Well, aside from the not reporting of interest income, the things you list may be against the rules but cause nobody any harm. Someone lying on a loan application, however, is attempting to commit fraud. They may not plan to steal money, but if they’re getting something that they might not be entitled to because they’re a poor risk, then they’re putting the lenders at greater risk of default. Some of the liars are planning on fraud as evidenced by the number of loans that fail on their first payment.
And I don’t see anyone in the thread saying they planned to fail to report income (aside from core_dump’s facetious hypotheticals).
Well you can justify almost anything if you try hard enough. Those rules are in place for a reason. I believe state imposed laws as the b reason some states aren’t eligible and sec rules for the income limit. 3 year loans aren’t very liquid, hence the income and net worth requirements.
I’d agree that attempting outright fraud is the worse of the two situations. But sometimes, its stretching the truth to get you yhat little boost. People do it all the time on mort and cc apps. Not exactly ethical, but ok if you dont get caught. Just like the situation above.
I don’t deny that it’s wrong to skirt the state / income limits as a lender, but it’s vastly different from lying on mortgage and credit card applications.
In the former, you’re risking nobody but yourself. In the latter, you’re asking people to advance you money with assumption X about your ability to pay them back, while really your ability is something completely different. It’s fraud, pure and simple. And that kind of behavior was a big contributor to the financial crisis (“liar’s loans”, and lenders looking only at the short term vs. the borrower’s ability to actually repay).
On another topic: I just took a look at my interest income from Lending Club over the past couple of years. I have not been adding new money to the pot, beyond a 20 dollar a month transfer. Starting last August, I sold off a bunch of older loans (for a profit), and most recently I made a significant effort to sell off anything that was showing any significant drop in credit rating.
My interest income 3/31/2012 was 11.27. My interest income 3/31/2013 was 19.81. I suspect it’ll take a hit in April and May because I churned so many loans, but once those settle in it should be eye-opening to see what my income stream is (say, 6/30/2013). In that same 12 month period with 240.00 in deposits my account value grew by 400 dollars, or 160.00 in profit. That’s very roughly 10% in a year (remember, I’m a small-potatoes investor).
While those are “paper only” profits, as in they could evaporate if my loans start to go bad, it’s nice that my hobby seems to be producing good results for now.
Are there any states where you can’t apply at all? Maybe there are a couple. I was under the impression that all states at least allowed you to open a trading-only account. It never even occurred to me to lie since I could still trade. I doubt it would gain one much of anything. Now Prosper, that’s a whole different ballgame over there. They practically beg for you to lie.
There isn’t a per-note $10 threshold anymore, if there even ever was. So everyone should have received a 1099 from LendingClub if they received any total interest of consequence. Nobody in this thread has the luxury of any decision to make there. Or if you were referring to the $5 you earned last year from the local credit union, bah. Pennies difference.
Hopefully everyone making under 70k/yr! It’s not the US government’s job to protect people from themselves. The whole ‘accredited investor’ deal, different but closely related, has pissed off quite a few ordinary folks. What’s next, outlawing non-diet sodas 16oz or larger? Errrr, wait a minute, too late.
There’s plenty of liquidity in 3 year notes on the trading platform so that reasoning does not compute. That platform has been available since post-SEC day 1 if I’m not mistaken.
I’ll let you two hash out the moral issues of lying about this and that. I make it a rule to only argue about that which I know a fair amount about, and I am particularly deficit in that area.
Or we can get back to what this thread is really all about…
Making money off the misfortunes of others. Those others being:
[ul]
[li]Those credit-wrecked individuals who will pay way more interest than the going rate from real banks[/li][li]Other traders who pay more for notes than makes any logical sense, due to stupidity or simple oversight[/li][li]Traders who get stuck with a note going into grace status due to clever timing[/li][li]Lenders who part with their notes at far below market value due to financial emergency, error, etc.[/li][/ul]
Every single buck made by anyone here falls into one of those categories. This doesn’t seem like the kind of thread for clergy to hang out in.
The reason why some states you can only trade on folio is because that state’s law doesn’t allow an individual to originate a loan, but allow you to purchase loans that have already been originated, hence being able to trade on the secondary market.
Look, my intention really wasn’t to get into this huge debate about morals and ethics. Just that it’s so easy to point the finger at someone else that may be in a tough financial spot, and trying to get a loan approved to get out of a tough spot, when others are on the investing side of the fence also telling little white lies, which I found ironic.
The borrower that takes out a loan without intending to ever make a single payment on the loan is a much bigger fraudster than either of the cases above. And there really isn’t anything LC or anyone can do about it since it’s an unsecured loan and based solely on trust, which is the main reason for the higher rates.
Regarding people making money off the misfortune of others, I’ve already posted my thoughts above. No one’s arms is twisted in any transactions, so attempting to claim one party is getting the better of the other is false. If someone can only secure an interest rate of 20%, there’s a reason for it. If both parties come to an agreement on the terms, then a valid contract was entered into. The banks won’t touch these customers because they’re toxic, and the credit card companies are all too glad to provide a 30% interest rate and a minimum payment that doesn’t decrease the loan balance. In a LC loan, the investor can secure a higher interest rate than investing with loans from quality buyers, and the borrower can get better rates, terms, and a path towards paying down the debt.
Minor quibble: None of us originates loans. WebBank originates the borrower loans, LendingClub essentially buys them, and then we buy derivatives from LC whose payout is based on the performance of the underlying member loan. We are just placing bets on whether the borrower member will pay. There isn’t any “lending” except that which you hand over to LC for the bet. Yes, I know the marketing team wants you to think otherwise. In the end the net effect is the same so it really doesn’t matter either way… except when things go south and things go to court.
On the point of state laws: An employee at LendingClub has told me that if/when the IPO goes through there will no longer be states which are trading-only. If there were state laws absolutely forbidding engaging in this activity, then how could he promise this?
What I really came here to say though is:
It appears that none of the borrower payments posted today as they should have. Unless it’s some holiday that I don’t know about, something is up. I only hope that the notes don’t go into grace status as a result, which would mean a lot of my notes are going to have an undeserved ding on their permanent record. Conversely, might be a way to snatch up some notes at a discount over the weekend.
Huh - yeah, I had two whose payments were due on the 13th and should have completed by the 17th (4 business days later). They show as paid on the 18th and “paid in grace period”.
Yeah, I’ll say. However that likely isn’t going to happen. I didn’t realize it at the time, but the same thing happened back on 3/04. I must have sold them all because I don’t have many notes with the 4th as a payment date anymore. I’m sure I lost some money that day. LC never went back and fixed those. This time around, I have lost $hundreds as a result of decreased note value. I’m rather irritated. They’re not going to do anything about this unless there is a revolt.
The day before, trades and payments were very late in settling. Then they took the site down that night. There has been talk about their server just getting behind. That sounds iffy to me.
Someone on another forum had a detailed conversation with LC on the issue but he hasn’t yet posted details. When he does, I’ll pass along the info. (I am assuming linking to another forum is frowned upon here.)
By the way, I don’t know if this has been mentioned in the thread already, but a while ago Google bought a large stake in LendingClub. Now that’s some big news. Maybe Google can teach LendingClub how to operate servers that behave in a consistent manner.
I sold one in March that did the same thing and I bet it was due on the 4th. Not sure how LC can get away with this when it is their fault and not the person paying the loan. Unbelievable.
Mini-update: about at the end of a 2-month spree of aggressively listing and relisting loans whose rates had dropped a few notches. Came close to losing big on one that went nearly 2 weeks before being brought current, I just managed to sell that one at a few pennies of profit just after it was brought up to date.
My interest income dropped substantially as a result - from nearly 20 dollars in March, to 14 in April and about 12.50 in May. Not offset by gains in either month; in April I had a net loss thanks to a couple of lose I had to sell at a significant discount; in May I had a small gain but not enough to make up for the income loss.
With the loans not being income-verified, I’ve found a lot more orders fail to complete. That increases the time where my money is latent and not earning anything.
I’m hoping that June and July’s income shows a signficant rebound. It should, as my portfolio average age is much younger (i.e. larger portion of payments in interest). I’d done a lot of selling-off in August/September/October and saw my interest go from 12.86 in August to 15.75 in November, without any significant extra investment (just the same 20 dollars a month I’ve been doing for a while.
Because of the longer lead time issues, it’s harder to increase profits now by selling at a profit - yes, you make that profit but is it enough to offset basically a month of no income on the money? Doesn’t seem to be in my case.
I am definitely seeing that. Orders failing and having to search for new ones and then having some of those not complete. It’s getting harder to get that money into loans.
I know this one was 3 years ago, but… I was on the other side of that a couple weeks ago!! A loan had gone well into grace period despite the credit score going up. Due 5/15, finally paid 5/31. I decided I wanted to be rid of the damn thing (it had gone into grace period once before)… so listed it at a small profit (23.08, principal was 22.77, so principal less fee was 22.85). The purchaser got 22.98, minus 23 cents, or 22.74. Ouch.
I just plunked another $4k down to bring my total investment to $10k in 28 months. Despite changing my filter to allow unapproved loans and non-verified income, when I first tried to buy some notes it came up with a grand total of one. I didn’t bother. After waiting a couple of hours I was able to attempt to buy four notes. I wonder how long it will take me to invest in 160 notes.
Since you said you waited a “couple hours” I’ll just add: You might have better luck if you only check for notes around the “feeding times”. The new notes are released 4 times a day if I remember correctly. They are on a very specific schedule. I don’t have the times in front of me but I can dig them up if needed. It was mentioned on LC’s blog and a google search for feeding times LC etc should find them.
Odd behavior on one loan recently: a C4 (but 60 month, so I guess it would have been a B5 at 36 months). First payment was 12 days late.
Second payment was due July 20th and as of today has still not completed. BUT - the credit score has gone up over 100 points since the loan was issued (from 695 to 800). Its principal was 24.73. As soon as it went past due this time around, I listed it for 25.25 - and it was snapped up (just completed) so I netted 25.00 plus the interest from last month). So I’m ahead, slightly.
I wonder if they’re about to pay it off or something - I’ve had things go late before and then pay in full. Oh well, at least the buyer wouldn’t lose much if that happens: P+I is probably about 25.10, minus a 25 cent commission, so they’d net about 24.85.
I am pretty sure I listed it for sale last month when it first went late, but it was brought current and I forgot about it. Well rid of it now.
Summary of my experiences over nearly 4 years: 1560ish invested, currently worth 1,910ish. So a grand profit of about 350 dollars, or just under 25% over 3.5 years. I guess that averages out to a bit over 6% (though of course the principal was much lower early on). LC says I’m making about 10%.
Just checked my July statement. 19.57 in interest, woohoo! I could buy LUNCH with that :).
A couple of months of big selloffs really dinged me on interest the previous few months. Though in May through July, I didn’t have any “fire sales” so made a profit (or lost only a few pennies) on all my sales and that made up for some of the interest lost.
Especially with how long it takes to successfully fund a loan (and the frequent cancellations), churning really makes a difference.
I’m trying to gradually get rid of all my A-class loans, as well as my older ones (year or more old) as the interest is naturally diminishing.
Anyone have any interesting news? For those of you who’ve invested more, how is that going? Amarone, how long did it take you to find 160 loans to invest in?
Yeah, I think I have some news that qualifies as “interesting”. This last month LendingClub decided to lock my account and told me I couldn’t withdraw my own cash. How’s that for nice? All the sordid details are in this thread. I have since been allowed back in, but I gotta say my goal of building up my LC balance to a couple hundred $k over the next decade and leaving it there seems rather unwise at this point as a result of my experience.
Actually, I got to 160 within a few days once I timed my attempts in line with loan release times. However, as loans are now all filled before being verified, a good number of the loans I invested in were kicked out, so I am still investing. I currently have 122 issued and 38 in funding.
I’ve just had 3 loans go into default. One was really odd - they paid off two thirds of the loan in December, then made no payments after March, leaving just 7% of the loan unpaid. Overall I made a little money despite losing my final $1.73 of capital.