Yesterday on the Lending Club blog, in a post titled Protecting Identity and Privacy, CEO Renaud Laplanche announced a change. There has always been a fertile Q&A area on every loan where investors could ask any question to a borrower. Not any more.
Starting today, investors will only be able to ask questions from a predefined list. No free format questions will be allowed. No doubt many investors will be distressed about this, but I see their point. Often as I read these Q&A’s it became clear that with a little digging I could find out the borrower’s identity.
Too Much Information
For example, a common question has always been about employment. Borrowers will often reply with complete detail about this. Someone might say I have been the office manager at ABC Company in Little Rock, Arkansas for 5 years. If I so choose, with a tiny bit of research on Google I could find the phone number and most likely the name for that person at their workplace. From there it is not that difficult to find a home address and social media profiles. No doubt some “enterprising” investors have done something like this, which likely prompted this change.
I don’t think this a big deal personally and I completely see Lending Club’s point. While the Q&A is a nice feature it is not something I focus on. What it shows me more than anything is the responsiveness of the borrower and their attention to detail. Did they answer the question and how long did they take? This is useful information, but I have to admit lately I am moving away from the importance I have placed on them. My reason? I have noticed on several of my defaults when I went back to look at the loan listing, I saw they answered the questions precisely and in detail and looked like a great risk for an investment. Then a few months later they defaulted on the loan.
The List of Questions
The preset questions that Lending Club will allow differs depending on the purpose of the loan. For a debt consolidation loan there are three questions only that may be asked:
1. What is your intended use of the loan proceeds?
2. What are your current monthly expenses (rent, transportation, utilities, phone, insurance, food, etc.)?
3. What are your current debt balances, interest rates, and monthly payments by type (credit cards, student loans, mortgages, lines of credit, etc)?
Considering debt consolidation is by far the most popular category it would have been nice if Lending Club allowed for a few more questions here. For a small business loan there are eight allowable questions, including questions one and two above. In fact, the first two questions are available for every loan category it seems and then the other questions vary depending on the category.
The one downside I see is that there is no space now for questions regarding specific verifiable information like the kind that ReadyForZero provides. It is sort of covered in question 3 above, but it is now completely up to the borrower to proactively provide this information. I would like to see more integration with a service like this and that may well come in the future. I am sure Lending Club is monitoring how this change lands with investors and may well make an adjustment or two as they see how everything plays out.
What do others think? Are you outraged or like me, do you think this is not a big deal for investors? Please share your thoughts in the comments.
[Update: Just heard from Lending Club and they said that the number of questions are not fixed. Investors can ask for questions to be added by sending their requests to email@example.com. It will take them 2-3 weeks to review questions and get them added (if approved). Also, as Ken from Lendstats.com points out in the comments, it looks like Prosper has completely eliminated investor questions. No warning from them either. It can't be a coincidence that both companies made this change basically on the same day.]
[Update 2: I have been informed that this change has been mandated by WebBank, the company that underwrites the loans for Lending Club and Prosper]