Warning signs with Lending Club account

After fully funding my IRA with Lending Club in June 2015, everything started off well. Each week I would earn some interest and get more cash as borrowers paid off loans early. This money was plowed back in more notes through the automatic investing function. My account balance was growing. The status of most notes was current. Some were in the grace period and some were falling behind and were late. In September, a couple had moved in the default status and the first one was charged off in week 11.

In the first week of January, 6 more were charged off bring the total to 20 charged off (72 had been fully paid and I was up to 2400 notes). But more importantly this was the first week that the account balance declined. Notes were being charged off about twice a month, but I was getting over $100 a month in interest and the number of notes continued to grow. About mid-March, there was another losing week and this started to occur about every two weeks.

Early July marked the one year anniversary. I started comparing my account balance with the one 52 weeks before. The balance that week was over $54,000 and the annual rate of return was 8.0%. I had reached about 3,000 notes. I began tracking the rate of return when comparing each week’s balance to the one a year ago. Following is that chart. 

This was quite surprising. By then end of the second year, the return rate fell to zero and the account balance was not growing. Obviously, all was not well with my Lending Club account.

In December, 2016, I stopped the automatic investments. Clearly using that approach wasn’t leading to positive results. Once this was stopped, the cash in the account started to grow as interest and fully paid of loans continued to be added. I began withdrawing this cash as IRA withdrawals.

This performance raised some serious questions that I will deal with in my next post. Follow me on Twitter, @billlanke, and I’ll let you know when I make my next post.