social lending

In June 2008, Lending Club filed with the SEC for registration of $600 Million in Member Payment Dependent Notes. Lending Club has been in a "quiet period" since April 2008 while working on the registration. Today the DoughRoller blog was able to gather new information on the SEC registration filing.

DoughRoller notes, "In its Amended S-1, LendingClub disclosed that under a new formula, it will also use several other credit markers in calculating interest rates. Specifically, LendingClub will factor in a borrower’s number of open accounts, the number of credit inquiries in the last six months, how much of a borrower’s available credit is used up, and length of credit history." Previously Lending Club used only an applicant's FICO score, debt-to-income (DTI) ratio, and amount borrowed. This new set of loan criteria should provide a more balanced picture of the applicant for potential lenders. Many times an applicant will apply for a large number of credit cards at once but they won't show up as tradelines for several months. By viewing current inquiries, a lender can get an idea if the borrower has been out grabbing lots of new credit.

We will continue to actively monitor the social lending space. Considering the current financial picture, social lending could become even more active than it is currently.

If you are new to the concept of peer-to-peer lending, check out our social lending series. Also check out our exclusive interview with Lending Club CEO Renaud Laplanche.

We were the first to report on Lending Club's quiet period on social lending back in April. At that point, Lending Club stopped originating or issuing new loans during the quiet period. If you are new to social lending, our three-part social lending series will get you up-to-speed.

Below is the announcement that Lending Club is making today regarding their moving forward. Here's my simple take - lenders will buy "notes" and then use the funds from those notes to provide loans to Lending Club members. Since this information is very specific, I've decided to post the entire press release below. It's important to note that Lending Club is still in a quiet period until the filing is effective.

In contrast, social lending competitor Zopa is using insured CDs with their loan products.

Lending Club Files Registration Statement with the SEC

SUNNYVALE, CA - June 20, 2008 – Lending Club announced today that it has filed a registration statement with the Securities and Exchange Commission under the Securities Act of 1933 relating to its social lending platform.

The registration statement seeks to register the offer and sale of up to $600,000,000 in Member Payment Dependent Notes to be issued by Lending Club in a continuous offering following the effective date of the registration statement. The Notes will be issued in series with each series of Notes corresponding to a single consumer loan to a borrower member. Lender members will direct Lending Club to apply the proceeds Lending Club receives from the sale of each series of Notes to fund a particular consumer loan selected by the lender member and originated through the Lending Club platform.

A series of Notes will be issued only if and when the corresponding member loan closes and is funded. Lending Club will have an obligation to make payments of principal and interest on the Notes only to the extent that Lending Club receives payments on the corresponding member loan. The terms of the Notes, including interest rate and initial maturity, will correspond to the terms of the corresponding member loans but will reflect a four business day lag on payment dates and maturity to allow the platform to confirm payments received on the corresponding member loan.

Lending Club will offer the Notes only through its website directly to lender members.

A registration statement relating to these securities has been filed with the Securities and Exchange Commission but it has not yet become effective. Copies of the Lending Club registration statement can be accessed on the SEC website: http://www.sec.gov/. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or other jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities law of any such state.

About Lending Club (TM)

LendingClub.com is a social lending network headquartered in Sunnyvale, CA.

Earlier today we wrote about Lending Club and the abrupt change to their lending policy. Basically for the time being they are not allowing any further p2p (peer-to-peer) loans, only loans made directly with them. I am not sure what amount of funds Lending Club has to lend. I have heard back from CEO Renaud Laplanche and he can't share anything at this time.

I've also noticed some commentary from Lending Club lenders across the net. Here are a couple:

• Scott notes that Lending Club is "no longer peer-to-peer lending"
• Jason Crews is annoyed that he wasn't informed sooner so he could add more funds to his account to allow for more loans

We will continue to monitor the status and report updates as they become available.

Social lending site Lending Club has posted a notice on their site and blog yesterday. The notice which I have copied below notes that new loans for the time being will come directly from Lending Club and not from other individuals as they have in the past. In summary, Lending Club works by individuals lending money in groups to other Lending Club members at interest rates determined by their credit score. Check the Lending Club blog for more details.

Could the company be working towards an IPO? My guess is not and that this is a standard process to protect Lending Club as they grow. The term "quiet period" is being used and we hear this period could last as long as three months. I have an email into Lending Club to try to get more details. In any event, we will keep you informed as the situation progresses.

Important Information

Lending Club has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future. Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. We will continue to service all previously funded loans during this period, and lenders will be able to access their accounts, monitor their portfolios, and withdraw available funds without changes.

The borrowing side of our site will remain generally unaffected by this registration process; borrowers can continue to apply for loans and new loans posted after April 7, 2008, will be funded and held only by Lending Club.

Until the registration process is completed, the company will undergo a quiet period and will not be able to respond to press and other inquiries about Lending Club or the registration process during that time.

Check out our 3-part social lending series to learn how this new lending option works.

We've written about social lending several times before including our 3-part series looking at Zopa, Prosper and LendingClub. Jim Bruene at NetBanker has put together a good financial analysis of the social lending scene for the first quarter of 2008. LendingClub and Prosper share their loan information while Zopa does not.

From Jim's analysis, "In Q1, Prosper and Lending Club combined for more than $30 million in originations, up $10.7 million (55%) compared to about $20 million in Q1 2007." Jim goes on to note that for the lower risk loans, LendingClub actually passed Prosper in total volume.

If the economy continues to sour, my guess is that loan applications at Zopa, Prosper and LendingClub will increase dramatically.

Social lending company Lending Club announced their national launch last month. They offered me a t-shirt and naturally I said that they must give some to the awesome CN readers. They agreed and so we have a few tshirts to give away. Five size Large Lending Club t-shirts.

On the front pocket area, the shirt says: LendingClub and on the back it says: We are all bankers and the URL.

If you want one, shoot over your details but make sure you can fit into a L-sized shirt. And check out all of our social lending coverage including Zopa and Prosper.

With this new world of social lending, just how many bad debts will a lender be willing to take? In our 3-part social lending series we took an in-depth look at the industry and the companies in the space but with the area so new, it was difficult to anticipate the percentage of bad debt that would be forthcoming.

Andy Swan has been documenting his travels into social lending and his latest post discusses the bad debt in his account with Prosper. We originally wrote about Swan when one of his borrowers, a Slim123, defaulted on the loan. Today Andy's back with an overall update where he shares the following bad debt in his portfolio:

• 15 day late (2)
• 30 day late (2)
• 60 day late (1)
• 90 day late (1)

This amounts to 6 of the 49 total loans which results in a current bad debt at 12%. Swan ends the post with, "It’s almost as if the kind of people who take out loans on prosper are in some type of credit situation. I feel a “write-down” coming in Q2." I have requested updates from Prosper, Zopa and Lending Club regarding late payments and defaults and will post once received.

Lending Club is announcing today that loans can now be made nation-wide. Previously several states in the nation weren't able to participate in the social lending program. I believe Lending Club is the only social finance site within Facebook. Recently Zopa opened operations in the U.S. but unlike Lending Club which uses traditional loans, Zopa uses CDs for safety but also limits the ability to earn and therefore limits lender risk.

Lending Club is also releasing some loan data today:

• Lenders have earned an average 12.2 percent annualized return after fees and losses
• Defaults on the loans have remained under one percent (allen's note: most likely because they require a 640 fico.)
• Late payments are below 0.25%
• 489 approved loans in the six-month period
• Average rates vary from 7.82% to 17.37%

After we broke the story that Zopa was en route to the U.S., their plane has finally landed at JFK and they are now open for business in the U.S. The big question that everyone was puzzled about was how they would federally insure loans. That question has been answered.

Loans that are federally insured will be through the Zopa CD up to currently 5.1% depending on which loans you back inside the CD. Zopa describes the CD as, "A Zopa CD is guaranteed and insured way to earn a fixed rate of return for a fixed term. Compare it to a "certificate of deposit" at a bank or a "termshare certificate" at a credit union. But it's different, too. Because your Zopa CD directly benefits the borrowers you pick by reducing their monthly loan payments."

So there is the entire program. It's different than Lending Club and Prosper and Zopa in the U.K. because it works completely on loans that are backed by CDs which are taken through a variety of credit unions in the U.S.

If the best I can do is a 1-year term at 5.1%, why not just go to a local bank or ING Direct who currently are at 4.7% with no hassles? I guess it's all about the idea of not only making a return on the CD but also helping someone in the Internet community.

Zopa, the social finance lender, has spoken for months about their U.S. launch. Today I received additional information on the launch. They say that the launch will be in just a "few days". Perfect timing for the holiday season.

Here are the features they claim will be different than the U.K. version:

Looks familiar, right? Lots of real people taking money out and putting money in. But Zopa in the USA will be very different, too. Here are just some of the ways we'll be different from the sites that exist today:

• No risk for investors.
  Your funds will be federally insured. No more worrying about whether your borrowers will pay your loan back.
• Pick who you want to help.
  Investors will choose exactly who they want to help.
• Set your rate.
  Investors will choose how much they want to earn, up to a ceiling.
• No waiting.
  Borrowers will get their loans immediately upon approval.
• Lower your monthly payment.
  Borrowers can actually reduce their loan payments after they've borrowed. They'll do that using rich profiles...

How will we do all this? By using some very cool technology and a terrific partnership with leading credit unions.

I've highlighted the option that could be "game-changing" for the social finance and social lending movement. From what I gather, neither competitor Prosper nor Lending Club provide any sort of federal insurance for the loans created on the respective site. Isn't a loan all about risk? I have no further details at this point but I do have a mail into Zopa to try to learn more.

We've written extensively on social finance and social lending. Our 3-part series on social lending is a great place to start if you are new to the area. I remain confident that social lending will continue to grow in 2008.