A Big New Investor Using the Lending Club Retail Platform

One large Lending Club p2p investor snapping up 75% of loans

For a few weeks now I have been noticing this. I login and browse available loans at Lending Club and see many brand new loans that are about 75% funded.

Take a look at the graphic above. I took the screen shot this morning when this loan had been on the Lending Club platform for about 20 minutes. Already it was 75% funded by one investor.

There are Caps in Place for Large Investors

I spoke with Scott Sanborn, the Chief Marketing Officer at Lending Club, about this. He was aware that there are a small number of large investors using the retail platform. But he explained that these large investors must adhere to certain caps that limit how much they can invest per loan. This limit appears to be 75% because when I went through the new loans today there were a handful that were right at 75% funded with just one investor.

Sanborn made it clear that Lending Club wants a level playing field for small and large investors alike and they make sure that no one investor can fully invest in a loan that takes it off the platform immediately. So far it seems to be working. I have been watching these loans closely over the last 24 hours and all of the loans that this large investor has chosen (assuming they are all the same investor) are still less than 90% funded.

Even with the huge increase in investor funds recently almost all loans at Lending Club stay on the platform for at least 24 hours and the majority for at least a week. But once a loan is over seven days old the LC Advisor funds can take over and loans can be fully funded very quickly. This happens to a large extent in the first few days of every month.

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MK
MK
Aug. 15, 2012 1:26 pm

This brings up a question I have. Is Lending Club limiting the loans to one large investor? If not, one with 75% and another with 25% could still dominate the platform.
This could cause another issue. If only one large investor is allowed on a loan, it would be a race between the large investors to see who gets the good loans. If there is not a max number of large investors per loan, I would prefer to see a 45% limit and max of 2 large investors per loan.

Anil Gupta
Aug. 15, 2012 1:39 pm

Number of lenders, average amount per lender and percentage loan funded per day are some of the variables I use to select loans for investing.

Based on last update of early this morning in my database, there were seven loans that had avg amt invested per lender greater than $2,000 and there were ten loans that were funded more than 75% by less than 10 lenders.

Howard
Aug. 15, 2012 2:33 pm

Given the timing, I’m guessing the Big New Investor is Thomson Reuters. As for why somebody would use the # of lenders, % funded by one investor, etc as search variables is that it could save some time. If the Big New Investor actually has a clue, then following his lead could reduce the amount of investigation you need to do. OTOH, if the Big New Investor has somebody making the funding who is clueless, after you look at a few and see that they don’t meet your requirements, then you can *exclude* anything touched by the Big New Investor. Either way, you save time.

Dan B
Dan B
Aug. 15, 2012 8:11 pm

The short history of this investment class is already littered with examples of investors who deploy large amounts per note achieving mediocre &/or poor results. Size of note investment means little. Often times it’s just a sign of laziness or a sign that they slept through Statistics 101. Following an investor who achieves consistently good results is one thing, following an investor because they invest a large amount per note is another. In an effort to be more polite I won’t voice my opinion of people who use that nonsense as a screening or filtering tool.

Sean
Sean
Aug. 16, 2012 5:36 pm

Given that there’s already a 7-day cap in place before the LC Advisor funds can invest in a loan, I’d like to see something similar for large investments in general. Maybe until the 7-day period has expired, all note purchases are limited to a much smaller amount or percentage per investor, something in the $1000 / 5% range. After that period has expired, it’s open season for LC Advisor or other large investors to pick up any amount remaining. Possible feedback for Mr. Sanborn…

Dan B
Dan B
Aug. 16, 2012 6:31 pm
Reply to  Sean

I’m sorry, but as much as putting more & more limitations on what large retail investors can do may make it easier for all small investors (myself included)……………I disagree. Who gets to determine what constitutes a “large investment”? Who gets to decide what the percentage limitation or time period should be? You? No offense but I’m not really comfortable with that.

I can see how limiting what/when institutional investors can do makes sense & those limitations are already in place. Why do I make the distinction? Because institutionals already have multiple vehicles for investment in this, with advantages that retail investors big or small don’t. But within the universe of retail investors, I don’t see the fairness of discriminating & limiting what anyone can do. We’re all playing with the same rules. Why should someone be limited as to how much they can invest so that a certain amount can be set aside in case you decide to come by & invest?

Don’t want to run the risk of having a note get fully funded before you’ve had your chance? There’s a simple solution……………..Wake up earlier or invest daily, like I do.

Sean
Sean
Aug. 16, 2012 8:54 pm
Reply to  Dan B

One of the things I like most about P2P lending as opposed to say, stock purchasing, is the sense that the playing field is kept level, and I certainly commend LC for keeping that a priority. I make the suggestion because, unless I misunderstand the checks in place, it’s only a small step to a potential exclusion scenario. If a single investor is able to reserve up to 75% of a given loan, then it follows that two investor accounts can easily close out a loan as soon as it opens. Combined with some relatively simple automation, loans could be cherry picked at a rate that waking up earlier to invest daily can’t possibly match. That doesn’t sound like a ridiculous scenario – it only requires one additional account.

I don’t know how to differentiate between a large retail investor and an institutional investor who happens not to use an LC Advisor, so I may be describing a scenario that can’t occur – if so, I’m happy to be corrected.

I do invest daily, and I think it’s great that LC is willing to continually update the rules to ensure that everyone has a chance to invest. My suggestion was meant in exactly that spirit – seeing a potential point of unbalance and looking for a way to prevent it.

Dan B
Dan B
Aug. 17, 2012 1:05 am
Reply to  Sean

Hey I agree that undesirable scenarios can occur & probably will occasionally. But I think it is preferable to going down the road of placing too many limitations at this time………………especially when it’s going to be so difficult to determine where the line should be drawn.

Bryce M.
Bryce M.
Aug. 16, 2012 9:59 pm
Reply to  Peter Renton

I’ve been investing once every two weeks, $5-7k at a time, with no trouble cherry picking the top 10%. If some cherrys are getting picked, there are plenty left over.

Dennis
Dennis
Aug. 17, 2012 12:36 am

Does anyone know if Prosper follows a similar policy (caps for large investors)? I’m having a terrible time finding anything worthwhile to invest in there, especially the last two months. I’ve been with both Lending Club and Prosper for 11 months now, I never have issues with Lending Club, just Prosper. I have roughly 10k invested in Prosper and 16k with Lending Club. I have to wonder if the best loans at Prosper are going to the Prosper Premier clients while the scraps are being tossed to everyone else. I’m very close to pulling the plug with Prosper while wanting to get more aggressive at Lending Club. I have other issues with Prosper but the poor selection of loans is my main concern.

Roy S
Roy S
Aug. 18, 2012 8:02 pm

Here’s my $0.02…

I agree that there should be a cap (maybe 5%) for ALL investors on how much they can fund any one loan, but I would only place the cap on the loan for the first 24 hours the loan is listed on the platform. After the loan has been on the platform for 24 hours, any lender can fund as much of the loan as they wish. Under this scenario, it is still possible for a large lender to fund 100% of the loan, but it does give the smaller investors a chance to invest in the loan as well.

Here is how I envision it would work…Say you want to invest in 90% of the loan. You go ahead and invest in 90% of the loan. When you look at the listing it will only show a 5% investment. After the 24 hour period is up, the loan is invested at 20% (including your 5%). Since the remaining amount of the loan to be invested is 80% and you’ve already invested 5%, the system would automatically invest the remaining 80% of the loan (so you don’t have to go back in and invest in the loan a second time) or as much as you can based on the funds available in your account. If the loan had only been invested at 10% (including your 5%), then it would automatically invest the remaining 85% of your order putting the funding total to 95% (and your total to 90%). The issue I see would be if more than one person wishes to invest more than 5%, which would place the funding over 100% of the loan value, but I have addressed a similar scenario on your blog, Peter, about how I would handle such an occurrence with how Prosper currently handles that with the AQI.

Ultimately, there’s just something about p2p lending that I feel should be more…well, “peer”-to-“peer”. I believe the larger institutional investors are important (especially since they are doing the majority of funding on Prosper), but I’d rather see them in a more complementary role.

But any way you slice it, it’ll be arbitrary and “unfair” to someone. So there will always be someone who is unhappy and complaining.

Roy S
Roy S
Aug. 18, 2012 8:06 pm
Reply to  Roy S

I should clarify that if the loan has already been on the platform for over 24 hours, and you wish to invest 90% of the loan that it would go through the first time (i.e. you don’t have to wait another 24 hours). The 24 hour period would only apply to the time the loan has been active on the platform, not to when you attempt to fund more than 5% of the loan.

Dan B
Dan B
Aug. 18, 2012 8:55 pm
Reply to  Roy S

Roy S………..As cliché as it sounds, I say let’s not fix it unless it is broken. At this point I don’t see it as broken.

What I find amusing about all of this is that there is an inherent assumption here somewhere that a big investor or an institutional investor is going to swoop in & grab all the “best” loans before everyone else……………….It’s amusing to me because let’s face it, we wouldn’t be having this discussion if they came in & took huge chunks of what we perceived to be crap loans, would we??

So this whole discussion on limitations presupposes that these big/institutional investors can readily identify the “best” loans & it also presupposes that everyone else can do so too…………..& that there’s this complete agreement as to what the “best” is. That’s a pretty big assumption & almost certainly bogus. A quick look at the performance numbers of big investors & institutional investors should dispel the notion that they know what the “best” loans are. So why are some of you getting excited about this?

Roy S
Roy S
Aug. 18, 2012 11:05 pm
Reply to  Dan B

@Dan, It’s not about fixing something that isn’t broken. It is about improving upon what already exists. Imagine if Henry Ford said, “The way to build automobiles isn’t broken, so why fix it?” rather than take the idea of an assembly line and apply to manufacturing automobiles. Hell, what if the people who thought up the assembly line and interchangeable parts thought along the same views as those you espoused? There might neither be an assembly line nor interchangeable parts today. Or they may have come later, and we may not have the technologies we possess today. What if the ideas had come earlier and been implemented earlier?

Perhaps, a more pertinent analogy may be Henry Ford’s comments that, “Any customer can have a car painted any color that he wants so long as it is black.” Henry Ford refused to incorporate new features into the Model T costing him vast market share, because he would not accommodate the whims of the market (or rather consumer preferences).

Putting aside whether the big/institutional investors (or anyone else for that matter) can identify the “best” loans, there is a feeling among the consumers that there should be a more level playing field among all the lenders. Right or wrong, that is how the consumers feel. In the minds of the consumers IT IS BROKEN, and therefore, it should be fixed.

My personal opinion is that everyone on the platform should have as equal an opportunity to invest in all loans as possible. It doesn’t matter whether the loan is one of the “best” loans or not. Further, I prefer the idea of 100 people investing in one loan rather than just 5 or 10 people (or sometimes just 1 large institutional investor). It’s my personal preference. And thankfully we have a choice of platforms (though I would prefer that there were more than just the two big ones). That way, if I feel that one platform is broken I can go to the other. And THAT is what each company has to realize and understand. It doesn’t matter how just Dan feels or how just I feel. You and I are just single data points. It matters how the market feels, and that is something they need to consider, regardless of whether you believe nothing is broken.

Speaking of how the markets feel, it is apparent on this board that the Folio platform is “broken.” I wonder whether LC or Prosper will act first on improving/replacing it. Again, anything a company can do to differentiate itself from its competitor(s) can be an advantage. I’m sure that there are investors (especially those who can only purchase Notes on the secondary market) who would be highly attracted to an improved secondary trading platform. The question is whether the costs associated with improving/replacing Folio will provide a great enough advantage/ROI to warrant doing so. Would it be enough to bring in new customers or even steal market share? Perhaps they should think about doing some market research to help them make a decision…?

Dennis
Dennis
Aug. 19, 2012 12:47 am
Reply to  Roy S

Roy – Dan:

I really like Roys idea, I think he’s on to something. It’s not that hard to identify what loans are best and what ones aren’t. If someone has delinquencies past or present, not good. If someone is 20%+ DTI, not good. No job, low income, very high credit card usage – high risk. If institutions can’t figure that out then they are either lazy or just don’t care. Most of them make money on commision, they get paid whether they’re right or wrong, doesn’t matter to them. What Roy is suggesting is a level playing field. Small or large investor, doesn’t matter as everyone has an opportunity to pursue their investment style. I’m getting pretty darn frustrated with Prosper because I don’t think the field is level. I think large investors (institutional have an advantage that the small investors don’t – purchasing power) are dominating Prosper. I could be right, I could be wrong, but Roys policy would insure opportunity for all. If Roys ideas were made policy at Prosper and Prosper made it clear to me that those policies would always be honored, I’d feel a lot better and probably get a little more aggressive in my investing there. Right now, for whatever reason, most of what I’m seeing in loan quality from Prosper is garbage. I don’t have this problem with Lending Club and I’m about to rev up my investing there. Prosper needs (IMHO) to get on the ball if they want more of my investment dollars (as a small investor).

Just my 2 cents worth…………

Dan B
Dan B
Aug. 19, 2012 1:10 am
Reply to  Roy S

Roy………I guess we’ll have to agree to disagree here because my disagreements with your positions are almost too numerous to list. For starters, I disagree that the playing field isn’t level. I also disagree that there is consensus on this board that the field isn’t level.

Furthermore I disagree that Folio is, as you put it “broken”. I use Folio more than most here. In fact, considering that I’ve sold over 400 LC notes on Folio in the last 3 years & over 100 Prosper notes on Folio…………..I don’t think that I’m going that far out on a limb by saying that I’ve more experience using Folio than anyone on this board. Are there problems with Folio? Sure there are & Foilo is a challenge to learn, but it’s hardly broken. Perhaps some people who feel it’s “broken”, just haven’t yet learned to use it properly & efficiently. I could go on & on but I’m really not in that type of mood tonight.

Roy S
Roy S
Aug. 22, 2012 8:51 pm
Reply to  Dan B

Dan, I was putting “broken” in quotes, because Folio obviously works. What I meant is that it can still be improved upon, and that there are still complaints about it from some investors. There are still efficiencies to be gained on both the Prosper and LC platforms as well as Folio, and that each company should be focusing on improving the “customer experience.” I hate to repeat myself, but again, it doesn’t matter whether the playing is actually level. It doesn’t matter whether the large institutions can pick “the best loans.” What matters is the customer perspective and experience. Just because you don’t feel either is “broken” doesn’t mean that others feel the same way you do. Nor does it mean none of the platforms can be improved upon. I think the one place we can agree upon is that if someone (like yourself) doesn’t like Prosper (for whatever reason), they can head on over to LC…and vice versa. Or, if one company can improve the customer experience, they can gain/steal market share. And in the end, LC and Prosper doing what they can to gain/steal market share is what matters, not what you or I think/write on this blog. …and I’m fully willing to concede that not addressing certain frustrations that I or others feel (and going with your views and perspectives) may ultimately be the best course of action for these companies. I’m just throwing out my views and suggestions, which they may never even read or may just laugh at and move on.

Chris V
Chris V
Aug. 19, 2012 3:18 pm

Peter- I have been closely reading your blogs about P2P lending and I actually have a loan currently under review with LC. Its been 7 days and all its been funded is $4k, and I need $16K+. As you stated before, you only see 10% of the loans having a big investment, but it still leaves many others, as my loan being invested the minimum. Is there something that that I can do to get my loan funded faster?

Bryce M.
Bryce M.
Aug. 19, 2012 4:58 pm
Reply to  Chris V

Give us the Loan ID and we’ll do our part. I figure if you’re coming to Peter’s website, it’s a good sign! :p

Chris V
Chris V
Aug. 19, 2012 5:27 pm
Reply to  Bryce M.

Peter- Thank you for the advice! Bryce- Thank you for the support!
Loan- 1475013
Thanks Again!

Sandy
Aug. 25, 2012 2:29 pm
Reply to  Chris V

I posted my own loan on my blog and had it funded within 24 hours.. I bet it’ll move faster now that you’ve posted information here. Also, Peter’s advice about seeming too needy is right. Investors are looking for safe listings to fund. If you sound desperate it would turn me off.

Chris V
Chris V
Aug. 19, 2012 6:09 pm

Peter- Thank you for the advice and support! I wish there was a way to delete those comments.

Bobby Glanton
Bobby Glanton
Aug. 19, 2012 10:26 pm

Are there any new peer to peer lending services where you can have a lower credit score than whats required at Prosper and Lending Club, also will Prosper and Lending Club consider a loan if a person agrees to an interest rate in the 30% range if a person has a score thats fair and not seriously bad. Thank you for your prompt response.

p2pwannabe
p2pwannabe
Aug. 21, 2012 11:06 am

I understand the concerns about level playing field and not having enough opportunities.

But I definitely don’t understand why one would avoid notes that have already been funded 75% by one investor? While I can see a “follow the money” positive, what is the negative that some believe this represents?

Bobby
Bobby
Aug. 21, 2012 5:00 pm

Of the big three p2p lenders, if your credit score is in the mid 600s, which one would you suggest as having the best chance of being funded and easiest.

Dan B
Dan B
Aug. 21, 2012 8:58 pm
Reply to  Bobby

You mean Big 2……………because the 3rd one is hardly big. Regardless, I’d say the answer to your question is Prosper in terms of getting approved to list, since they have a slightly lower credit score threshold.

Alex
Alex
Aug. 23, 2012 6:41 am

Hi Piter,
I really enjoy reading your blog here and fruitful comments of other people. I do have traditional financial education, but somehow I missed p2p lending as investment option until now.
As far as I seen from your and Anils analysis there are statistically significant evidence that loans active in first two days of a month can attract institutional money more easily. Unfortunately I did not know it initially, and posted my loan request too early and it will expire on 8/31/12. It is been on a market for 3 days, but is only funded at 25%. The loan number is 1487692
What is my chances of getting fully funded on time? What information should I add to be more attractive to smart investors (I assume that smart investors who do their homework can invest more per good quality loan, so I can get funded faster).
I can’t post any reply to investors unless somebody ask me a question. I will appreciate of you or all other readers of your blog will take a look at my loan request and ask a good questions which may help in your investment analysis.
Thank you!

Alex
Alex
Aug. 23, 2012 8:01 am

Thank you Piter!
I’m not desperate to get money ASAP. In case if my loan will not be fully funded I will probably realist it but I will try to use following tactics: I want days 8-13 of the listing to be the first two business days of the month. In this case I will have 7 days to collect as much as I could from retail investors, will cover obligatory 7 days lockout for big investors and will have a good chance of attracting institutional money. How does this sound?