A general view of the atmosphere at LendIt USA 2017 conference at the Jacob Javits Center in New York City on March 6, 2017. (photo by Gabe Palacio)

LendingClub Closing Down Their Platform for Retail Investors

There is big news out of LendingClub today for their tens of thousands of retail investors. They have given notice that they are closing down their Notes platform at the end of the year and individual investors will no longer be able to invest in any loans originated by LendingClub.

This is a disappointing development for the industry, as LendingClub was a pioneer in peer to peer lending, and for me personally as I have multiple LendingClub accounts going back more than a decade.

All investors should have received an email this morning detailing their plans. Here is an excerpt from that email:

As we move towards becoming a full-spectrum fintech marketplace bank, we have looked closely at our current and future product suite and have started development of new products to help our members keep more of what they earn and earn more on what they keep. Unfortunately, under a prospective banking framework, it is not economically practical for LendingClub to continue to offer Notes. So, we had to make the difficult decision to retire the Notes platform effective December 31, 2020.

While LendingClub began in 2007 as 100% focused on individual investors over the years it has moved to a much more institutional investor-focused approach. This was understandable as it is difficult to originate huge loan volumes on the back of just retail investors.

It is true that LendingClub has deemphasized individual investors over the past several years. We saw that the loan trading platform was closed down earlier this year, we have seen investors in some states being locked out of investing, increased investment minimums and there have been few, if any, new innovations for retail investors in many years.

Now, we are coming to the end of an era. The peer to peer lending model has not proven to be the wonderful innovation that it promised. There are virtually no platforms operating at scale today that have a pure retail investor approach. UK platform Ratesetter was probably the biggest, at least in the West, and that was sold earlier this year to a traditional bank for a fraction of what it was once worth.

The Lend Academy Investor Forum has been very active today with this news so if you are interested in unfiltered commentary from individual investors check out this thread. One of the forum members, Brad C, agreed to provide this formal comment for inclusion here:

The closing of the retail platform is somewhat bittersweet for me. I started investing in notes in 2009 so I remember the initial excitement and buzz around peer-to-peer lending. The last few years it’s been obvious that LendingClub was deemphasizing the retail platform as part of the business model. I am not a totally surprised they are ending it, but had expected they would attempt to integrate it into the new banking platform since they were one of the original peer-to-peer lending companies. I feel a sense of loss in terms of the initial concept of peer-to-peer lending being dead at LendingClub. I bought into that idea of regular people helping each other with loans while cutting out the big banks/financial institutions taking advantage of people. It seems like we’ve gone full circle from the original peer-to-peer lending model to now back to big banks/institutional investors controlling lending.

I also reached out for a comment from industry pioneer Matt Burton, the founder of Orchard (acquired by Kabbage in 2018) and now a partner at QED Investors.

While the fintech industry has been moving away from peer-to-peer lending (P2P) since 2016, Lending Club’s decision to shut down its retail P2P platform marks the end of an era. P2P Lending was my entry into the fintech space in 2010.  During its rise it had the promise to transform lending into a more transparent and democratic process. Hopefully, future entrepreneurs will find a way to break through where P2P failed.

I have averaged probably around a 7% return at LendingClub (see details of my returns here) since I started investing back in 2009. While I liked the peer to peer aspect of the business, I was drawn to the non-correlated returns of this asset class. It has been a staple of my investment portfolio for over a decade. I will now have to look for other alternatives.

A representative from Prosper reached out to me today reminding me that they are still open for investment and remain 100% committed to retail investors. By the end of the year they will be the only game in town so I will certainly be increasing my investments there.

What I Would Like to See LendingClub Offer Down the Road

While this is the end of peer to peer lending at LendingClub I don’t believe it is the end of investment opportunities backed by consumer credit. There was this part of the email that caught my attention:

People helping people is core to who we are as a company and we’re scoping new products that would retain the peer-to-peer spirit of Notes under the prospective banking framework.

So, once the acquisition of Radius Bank has closed and the regulators give their blessing I expect we will see some new products from LendingClub. Here is what I would like to see:

  1. CD-type product that is backed by consumer loans – this would have a long lockup (at least a year) and pay higher interest than regular CDs. I would like to see an FDIC-insured option and an uninsured option to earn more interest (not sure if regulators would bless this but I think it would be popular).
  2. Floating interest account with a floor – I would love to see a fund-type product that pays 3-4% but with a floor of 2%. This would not be FDIC-insured but would provide investors an opportunity to earn some of the returns from consumer credit.
  3. High interest savings account – a liquid option that pays the highest rates in the country. I could envision a savings account that pays 3% or more, again with the LendingClub bank using very low cost capital to invest in their own loan portfolio.
  4. Investor marketplace – Scott Sanborn first teased this idea in his LendIt keynote in 2017 and I always thought it was compelling. I would love to be able to invest through LendingClub in a range of alternative assets such as consumer loans, small business loans, fix and flip real estate loans and auto loans.

Of course, once they become a regulated bank I realize some of these products may be very difficult to implement. But I hope and expect they are working right now on creating something completely different that would be compelling for investors.

The news today will not be received well by their investors and they will need to work hard to woo them back. A groundbreaking new investment option would be the best way to do that.

Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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Kyle
Kyle
Oct. 7, 2020 2:12 pm

This was hysterical today. Those of us in the closed out states were promised they were working “diligently” to fix the issues that no one there would even inform investors of what they were. This went on for MONTHS now.
As I’ve said all along they are working in a sinking ship. What goes around comes around for management there.
For the other suckers like me get ready to start your daily transfers of idle cash in your accounts to your own banking accounts. You’ll get used to it like brushing your teeth every morning.
I wouldn’t be expecting any high yield accounts for you as referenced unless you believe in unicorns. Don’t waste anymore of your time and money with these people. It’s shameful.

scott
scott
Mar. 18, 2021 5:05 pm
Reply to  Kyle

Yes, it’s bullshit that they say they care about people helping people. We were all duped until we were no longer useful. A real pity for the borrowers who actually had a chance to participate in some fair lending practices.

DHP
DHP
Oct. 7, 2020 2:43 pm

What the markit needs today is a simple participating certificate of deposit.

Banks would issue the certificate of deposit to fund consumer loans, and take a fixed spread from the rates, allowing the credit consequences to flow through to a large group of CD holders.

This is not a new concept, it goes back 30 years to the index linked CDs of the 1980s.
In effect, it would be a matched book securitization, without the Wall Street costs.

Kevin
Kevin
Jan. 9, 2021 5:06 am
Reply to  DHP

Yep, the few times I contacted them about being shut out from investing I was fed a load of bullshit about how hard they were working to solve the problems which they of course refused to identify. So for over a year now I’ve just been sweeping my returns out every week and hope this group of scammers enjoys many failures in the future.

Joel
Joel
Jan. 27, 2021 7:16 pm
Reply to  Kevin

I can’t get my “available” cash out. I’ve tried many times to withdraw it to the linked bank account. I’ve emailed several times with no response. Doesn’t look like I’m getting my money out.

Kyle
Kyle
Jan. 28, 2021 9:04 pm
Reply to  Joel

I still have both an IRA and Non-IRA account with them. When you log onto their website you see the one account and when you would normally switch to the other account the system automatically logs you out. So, I’m unable to even access the other account for the last several days.
When I contacted the company I was asked to try another browser and then was told they actually had a long list of people with the same issue and to not contact them again about it as they would email me when it was corrected.
I’m really looking forward to investing in their “HIGH YIELD” savings product. (sarcasm)

C
C
Oct. 7, 2020 3:11 pm

Their business modal is changing from p2p loan servicing, which has always operated at a loss to traditional banking lending with their platform and marketing which hopefully can turn them into a successful profit machine.

I have been with them when they started although stopped investing about 4 years ago.

Paul Mangione
Paul Mangione
Oct. 7, 2020 4:05 pm

Small investors should check out Paperstac (www.paperstac.com). You can buy and sell performing and non-performing 1st and 2nd lien mortgages. Paperstac has straightforward tools that assist the process. Buyers are responsible for performing their own diligence.

John
John
Oct. 7, 2020 5:57 pm

I’m screwed with over 160K invested in an LC IRA account. In December that account will slowly begin turning into idle cash. I’m currently earning 7.3% on that loaned money and I’m sure their offer to transfer accumulating cash into a “Founders Savings” account will pay crap for interest. To the best of my knowledge the IRS only allows an individual to move funds from an IRA account once a year. So I’m supposed to wait out most of 2021 to pull out the 60K to 70K that will be sitting there? Peter, tell me I’m wrong, but I doubt it. Time to change some IRA withdrawal rules! I’ve been in LC since it’s 2008 inception. This is probably the curse of Renaud Laplanche. He once said to me during his initial LC IRA Webinar pitch that he was no Bernie Madoff.

Kyle
Kyle
Oct. 7, 2020 9:17 pm
Reply to  John

Maybe we need to think positive.
Radius Bank is currently offering .25% on their “HIGH YIELD” Savings account.
Let that sink in for a minute..

Miguel R.
Miguel R.
Nov. 5, 2020 12:33 am
Reply to  Kyle

Rate tiers are as follows, 0.00% APY applies to balances of $0.01—$9.99, 0.05% APY applies to the entire balance on balances of $10.00—$2,499.99, 0.15% APY applies to the entire balance on balances of $2,500-$24,999.99, and 0.25% APY applies to the entire balance on balances of $25,000 or more. Rates may change after account is opened.

Kyle
Kyle
Nov. 5, 2020 7:56 am
Reply to  Miguel R.

Yes it’s pathetic. I was being sarcastic.

LOUIS HAYWOOD
LOUIS HAYWOOD
Oct. 7, 2020 10:43 pm
Reply to  John

The one year rule does not apply to trustee-trustee transfers so you can direct another IRA service to take your funds from LendingClub’s IRA service and it won’t count towards the rule at all. The rule is only for removing money to your bank account and redepositing the money elsewhere.

Bruce Marcellus
Bruce Marcellus
Oct. 8, 2020 12:40 am
Reply to  LOUIS HAYWOOD

Correct, although their IRA custodian takes a $25 fee from each trustee to trustee transfer. Some receiving firms may credit you that fee back, depending on your relationship.

John
John
Oct. 8, 2020 4:36 am

Prosper only works in some states, not all. Until other states open up to Prosper’s P2P lending program, it’s dead for the rest of us, anyway.

I’ve been seeing about 8% returns through Prosper but, since moving from GA to TX last year, TX doesn’t allow me to do business here. Can only reap the rewards of the notes I’ve already invested in.

Jeffrey J Miller
Jeffrey J Miller
Oct. 8, 2020 11:40 am
Reply to  John

Prosper has just closed down GA for the time being. Supposedly its a paperwork problem. Time will tell.

Robert
Robert
Jan. 6, 2021 9:25 am
Reply to  John

I have a prosper account that I have never used because I was investing in LC. I have logged into prosper today for the first time in years and I see they 7 (seven!) open lists, the equivalent of LC notes. I guess P2P lending is really over. Perhaps time to look into Crypto lending.

James A Jones
James A Jones
Oct. 8, 2020 9:59 am

The LC IRA business was doomed to fail from Day 1.
*Process – the process of total integration to IRA Custodian never happened, rather, just a front end API to open the account. mostly a manual process behind the scenes frustrating client onboarding.
*Price – tech inefficiencies of Custodian forces high fees therefore high $ minimums losing substantial market share
*Promotion – Depended on the IRA Custodian to market LC loans to their own customer base, which is actually prohibited by the IRS. Can name dozens of P2P platform that failed by depending on IRA Custodians for their Client Acquisition
*Distribution – made the fatal error to partner with aggregation platforms to resell to RIA’s but attempted to CHARGE the RIA’s rather than PAY them. Upside down and misunderstood model.

Coozbee
Coozbee
Oct. 11, 2020 7:46 pm

“ TOLD YOU SO! “ Hey Peter, how’s it working for you, NOW!

Rob L
Rob L
Oct. 12, 2020 5:28 pm

You might reach back out to Prosper and ask why, if they are still “fully committed” to retail investors, did they drop Folio? First thing they could do to solicit retail clients would be to restore a secondary market (though I know Goldman now owns Folio and it would have to be something else).

Simon Cunningham
Oct. 14, 2020 7:30 am

Still sort of blown away by this. It’s the end of an era.

Miguel R.
Miguel R.
Nov. 5, 2020 12:54 am

Thanks for the article. I read the original LC email and glazed over it— your article was easier to digest. I was with LendingClub first as a borrower, then as an investor. I made my best returns using the Trading platform while my traditional loans were just seeing okay returns.

Will existing loans continue to be paid as long as the borrower continues making payments? For the folks who were seeing 5-7%+ returns, they should continue until the notes are paid in full right?

As I understand it, once the payments settle, they will be rolled over (transferred) to this new Radius savings account— is that correct?
If so, why can’t we just rollover the cash into a savings account of our choice?

For IRA accounts, I wonder if the rollover could occur to a ‘new’ IRA investment or savings account of our choice similar to above to avoid the Savings account altogether.

For those looking for steady returns, check out Worthy bonds. You buy bond notes at $10/note. They then fund what they want with those funds. Bond holders receive a fixed 5% return. It remains liquid in that you can sell your bonds at any point.

Joel
Joel
Jan. 28, 2021 10:50 pm
Reply to  Miguel R.

If you figure out how to get available cash out, let us know. I haven’t been able to withdraw mine. I do the withdrawal online and the money just stays there. I’ve done it several times.

Tom
Tom
Dec. 28, 2020 6:08 pm

They’re killing the platform that was built on the backs of their individual investors. Screw them, they can keep their high yield bullshit savings accounts. We are moving our money far far away from them.

Kyle
Kyle
Dec. 28, 2020 6:30 pm
Reply to  Tom

The “high yield” will be less than 1% for sure so don’t worry.
You’re not missing anything.
What goes around comes around they’ll find out.

Kyle
Kyle
Mar. 18, 2021 5:17 pm
Reply to  Kyle

Yes of course I was correct about less than 1%. If it’s true what someone posted a few days ago that rates were dropped for them to .6% after account opening and it had been promoted as .75% I’d be on the phone to them…
They still are promoting at .75%.
The good news is I am getting faster in those few keystrokes to transfer my cash to my personal account when it’s available… I’ll have months/years of practice to come…
Can’t wait to read more about their quarterly performance and how well they are doing. Some people have distorted recollection of what they did to investors for months in many states and didn’t even give us the courtesy to know why we’d been dropped.
Enjoy your “High” Yield Savings…

Kevin
Kevin
Jan. 9, 2021 5:02 am

These bastards have been misleading and straight-out lying for years now. I got very nice returns from the start picking and choosing my own loans, so I appreciated that, but mostly I was attracted by the “social contract” aspects, the chance to offer a boost to folks who needed a break from abuse by big banks. It actually felt good to earn decent returns while helping hard-working people get out from under credit card debt or have some cash to accomplish something important. It almost seems like Lending Club’s long game was to lure borrowers into a web and then just transmogrify into another high-profit abusive bank.

Here’s hoping for their complete and utter failure in their new venture.

mike
mike
Mar. 17, 2021 10:58 pm

Hi All

– I need lendingCLub default statistics by year

Can anybody help?

Thanks a lot
mike

mike
mike
Mar. 18, 2021 3:38 pm
Reply to  Peter Renton

Thank you very much!

Chris Z
Aug. 13, 2021 4:31 pm

Back in 2019, I rolled over my IRA money to lending club. Later I even created a Roth IRA account
with additional contribution. Then in Dec 2020, they discontinued their business.

Since then, I have been requesting to transfer my IRA money to Fidelity or elsewhere many many times.
They have been ignoring my request for more than 6 months.
They never provided me an option to transfer my money directly to Fidelity.
I even tried to initiate the transfer from Fidelity side. However, Lending club does not cooperate.
For more than half year, they kidnapped my IRA money and I simply could not get my money back.
I talked to their customer service rep to complain many times. They repeatedly create case numbers, but never get back to me on any case. Their strategy is to completely ignore any complaint, by pretending listening to you first and then put it behind. I am pretty sure there are a lot of individual investors like me
in the same situation. If we could find each other and unite, we can take a class action on Lending club.

Chris Z
Aug. 13, 2021 4:33 pm
Reply to  Chris Z

I am hoping someone can provide me helpful information on who to contact or what to do to get my money back.

John
John
Aug. 16, 2021 9:14 am
Reply to  Chris Z

I think LC realizes how difficult it would be for investors to assemble the resources necessary to legally challenge them. Many of us share common problems, but we also have diverse issues. I have a traditional IRA account that previously used CAMA as the account custodian. Other LC investors have used Strata or another company. Taxable accounts are simply linked to an outside bank account. My recent problem involved attempting to complete a fund request out my newly appointed IRA custodian, Alto. I’ll give LC some credit, they promptly sent the money to Alto. However that’s where seven weeks of frustration began. After submitting Alto’s forms a couple of times, their website and email went dead for almost two weeks. The Tennessee based outfit, Alto, claimed they were hacked (details undisclosed, but I suspect they were held up negotiating ransomware.) Finally after seven weeks and a couple dozen email exchanges and more forms, I got my money. Though my biggest disappointment was with LC. I only requested that someone in LC management contact Alto to get things moving. After all, LC selected Alto on our behalf, perhaps they even payed them fees to manage our accounts for the first year. Emails to LC looking for help only generated a useless automated response or they were ignored. Calls to them were met with a convenient, “I’ll pass along your concerns”. Of course in my case LC can’t be sued for the lack of a satisfactory response. At least on this forum we have a platform to share with others our unique concerns.