarding marketing and business development in using the “Invite a Friend” feature. In comparing this feature, both Prosper and LC offer $100 referral fee, you’ll notice that LC has the “Invite a Friend” box prominently at the top right of your account summary page, (almost the first thing you see when you log in) and allows you to invite by Facebook, Twitter and Linkedin. It also lets you send emails to your contacts in gmail, yahoo, hotmail and AOL.

Prosper, on the other hand, has a smaller sizer “Invite a Friend” box on the right side, towards the middle or bottom of the summary page (you almost need to search for it, if you want to invite a friend). But, the biggest difference is when you try to send emails, it doesn’t allow a share to Facebook, Twitter or Linkedin, and the only way to send emails is to have your contact listed imported from a contact data file (ie .csv, etc).

Bottom line, I think Prosper needs to improve on this feature, as they might be missing out on some low cost marketing.

(Peter, sorry that most of my posts are so long)

Reply

Roy S August 18, 2012 at 8:25 pm

My opinion is that LC has placed much more emphasis on marketing and growing their business than Prosper has…or at least they are much better at it than Prosper is. I think the bottom line is that Prosper needs to improve on growing their business overall (on both the lender and borrower sides) or risk being left behind.

Reply

Peer-Lend August 18, 2012 at 8:17 pm

@ Dennis:

1) You don’t have “identical risk”. An investment in either platform is, in a way, an investment into their underwriting model. Prosper and LC’s models are not identical, so, in the same way you should be careful about accepting a “platform-specific” measurement of performance (such as LC’s NAR calculation) you also need to understand that comparing a loan of X grade at Prosper and a loan of X grade at LendingClub are similar, largely, in name only.

2) You also need to understand that defaults are part of the lending game. When LC or Prosper present you with an expected return and, indeed, when they price the loans, the assumption is that some percentage of loans will default at some point in time (thusly an estimate of price – which leaves a return cushion – for that particular grade can be made).

I think you’ve mostly just got a case of the “first default” jitters – it’s okay, we all went through it – but the platforms price in (each in their own proprietary way) the costs of defaults and, over a well-diversified portfolio, which it sounds as though you have, it shouldn’t trouble you too much, beyond just having to accept that some will default…

That x% of your notes default at some point is not troubling if the others make it up…

Works for banks – now it works for us… ;)

Reply

Dennis August 19, 2012 at 1:24 am

Peer-Lend:

I appreciate your comment, maybe I do have a case of jitters (probably do). My main concern though is not the lates or defaults as I expected those from my extensive research on P2P. My problem with Prosper is how those lates are handled. I’d like to see some transperency, anything, to at least know something is being done to collect on those notes. As it stands now with Prosper, there is ZERO information to the investors on what actions are being taken to make those loans current, ZERO. I understand that there will be charge-offs and am okay with that. But I’m not okay with nothing being done about it which in my opinion encourages defaults. Whatever Lending Club does that Prosper doesn’t, it seems to be working better. I would rather receive (for illustrative purposes) a 15% return on investment with few defaults than a 15% return on investment with many defaults. The many defaults is more work and more frustration. That’s what I’m experiencing now with Lending Club vs Prosper. I’m much happier and more confident at Lending Club, my investment dollars will always follow a better risk to reward model.

Reply

Chris August 19, 2012 at 9:24 am

Dennis,
I have a note that has been in collections for about 4 months and I suddenly received a payment towards it a couple weeks ago. Apparently they ARE doing something about it at Prosper.

Reply

Dennis August 19, 2012 at 9:44 am

I’ve had a couple of notes that bounce from collections to current to collections again with Prosper, but that could just be the borrower trying to get caught up on their own. That doesn’t neccessarily mean there’s an actual collections behind it. I’m not saying there isn’t a collections agency, just having doubts. Lending Club provides dates and actions, and in some cases my late borrowers there have been contacted a dozen times or more through voicemail, email, or their work place. That’s what I like to see.

Reply

Dan B August 19, 2012 at 10:38 am

Dennis………….So in other words you feel better with the Lending Club approach not because you are certain that there are strenuous collection efforts at Lending Club, but because you can “look” at a detailed log that suggests that there are strenuous collection efforts being made at Lending Club. That’s interesting.

I have no idea how serious the collection efforts are at LC or Prosper. Having personally gone through a period of bad credit in my life I can tell you that it really doesn’t matter as much as you think it does………..as to how serious these efforts are. Once a loan goes late, it’s pretty much over & the sooner you can wrap your mind around that, the better & happier you will live life. Trust me, 90% of the time (maybe more) the efficiency of collection efforts are immaterial.

But setting all that aside, let me say 2 other things.

One, just because something appears on a log doesn’t mean it’s gospel. Case in point, the LC “on payment plan” notation. Am I the only one that has noticed that sometimes a loan will have a on payment plan notation with a payment date, amount etc…………….only to have the notation disappear a few days later before the purported payment plan due date??
Hell, I’ve had one just like this happen a few days ago……………of which I ended up selling & that wasn’t the first time such a thing has occurred.

Two, there have been documented instances where LC made a less than serious collection effort regardless of what was written in the log. I remember a case last year that was talked about at MattSFs blog Steadfastfinances.com where a woman had filed Chapter 13 reorganization & provided info of repeated attempts to reach LC to tell them to file a claim because she wanted to pay back her LC loan. LC apparently waited too long or just didn’t file the necessary papers in time…………………so the courts discharged the loan, end of story. Peter, do you remember this incident? I’m not making this up, this actually happened & I’m sure MattSF can confirm.

But here’s the thing. I wasn’t planning to respond to this post or bring any of this crap up. I also don’t believe that any of the examples I’ve just provided are indicative of an attempt to defraud. I also don’t necessarily believe it’s common practice. What I do believe is that some people draw way too much comfort from this whole notion that just because it’s written down it somehow must be true. Or that a written down action must be superior to some other action that is not written down, just because it’s written down!

Incidentally, unlike things that are written on a log, I’m willing to provide evidence of everything I just said. :)

Reply

Dennis August 19, 2012 at 3:21 pm

Dan:

I’ve read your many posts here and you bring good discussion to the board but I also know you like to challenge just about every idea, so let me first say I don’t have your kind of energy in defending everything I say. We’re all learning here and there have been many good suggestions, some better than others, but I hope we’re all here to help each other.

I certainly don’t expect a young and growing company to be perfect in everything they do. The collections efforts by both platforms needs improvement as you point out, but in my opinion (emphasis on “my opinion”) Lending Club is doing a much better job of collections than Prosper, and I’m satisfied with the results of that with LC, but not Prosper. I’d rather see a log of collections attempts (LC) than see nothing (Prosper). I’d rather see a payment plan attempted, even if the borrower fails at that too, than nothing. At least I know something is being done, anything, as opposed to nothing. And I take it on faith that what Lending Club logs (with dates and details) is truthful just as I take it on faith that the notes I’m investing in are real.

One more thing. Jail time doesn’t always deter a criminal, but if we don’t make an effort to put criminals in jail just imagine how bad crime would be. Collections agencies and destroyed credit ratings won’t deter some people from defaulting on their loans, but if we don’t make an effort just imagine how much worse the default rate would be. It may seem like a lost cause to you to make such efforts to collect on late notes, and I do realize that most of these lates will get charged-off, but just imagine if little or no effort was made. What message would that send to borrowers? I don’t think I have to answer that. And that’s why it matters to me, not because I’m expecting to get my money back.

Just an FYI: I already live pretty good and I’m pretty happy too, but I still appreciate the advice.

Thanks.

Reply

Dan B August 19, 2012 at 3:52 pm

Dennis………You misunderstood. I didn’t say that a payment plan was set up & then the borrower missed the payment. I said that a payment plan was apparently set up……………..& then disappeared a few days later BEFORE the due date of that payment plan arrived. Big difference.

Other than that I liked your response. You made your points, such as they were, without challenging or refuting any of mine…………….& I’m fine with that since this is actually a low energy day for me as well.

Martin October 30, 2012 at 12:30 am

I believe that both companies put a lot of effort in collections. If not they would one day lose investors and they cannot afford it. Do you think that if they won’t do collections that the word won’t spread out and investors start leaving? I bet it is tough to get a skipped borrower back on track…

Em August 19, 2012 at 5:45 pm

LendingClub makes most of its money off the Origination Fee (up to 5% of the loan amount). As long as new Loans are being originated and funded I’m not sure they really care about Collections. It would not surprise me if they did the barest minimum they thought they needed to do to keep lenders funding new loans.

For more info see “Borrower Origination Fee” on https://www.lendingclub.com/public/rates-and-fees.action

Reply

Peter Renton August 19, 2012 at 6:00 pm

Lending Club cares primarily about two things: getting qualified borrowers in the door and providing great returns to investors. They have shown that the former is relatively easy but the latter depends on many factors. If investor returns drop suddenly and stay down they would find their business model under threat. I believe they care about getting the best returns they can for investors and part of that will be pursuing borrowers who are late.

And to your point on origination fees. It is true that the majority of their gross revenue comes from these fees but acquisition costs for borrowers are also far higher than for investors. We don’t know the exact breakdown but my point is that Lending Club’s interests are aligned equally with both borrowers and investors.

Em August 19, 2012 at 9:21 pm

@Peter: “my point is that Lending Club’s interests are aligned equally with both borrowers and investors”

Well now that would be a good question for them:

Does LendingClub take into consideration which lenders have invested in a loan when deciding how much effort to put into Collections?

In other words, all things being equal is LendingClub more vigorous in trying to collect a loan if Big Lender XYZ owns 75% of that loan?

Peter Renton August 19, 2012 at 4:04 pm

Dennis/Dan et al, I had a long conversation at Prosper on Thursday afternoon with their collections manager and will have a detailed post about their collection efforts in the next couple of weeks. At Lending Club I couldn’t meet with their collections manager but will have a phone conference setup soon so I can report on the same practices there. Suffice it to say, I was pretty satisfied with what I heard at Prosper.

As to Dan’s point about it making a difference, if someone has already decided to default it will make no difference. But most people have some money to pay some bills – this is where an intelligent and persuasive collections effort can help put the p2p loan at the forefront of people’s minds.

And Dan, I think I have an answer to the “payment plan” issue you have talked about but I was told I need to confirm the answer before I can publish anything. More on that later.

I do remember that borrower that was mentioned on Steadfast Finances – they really wanted to pay back their loan but never heard from LC.

Reply

Dennis August 19, 2012 at 5:02 pm

Peter:

Thanks for looking into that. It would help me a lot knowing exactly what it is that Prosper does once a note becomes late, especially in the collections process. I’m looking for a little more confidence with Prosper so I can continue to invest there, resolving this (for me) will help a lot with that. The other issue for me is that I need to know I’m playing on a level playing field when it comes to large investors. I want to know that I’m not getting squeezed out or being thrown scraps when it comes to note selection. Lately I’m having an awful time finding notes at Prosper that match my investment style. Maybe it’s just seasonal as I didn’t have this much difficulty 2 months ago, or maybe something has changed at Prosper. Any info/advice on that would be appreciated.

Thanks again for eveything.

Reply

Dan B August 19, 2012 at 9:54 pm

Thank you for confirming that. I was just trying to point out that I found it odd that so much comfort was being achieved not because of tireless collections efforts at LC but because of the successful & tireless maintaining of a “log” that suggested tireless collections efforts at LC………………especially when there have been documented cases of creative “log keeping” in the past. Whatever the reasons, that fact is hardly in dispute.

Hey, just doing my part to remain “fair & balanced” towards Prosper. :)

Reply

Peter Renton August 19, 2012 at 5:45 pm

Dennis, I have had to adjust some of my filters to keep investing new cash at the level I want on Prosper. And this is something that I have noticed over the last couple of months. There are plenty of loans available just not that many that meet my favorite criteria.

At Prosper there are fewer larger investors but they do have limits of 90% per loan for a large investor. With automated quick invest this does level the playing field somewhat but you can still miss out on loans occasionally.

Reply

Jeff B. August 19, 2012 at 8:10 pm

I have an IRA set up with Lending Club and Prosper.
With Lending Club, I can trade notes from my IRA account with Folio, just as I can with a normal account.
With Prosper, I cannot trade the notes I buy in the IRA. Once I’ve bought a note, I own it to maturity.
Prosper has told me that the problem is with Sterling Trust who is the custodian of the IRA account. I was told by a Prosper rep, “don’t hold your breathe” waiting for the fix to be made to be able to trade notes from the IRA account.
I would like to know how long does Prosper expect this limitation on IRA accounts to last? It would be nice if they could come up with a timeline to be able to fix this issue.
By the way, I have stopped buying notes from within my Prosper IRA.
Thanks,
Jeff B.

Reply

RayJ August 23, 2012 at 6:58 am

Peter,

I normally read your blog, but I have been out of pocket. I posted a question on your recent post entitled, “Questions and Answers: Prosper Edition”. If it’s not too late, maybe you could get that info from Prosper.

The only other major thing is what others have addressed and that’s the FOLIOfn interface is horrible. I don’t think it matters if it’s the responsibility of Prosper, LendingClub or FOLIOfn, but we just want it updated and brought into the 21st century.

Speaking of web interfaces, LendingClub does need more filter options on their website. Are they planning up updating this?

The whole collections issue doesn’t seem to have much if any transparency, so any information would be appreciated. Yes, I do like how LendingClub posts what they are doing, i.e. calling customer, left message, sent email etc, while Prosper tells you nothing. Now who knows if Prosper is doing the same thing, or less or more, but the bottom line is we have no insight.

I too have had loans go immediately into default with no payments and then bankruptcy is initiated. If this is not legal, then Prosper needs to address this for their lenders. I have yet to have this happen at LendingClub, but the same would hold true for them. The question is, what if anything are they doing for loans that fall into this situation?

Thanks for everything Peter, I’m hoping you would have more information from Prosper, from what you posted in “Questions and Answers: Prosper Edition”. There were only 10 questions you listed, but I was expecting more like 20. I was looking forward to reading it, only to find that there weren’t many questions addressed in the interview. I’n hoping you are going to have a part two?

Believe me I really enjoyed the read and look forward to reading about LendingClub, but I always enjoy as much information as you can provide.
Thanks again!

Reply

Peter Renton August 23, 2012 at 2:44 pm

Hi RayJ, Thanks for chiming in. Lending Club are well aware that changes need to be made to the interfaces of the retail platform as well as Folio. This includes the need for more and better filtering.

I have had loans go bad immediately on both Prosper and Lending Club and I will deal with this question when I publish my collections posts in the next couple of weeks.

The reason there were less questions answered on Prosper was because fewer questions were asked and there was also one key person I was not able to see that day. There will no formal part 2 to this series but I will continue to get questions answered for investors and report on them here.

Reply

mark September 5, 2012 at 11:31 am

Ah, I guess it may be too late for this since you’re now posting your LC CEO interview but …

When a loan status shows as ‘processing’, does that mean the payment has been received and will show up credited to your account? I.e. is it safe to assume that once we see ‘processing’, the payment is not going into a grace period, etc.??

Reply

Em September 5, 2012 at 7:47 pm

If you’re buying notes on Foliofn, NEVER BUY A “Processing…” note.

Either

A) the payment will come in and your buy order will be canceled, or

B) the payment doesn’t come in and you’ve just bought a note that missed a payment.

Either way, YOU LOSE.

Reply

Larry Ventura September 6, 2012 at 8:10 am

But on the flipside, if you are a folio seller, these “processing” notes, even when they clearly have a failed payment in the history a few days ago, typically get purchased. The buyer has access to the exact same info.

Agree with Em that you actually don’t want to buy these, lol. Lending Club/Folio need to have an order type that says if a payment comes in PRIOR to note purchase (but after it gets listed), the sale gets cancelled. The buyer should get to keep the note if the payment comes in AFTER he puts in the buy order.

Reply

Em September 6, 2012 at 12:10 pm

I wish Lending Club did a better job of documenting their website.

For example, “Processing…” is NOWHERE described on the LendingClub website (not that I’ve ever found).

One time I asked “Customer Support” what “Processing…” meant. I got back a less than helpful answer.

Oh well. All part of the fun I guess!

Reply

Larry Ventura September 6, 2012 at 12:38 pm

I’m in the process of switching account managers, for that very reason (lack of helpful answers). Once I’ve established a good relationship I’m going to request that he send me a processing schedule, just so i can match it against mine.

Em September 6, 2012 at 6:06 pm

Didn’t even know I had an Account Manager. Seems like I get a different person every time (if I even get a response at all).

Dan B September 6, 2012 at 12:50 pm

Em………….NEVER huh? If that is ALWAYS correct, then the inverse of that transaction would always be correct as well, wouldn’t it? :)

Reply

Em September 6, 2012 at 5:59 pm

You mean putting only your “Processing…” notes up for sale?

Yeah, that could work.

Of course since the “Processing…” status is only available at the Loan Performance level, you’d have to go through each and every one of your loans every single day to find out which ones are in or out of “Processing…”.

Or maybe multiple times a day, if that status gets updated throughout the day.

But yeah, probably a good way to get rid of your “soon-to-be Late” notes.

FULL DISCLOSURE: I’m not entirely sure what triggers a sale to be “Canceled, Loan PAYMENT”. I’ve seen pending transactions that hang around for a few days and seem to end up going either way. It would be nice if LendingClub DOCUMENTED exactly how the system worked, but they don’t. Even more reason to stay away!

Then again, perhaps you have it all figured out. Some bit of salacious info to which you alone are privy? I have to admit, I’d be a little jealous.

Reply

Em September 11, 2012 at 7:40 pm

Here’s a question for you. On rare occasions I’ve sold loans at massive markups, for example a loan with 10 or 15 cents of principal selling for $9 and change.

This doesn’t happen, and usually seems to occur right after a borrower makes a big payment.

Have you seen anything like that? What do you think would cause that?

Reply

Em September 11, 2012 at 7:41 pm

Whoops, typo: “This doesn’t happen” => “This doesn’t happen often”

Larry Ventura September 5, 2012 at 2:39 pm

Mark, I can answer that one. NO. Every loan that is processing that day will show processing. It will show that until a payment shows up, or the loan goes to Grace Period (payment plans can also mess with this). Everyone of my loans with payment due 8/30 show as “processing” right now. One “bug” is that if you ever see a loan as processing, and it already shows the total payment amount, but principal paid = zero, and interest is something less than the expected amount…that loan is getting a partial payment equal to the interest amount shown.

Reply

Dan B September 5, 2012 at 4:01 pm

Larry………….A guy who we will call Lance walks into a room & finds another guy who we will call Mike, sitting at a table with a completely unassembled .45 caliber automatic in front of him. Mike is having a real problem putting that gun back together. Lance, being the nice guy he is, offers to help & expertly reassembles the gun in short order. Mike thanks him, takes the gun, reaches into his pocket & pulls out a clip & loads it. He then asks Lance for his wallet. You’re not there yet but never become a Lance, Larry. :)

Reply

mark September 5, 2012 at 3:32 pm

Thanks Larry…

I guess the related question is why our loans that, for example, were due 8/30 but are now ‘processing’ – are not already in Grace Period? How many days beyond the due date must a payment arrive to be in the Grace period – I thought it was automatic on the first business day after the due date.

Reply

Larry Ventura September 5, 2012 at 4:10 pm

I’m using generic info, but here’s how it works (note that the number of days can vary, due to what day of the week the loan is due). These are approximate time frames.

Day 1 – date that loan payment is due

Day 5,6 or 7 – this is when loans actually process (varies due to holidays, weekends, etc….). The reason for these 4-6 extra days is that ACH can be slow, and it gives LC time to work through minor problems. I’ve seen loans that have failed as quick as day 1, but LC may call or email them and they get the payment in before it goes to Grace Period.

Day 6,7 or 8 – One day after the actual processing date for Day 1 loans, any loan that hasn’t been paid changes to In Grace Period (IGP).

Reply

Larry Ventura September 5, 2012 at 4:14 pm

Dan, I have no frickin’ idea what you are talking about or implying. I’ll guess that you are saying either I’m giving him info way over his head making him dangerous, or I’m giving him info that will somehow hurt me by empowering him? Either way, I’ll do whatever I please, but thanks (not really) for the life lesson.

Reply

Dan B September 5, 2012 at 5:03 pm

I knew you’d react this predictably. :) Tomorrow I’ll come here & goad you into eating 10 hot dogs in a row.
The end of that story (which I had hoped to spare you) was that Mike empties Lance’s wallet & Lance is left with a surprised look on his face. Mike then happily bids adieu, not realizing that the gun may not have been reassembled as properly as he thought it was.

Don’t be mad Larry, it’s just a story. :)

Reply

Larry Ventura September 6, 2012 at 8:05 am

Sounds like someone is upset about their “secrets” being let out of the bag….lol.

Reply

Dan B September 6, 2012 at 12:41 pm

Yes Larry, thats exactly it. And that’s why I’ve been encouraging the conversation…………….in order to let even more “secrets” out. You are so 2 dimensional :)

Reply

mark September 6, 2012 at 8:19 am

Wow… it’s amazing that ACH technology is still so slow; I mean we have had the technology for a long time.

When will LC support Bitcoin loans?
Or at least support it as a cheap/free alternative to ACH transfers, where $USD used to buy BTC, transfer, then sell back to cash on the receiving end…

I suppose this has its problems too – Borrowers would have to initiate payments, instead of LC initiating withdrawals. But it’d be nearly free and almost instant – just think of the downstream efficiencies in the process…

thanks for the info Larry

Reply

Larry Ventura September 6, 2012 at 9:55 am

Not really sure what the holdup is. I have zero Prosper experience, but I’ve heard that deposits happen quicker over there. Not sure if processing is quicker too. I’m sure some of the delay is more of an LC issue.

Bitcoins….yikes. Not sure how the SEC views Bitcoins at this time. They are still a risky proposition.

Reply

Leave a Comment

Notify me of followup comments via e-mail. You can also subscribe without commenting.

{ 2 trackbacks }

Previous post:

Next post:

Real Time Analytics