Some serious questions about Lending Club

The miserable results with my Lending Club investment account raised some serious questions in my mind.

• ·         What should I do with the account?
• ·         Have I just been unlucky?
• ·         Has Lending Club’s performance on bad debts deteriorated?
• ·         What exactly does the account balance represent?
• ·         Is there a way of salvaging the account?

The obvious answer to the first question is just to get out of the account and close it down. Unfortunately, that isn’t easy to do. It contains over 3,000 notes being paid back over the next several years. There are two approaches to getting rid of these notes.

There is a secondary market where these notes can be sold. Lending Club will link you to FolioInvesting, a brokerage firm that deals with notes (amoung other things). At the moment, they list about 350,000 notes for sale. Some notes are listed at a premium. The asking price is more than the current balance plus accrued interest. Currently there are premiums as high as 15%. Others are offered at a discount. There are some with current discounts of 10%.

For each note, you can look at the details to gather clues as to how good an investment this might be. But with 350,000 available no one can look as these individually. Large institutions probably have software that can scan these notes selecting the better choices.

Some investors use this trading platform to unload their notes. They offer all their notes at a small premium. The better ones are quickly picked off. The investor then periodically the lowers the premium even moving into offering discounts until all notes are gone.

I used the trading platform early on to both buy and sell notes. It was an easy way of picking up a large quantity of notes. However, this is not an approach that I’m particularly interested in using.

The other approach is to simply let the notes in my account and run their course. Cash will accumulate and can be periodically withdrawn. Unfortunately, I have some 60 month notes that won’t be paid off until the year 2021

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So, the answer to the first question is that I will simply keep the account until 2021 and let the notes, disappear on their own. I’ll tackle the next two questions in a following post. Follow me on Twitter, @billlanke, for notice as to when that occurs.