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Lending Club to Stop Daily Updates of New Loans

by Peter Renton on April 4, 2014

Lending Club Total Loan Issuance

For three and a half years now I have been keeping close track of the lending volume at Lending Club and Prosper. Regular readers are used to seeing my end of month updates with the loan volume charts. Well, that is all about to come to an end, at least where Lending Club is concerned.

Astute observers will have noticed already that the Lending Club loan volume numbers on their home page and their statistics page have not been updated since March 31. And the total loan issuance graph shown above now shows loan volume by quarter and not by month and has also not been updated since March 31.

New Loans Will be Added to Lending Club’s Site Once a Quarter

Yesterday, Lending Club quietly published this blog post announcing the change. What is changing is the frequency of updates to the main download file that contains details of every loan, including the payments, issued since day one. The crux of the change is this. This file is changing from being updated with new loans every day to being updated with new loans once a quarter. What is not changing is that the payment information will continue to be updated every day, but only on loans that are in the existing file.

Here is how Lending Club describes the change:

Instead of posting new issuance data daily, we’ll now post new issuance data quarterly within 30 to 45 days after the quarter ends. We will, however, continue to provide daily data updates on payment and performance in our downloadable file for loans issued in prior quarters.

When I called Lending Club to discuss this change they would not provide much in the way of additional information. But it is not difficult to read between the lines here, particularly when considering this change in the light of their impending IPO. And I believe this is 100% related to the IPO.

No public company that I am aware of provides daily updates on their sales numbers. And that is essentially what Lending Club is doing by providing their loan volume numbers every day. It is not difficult to extrapolate the loan numbers into a sales number and know how sales are trending on a daily, weekly and monthly basis. Without this daily loan volume information their stock price will be less volatile and they will be able to “manage the message” with Wall Street every quarter.

When is this Change Happening?

The last complete update of the downloadable file will be on April 15. After that no new loans will be added until 30-45 days after the end of the quarter. However, as I said above payment information will continue to be updated daily for existing loans.

This is going to be a difficult change for many of the statistics sites such as Nickel Steamroller that offer detailed analysis of the Lending Club loan history. I spoke with Michael Phillips, the founder of Nickel Steamroller, yesterday and he said the change will certainly be challenging for his site and he will have to adapt. He will have to get to work over the next two weeks to make sure Nickel Steamroller is ready when the changes to the download file happen.

There is Some Good News

Lending Club tried to soften the blow by making a long awaited change to portfolio downloads. I have always thought it was strange that Lending Club provided the complete credit data in their download file for all loans, but when you download your own portfolio you get virtually no credit data.

Download all Notes Lending Club portfolio

Before I get to this change let me explain how to download your own portfolio on Lending Club. From the main account page click on Notes and then scroll down to the bottom of the screen and click the Download All link that you see highlighted above. This will download all the notes you own into a CSV file that you can open in Excel.

Starting April 16 the portfolio download file will have some major changes. All the fields that have been on the data download file will be included in the portfolio download. This will be hugely helpful for serious investors and is a long overdue change. This is something I first asked them about three years ago and it has finally come to pass.

And one final change that was announced yesterday. The minimum for Lending Club PRIME accounts has been reduced again – this time to $2,500. Good news for investors who want to automate their investing and have Lending Club handle it for them.

Overall These Changes are Bad News for Investors

There is no way to sugar coat this. The change to remove loan volume is bad news for investors. It is one more step in the direction of reduced transparency and I don’t like it. This comes on the back of the removal of loan descriptions as well as the Q&A with borrowers. For those people who have been around a while the environment is very different now than it was just a year or two ago.

Having said all that, I understand where Lending Club is coming from. Renaud Laplanche, the CEO, has said on numerous occasions that his vision for Lending Club is as a mainstream financial services company involved in all areas of lending. One that will eventually rival the household names of today. To achieve that vision some things have to be sacrificed. And one of those things is the level of transparency.

When Lending Club becomes a public company, which could well happen before the end of the year, it will have to act differently. I accept that, because I want this company to grow and realize its potential. But I will also agree with the many of you who will be angry at this move.

So go at it. Share your thoughts in the comments.

{ 17 comments… read them below or add one }

Andrew N April 4, 2014 at 6:40 am

“Without this daily loan volume information their stock price will be less volatile and they will be able to “manage the message” with Wall Street every quarter.”

I was thinking their share price would be less volatile with daily updates. Stocks can become volatile around quarter end when analysts compare their earnings estimates to what the company actually releases. The larger the discrepancy between estimated earnings and actual earnings, the more volatile the response. I imagine with daily loan data that analysts would be able to make more accurate estimates, leading to lower volatility.

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RawRaw April 4, 2014 at 7:16 am

I agree. I don’t think that quote is a correct read on how the markets work

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Bo Brustkern April 4, 2014 at 9:47 am

I like where you’re going with this thought, AndrewN and RawRaw, and you may be right. However, the way I interpret this is that LC is being coached by its bankers to manage the message with Wall Street by reducing transparency (ugh) so that LC’s stock price won’t be subject to daily fluctuations based on interpretations of daily loan volume reports. In classic public company style, the Investor Relations group can then communicate to Wall Street its version of reality: why the originations are up or down. Managed effectively, this larger window will appear to reduce the volatility of originations because LC can turn the dials within the quarter without anyone ever having to know, and (hopefully) hit *exactly* the number that they want. Or that Wall Street wants. In the late 90s Cisco (using a much different toolset) beat analyst earnings expectations by exactly one penny for 13 quarters in a row, over 3 years of exactitude. Ridiculous? Yes. And when they missed estimates by $0.01 per share in February of 2001, their stock price tumbled 13% in two days. Painful? Yes. Public companies manage expectations, earnings and performance, in that order.

Is there a better way? Of course. I’m a proponent of daily transparency, but I’m afraid LC is going down this traditional path of quarterly semi-transparency, never to return. Possibly for very good reasons unrelated to the “manage the message” squirrel I’m chasing. I’m a little surprised, and a lot not surprised. Sadly, they are likely never to release daily data again. Bummer for us.

So what happens next? Hedge funds will aggregate all of the API daily loan volume and compare it to actual reported volume for a few quarters. Once they have enough data, they will figure out the adjustment factor to adjust API daily loan volume to actual reported loan volume. Then they will project the trend out for the quarter and if LC is trending ahead, they will buy the stock and if it is trending light, they will short the stock. It is all about beating or missing quarterly earnings expectations (a la Cisco). My partner Jason used to play this game and hated it. So now we’re champions of p2p, hoping that the transparency that we love about this marketplace does in fact stay for the long term. Here’s to hoping.

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Bryce Mason April 4, 2014 at 7:43 am

Mixed bag. The daily updates were information overload. I totally get this shift. In an age when every day was make or break, I could see it. Every quarter is fine over the long view, which is what they are communicating now. “Hey we are established enough for daily changes not to matter.”

From a statistical standpoint, new quarters are essentially worthless. The only thing we lose is the ability to see if credit quality has changed rapidly. We will have to wait to parse their quarterly data.

The only real impact for me is that I now face a choice for corporate billing. I usually create an invoice every month based on the extract. This will either have to change to once a quarter (less work for me but longer float granted) or I will need to invest time rewriting my billing scripts to use the notes.csv file.

Interested to hear others’ perspective.

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Rob L April 4, 2014 at 8:09 am

For the first time (I think) LC provided a heads up before making changes that affect us all. It’s a policy I hope they continue. Better still would be a sign-up mailing list to receive similar notifications in the future.

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Emmanuel April 4, 2014 at 9:00 am

There are not much information in news loans, since they are too young to have defaulted. The community isn’t loosing much.

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Anil @ PeerCube April 4, 2014 at 11:06 am

First, new loans that never make any repayment after issue will not show up in historical data file until they are already 31-120 days late. LC is reducing transparency for lenders on the “fraudulent” loans. It may be a harbinger of loosening lending criteria to boost volume by Lending Club without giving lenders opportunity to identify such unscrupulous borrowers. Second, lenders (unless they own the notes) will not see the FICO score updates on new loans for 4-5 months. LC normally updates FICO score monthly. It may be potentially bad for secondary market transactions.

Such reductions in information provided to lenders are creating some moral hazard for Lending Club that are bound to reduce trust in LC by lenders. Unlike conventional lenders, LC doesn’t have their own money (or OPM) on the line that they need to payback or account for. LC no longer has skin in the game, they are just a match-maker who will do anything to increase transactions as they make money of higher number of transactions.

Sooner or later LC will get sued by a major lender on their platform who will argue that ‘lack of timely information disclosure from LC’ resulted in losses by lender and LC is liable for the losses.

IMO this continued quest to reduce information and transparency to lenders is turning LC into a stodgy old company. Hopefully, other P2P lending startups will get better traction with such actions by LC.

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Anon April 5, 2014 at 1:11 am

My guess is that most of the larger lenders will have separate agreements for timely data that will cover their needs.

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Anil @ PeerCube April 6, 2014 at 11:38 pm

Nah! Once Lending Club goes public, they can not disclose material information privately. SEC will be on their back in a heartbeat.

Working with couple of institutions recently, I realized institutions may have direct line to executives at Lending Club. However, they receive much less data as lenders from the programs tailored for them.

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Peter Renton April 4, 2014 at 2:22 pm

Thanks for the comments everyone. Interesting discussion. It is certainly going to be more opaque from now on not just for loan volume but to also get an early read on new loans. And I didn’t even think about the difficulty of selling new loans – that will be a major drag on people selling on the trading platform.

I think most of us will adapt while Lending Club as a company and p2p lending as an industry continues to evolve. And some of us will say this is the last straw and start withdrawing their money. But I am still very comfortable increasing my exposure to this asset class.

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rawraw April 5, 2014 at 3:03 pm

Everyone thinks it is the big bad banks and LC succumbing to them. I don’t know much about laws around disclosure of information, but I do remember Netflix CEO getting in trouble by announcing something on Facebook without issuing the information on Edgar first. This may be a result of that. Perhaps to host daily information, LC would have to file daily filings to update their sales and such. This may not be it, but something that could be

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Peter Renton April 6, 2014 at 9:09 pm

Rawraw, The sense I am getting in the conversations I have had since this announcement is that it is most likely not regulatory but more related to the stock price post-IPO.

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Anil @ PeerCube April 6, 2014 at 11:31 pm

After my comment here, I was pinged by Lending Club and told the same. These changes are in relation to preparation for stock market post IPO.

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Charlie April 6, 2014 at 8:34 pm

I think we need to stop calls this p2p lending…

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Peter Renton April 6, 2014 at 9:13 pm

Indeed. It hasn’t been true p2p lending for some time now. Lending Club haven’t used that term for several years now – Lending Club call their investment Prime Consumer Notes which is not exactly meaningful either. I often refer to it as online lending and others have called it direct lending. Maybe one day the industry can agree on a new term…

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Nick April 8, 2014 at 10:33 am

Peter, you said: “This comes on the back of the removal of loan descriptions as well as the Q&A with borrowers.”

Did you cover these changes in a previous post or do you have any additional information about the removal of loan descriptions and Q&A?

Thanks,

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Peter Renton April 8, 2014 at 10:01 pm

Hi Nick, I did not cover this topic specifically on the blog but you can read more about it on Lending Club’s blog:
http://blog.lendingclub.com/2014/03/19/lending-club-extends-privacy-protections-borrowers/

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