OCC approves LendingClub acquisition of Radius
WASHINGTON — The Office of the Comptroller of the Currency has signed off on LendingClub’s purchase of Radius Bancorp, the latest step in the San Francisco company’s effort to become the first online lender to own a bank.
LendingClub will still need approval from the Federal Reserve on the company's pending application to become a bank holding company. If the Fed endorses the merger, LendingClub will form Interim LCB.
Once the deal closes and assuming the Fed approves the application, the OCC approval will allow the Boston-based Radius to convert from a federal savings association to a national bank that will be owned by LendingClub and ultimately renamed LendingClub Bank, National Association, the OCC said.
“With this conditional approval, we have completed another important milestone in our journey to become the only full-spectrum fintech marketplace bank and the first neobank that will be publicly traded in the U.S.,” a LendingClub spokesperson said in a statement. “We feel good about the progress we have made.”
Under the OCC approval, the resulting bank will be required to have day-one capital of $410 million, including $250 million provided by LendingClub itself. Within 45 days, LendingClub Bank will also need to appoint a chief credit officer and chief compliance officer and submit those appointments to the OCC. The bank will also have to enter into an operating agreement with the regulator within three days after the merger is complete. That agreement will be in effect for three years.
LendingClub, which pioneered a marketplace lending model, announced its agreement to purchase the $1.4 billion-asset Radius for $185 million in February. The firm said at the time that the deal would take 12 to 15 months to close, and that the acquisition will allow for the creation of a scaled-up, digital bank that will enable customers to pay less when borrowing and earn more when saving.
LendingClub had said it planned to pay 75% of the purchase price in cash — by tapping into its stockpile of cash on hand — and the remaining 25% in stock. The company said that it also plans to spend approximately $20 million on advisory and transaction-related costs, plus $50.2 million as part of an agreement with its largest shareholder that will enable compliance with federal bank ownership rules.
The online lender had been pursuing a dual path toward obtaining a bank charter, applying for a charter with the OCC while also seeking to acquire a bank in order to access a cheaper source of funding for its loans.
LendingClub is partnering with the Utah-based WebBank so it can offer loans across the country without getting licensed in each state. It said in February that abandoning that model would save about $25 million a year.
We’re delighted to announce that Radius, Bankrate’s Best Online Bank, has become part of LendingClub, the #1 U.S. provider of personal loans. With our combined resources and shared vision for helping people improve their financial lives, we anticipate bringing you great things in 2021 and beyond, with LendingClub’s suite of industry-leading loan products being just the start.
What you need to know now:
- No action is required – there is nothing you need to do.
- There are no changes to your Radius accounts and services. All your account numbers, login information, passwords, direct deposits, loan payments and other services remain the same.
- You’ll continue to enjoy the same great benefits. Access to Radiusbank.com, Online Banking, and the Radius Mobile app will remain the same.*
- We’re still here for you, right where we’ve always been. Our Radius Customer Service phone and fax numbers, email addresses, and ATM access—those will remain unchanged as well.
- You’ll start to see the LendingClub name. Moving forward, the LendingClub logo will now appear next to our Radius logo.
As always, we thank you for your business, and we look forward to serving you in the years ahead.
For answers to frequently asked questions, please select the type of client you are:
To learn more about the acquisition visit: https://blog.lendingclub.com/radius-close
To read the press release visit: https://ir.lendingclub.com/news/news-details/2021/LendingClub-Closes-Acquisition-of-Radius-Bancorp/default.aspx
LendingClub builds on Radius Bank acquisition with exec moves
LendingClub has made a series of executive moves to bolster consumer and commercial banking operations just months after its acquisition of Radius Bank.
The San Francisco company is promoting Ronnie Momen, previously its chief lending officer, to chief consumer banking officer. Momen will steer the retail-banking business forged from LendingClub’s $185 million purchase of Radius, a $2.4 billion-asset bank in Boston, which was approved by regulators early in the year. LendingClub is among the first fintech companies to buy a bank.
Momen has held credit-related roles at Wells Fargo and HSBC along with other fintechs like GreenSky and Credit Karma.
David Bolocan has been hired as senior vice president of deposits and payments. Bolocan was head of deposits for three years at BBVA USA, which was recently acquired by Pittsburgh’s PNC Financial Services Group.
Amber Carroll has been brought on as senior vice president of membership and life-cycle marketing. Carroll had been senior vice president of marketing at Freedom Mortgage, one of the largest home loan lenders in the U.S., and previously held marketing positions at TD Bank and HSBC.
LendingClub has also hired Jamie Armistead as vice president of product management. Armistead held a similar role at Early Warning Services, which runs the bank-owned person-to-person payments service Zelle. Before that he was head of digital channels at Bank of the West.
LendingClub, which was started in 2007, long specialized in consumer products like personal and auto loans. With the acquisition of Radius, it has reentered commercial banking. LendingClub had shut down its commercial lending business in 2019, referring commercial business borrowers to partner companies.
Consumer loans, specifically personal loans, will “continue to accelerate” the company’s growth toward profitability, LendingClub CEO Scott Sanborn said in a press release announcing the changes Tuesday.
“The opportunity in front of us is massive, and we're firing on all cylinders with a clearly differentiated approach as the leading digital marketplace bank in the country,” Sanborn said.
LendingClub Announces Acquisition of Radius Bank
First U.S. Fintech to Announce Acquisition of a Bank, Now Poised to Reimagine Banking
Enhancing LendingClub’s Ability to Serve its Members, Grow its Market Opportunity, Increase and Diversify Earnings, and Provide Resilience and Regulatory Clarity
Board Adopts a Temporary Stockholder Rights Plan to Protect Bank Charter Initiative
Transaction will be Discussed during the Company’s Q4 and Full Year Earnings Call and Webcast Today at 2pm PT
See the original press release
SAN FRANCISCO, Feb. 18, 2020 /PRNewswire/— LendingClub Corporation (NYSE:LC), America’s largest online lending marketplace connecting borrowers and investors, today announced that it has signed a definitive agreement to acquire Radius Bancorp, and its wholly owned subsidiary Radius Bank, (together “Radius”) recently voted the nation’s best online bank1 in a cash and stock transaction valued at $185 million. Combining Radius and LendingClub will create a digitally native marketplace bank at scale with the power to deliver an integrated customer experience, enabling consumers to both pay less when borrowing and earn more when saving.
Radius is a leading online bank founded in 1987 and based in Boston, MA, with more than $1.4 billion in diversified assets. It is known for its award-winning, branchless digital banking platform that combines state-of-the-art technology with the best checking and savings account features to provide a superior banking experience for consumers and small businesses. Its platform provides convenient features such as check deposit, bill pay, card management, and a personal financial management dashboard, as well as open APIs to offer “banking-as-a-service” (BaaS) functionality to leading fintechs. In addition, the company offers commercial lending options for businesses, and treasury management services for pension funds, unions, municipalities, and non-profit organizations.
LendingClub is the number one provider of personal loans in the country, facilitating more than $12.3 billion in loans in 2019. With a proven 14-year track record of improving customers’ financial health, the company has helped its over three million members to save money versus their high interest credit card debt.
“This is a transformational transaction that allows us to reimagine banking in a way that is free from legacy practices and systems and where the success of LendingClub is aligned with the success of our customers,” said Scott Sanborn, CEO of LendingClub. “By combining with Radius, we will create a category-defining experience for our members that will dramatically enhance the resilience and earnings trajectory of our business.”
“LendingClub has always been a fintech innovator, and I look forward to leveraging the strengths of both of our talented teams as we usher in a new era in banking,” said Mike Butler, Radius’ President and CEO. “We are excited for our employees to operate our virtual banking platform with more resources and for our clients to gain access to an industry-leading lending product. This is a perfect marriage, with LendingClub bringing the leading digital asset generation platform, and Radius contributing a leading online deposit gathering platform, to position the combined company for long-term success.”
Additional compelling strategic and financial benefits of the transaction include that it will:
- Diversify and increase earnings by capturing the sizeable revenue opportunity that is currently being absorbed by issuing banks, reducing the use of high-cost warehouse lines, and generating additional and recurring net interest income;
- Enhance resiliency over the economic cycle by offering a source of low-cost, stable funding;
- Deliver regulatory clarity through a direct relationship with a primary regulator;
- Attract new members through the addition of banking services that leverage LendingClub’s marketing strength;
- Offer new products, services and resources through an expanded BaaS offering to better serve partners; while increasing the cross-sell power for Radius clients to gain access to lending products; and
- Increase engagement with existing LendingClub members to help them manage their cash flow and earn savings, while generating more data to inform underwriting and help consumers progress on a path to better financial health.
The combined entity expects to be substantially accretive with a cash payback of the purchase price premium and all costs in two years. The purchase price is subject to certain adjustments set forth in the definitive agreement, and the transaction is subject to regulatory approval and other customary closing conditions and is expected to close in the next twelve to fifteen months with benefits starting to materialize immediately after close.
Further, to facilitate compliance with federal banking regulations and prevent closing of the Radius acquisition being delayed or disrupted, the LendingClub Board of Directors has adopted a Temporary Bank Charter Protection Agreement, also known as a stockholder rights agreement, and approved a dividend distribution of one purchase right for each outstanding share of the Company’s stock as of March 19, 2020. The agreement is intended to deter stock positions in excess of certain thresholds set forth by the Federal Reserve under the Bank Holding Company Act. Specifically, it provides for the dilution of any person or group of persons who acquire:
(i) 25 percent or more equity interest in LendingClub or
(ii) 7.5 percent or more of any class of LendingClub’s voting securities. This threshold automatically increases to 10 percent as set forth in the agreement.
Anyone already above such thresholds is grandfathered in at their current levels. The agreement is effective immediately and will automatically expire on either the closing of the Radius acquisition or after 18 months, whichever is earlier.
Additional details on acquisition of Radius, including the Temporary Bank Charter Protection Agreement, will be contained in a Current Report on Form 8-K that LendingClub will be filing with the Securities and Exchange Commission on Wednesday, February 19, 2020 – available on the SEC’s website at www.sec.gov.
J.P. Morgan Securities LLC served as exclusive financial advisor to LendingClub in connection with the transaction and Sullivan and Cromwell LLP served as its legal counsel. Additionally, Broadhaven Capital Partners and Piper Sandler served as financial advisors to Radius Bancorp and Hogan Lovells US LLP served as its legal counsel in connection with the transaction.
Conference Call and Webcast
LendingClub will host a conference call to discuss the fourth quarter and full year 2019 financial results at 2:00 p.m. Pacific Time (5:00 p.m. Eastern Time) today.
A live webcast of the call will be available at http://ir.lendingclub.com under the Filings & Financials menu in Quarterly Results. To access the call please dial +1 (888) 317-6003 or outside the U.S. +1 (412) 317-6061 with Conference ID 7474063 ten minutes prior to 2:00 p.m. Pacific Time (or 5:00 p.m. Eastern Time).
An audio archive of the call will be available at http://ir.lendingclub.com. An audio replay will also be available 1 hour after the end of the call until February 25, 2020 by calling +1 (877) 344-7529 or outside the U.S. +1 (412) 317-0088 with Conference ID 10138523.
LendingClub was founded to transform the banking system to make credit more affordable and investing more rewarding. Today, LendingClub’s online credit marketplace connects borrowers and investors to deliver more efficient and affordable access to credit. Through its technology platform, LendingClub is able to create cost efficiencies and passes those savings onto borrowers in the form of lower rates and to investors in the form of risk-adjusted returns. LendingClub is based in San Francisco, California. All loans are made by federally regulated issuing bank partners. More information is available at https://www.lendingclub.com.
About Radius Bank
With assets of approximately $1.4 billion, Radius Bank is a forward-thinking digital bank committed to providing a full complement of accounts and services to meet the banking needs of consumers and businesses nationwide. Radius provides the product depth of a national brand, the technology of a fintech, and the personalized attention typically reserved for a local bank to consumers, small and middle market businesses, unions, government entities and non-profit organizations. The Bank’s award-winning digital banking platform allows consumer clients to bank from anywhere with a computer or mobile device and provides convenient features such as check deposit, bill pay, card management, and a personal financial management dashboard. Business clients enjoy a wide array of award-winning deposit products, advanced treasury management services, and loan and payment solutions. In addition, Radius’ suite of open APIs delivers a robust banking-as-a-service (Baas) platform for fintechs to quickly access core banking features and build best-in-class financial solutions. Radius specializes in partnering with forward-thinking fintechs to provide white-label deposit products, cards, digital onboarding, and account management. Radius Bank is a member of the Federal Deposit Insurance Corporation and is an Equal Housing/Equal Opportunity Lender. For further information, visit the Bank’s website at radiusbank.com, or follow the Bank on Twitter, LinkedIn, Facebook, and Instagram.
Safe Harbor Statement
Some of the statements above, including statements regarding our ability to close the pending transaction with Radius, the timing and ability to realize certain financial and strategic benefits from the transaction and the impact of a bank charter on our business, are “forward-looking statements.” The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “predict,” “project,” “will,” “would” and similar expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying words. Factors that could cause actual results to differ materially from those contemplated by these forward-looking statements include: the outcomes of pending governmental investigations and pending or threatened litigation, which are inherently uncertain; the impact of management changes and the ability to continue to retain key personnel; our ability to achieve cost savings from restructurings; our ability to continue to attract and retain new and existing borrowers and investors; our ability to obtain or add bank functionality and a bank charter; competition; overall economic conditions; demand for the types of loans facilitated by us; default rates and those factors set forth in the section titled “Risk Factors” in our most recent Quarterly Report on Form 10-Q and Annual Report on Form 10-K, each as filed with the SEC, as well as LendingClub’s subsequent filings made with the Securities and Exchange Commission, including subsequent reports on Form 10-Q and 10-K. We may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in forward-looking statements. We do not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Information in this press release is not an offer to sell securities or the solicitation of an offer to buy securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
Media and Investor Contacts
SOURCE LendingClub Corporation
American peer-to-peer lending company
LendingClub is a fintech company that provides range of financial products and services through a technology-driven platform in the United States. It was the first peer-to-peer lender to register its offerings as securities with the Securities and Exchange Commission (SEC), and to offer loan trading on a secondary market. At its height, LendingClub was the world's largest peer-to-peer lending platform before abandoning the peer-to-peer lending model in the fall of 2020. The company claims that $15.98 billion in loans had been originated through its platform up to December 31, 2015.
LendingClub enables borrowers to create unsecured personal loans between $1,000 and $40,000. The standard loan period is three years. Investors are able to search and browse the loan listings on LendingClub website and select loans that they want to invest in based on the information supplied about the borrower, amount of loan, loan grade, and loan purpose. Institutional investors make money from the interest on these loans. LendingClub makes money by charging borrowers an origination fee and investors a service fee.
LendingClub also makes traditional direct to consumer loans, including automobile refinance transactions, through WebBank, an FDIC-insured, state-chartered industrial bank that is headquartered in Salt Lake City Utah. The loans are not funded by investors but are assigned to other financial institutions.
The company raised $1 billion in what became the largest technology IPO of 2014 in the United States. Though viewed as a pioneer in the fintech industry and one of the largest such firms, LendingClub experienced problems in early 2016, with difficulties in attracting investors, a scandal over some of the firm's loans and concerns by the board over CEO Renaud Laplanche's disclosures leading to a large drop in its share price and Laplanche's resignation.
In 2020, LendingClub acquired Radius Bank and announced that it would be shutting down its peer-to-peer lending platform. Existing account holders will continue to collect interest on existing notes until each loan is paid off or goes into default, but no new loans are available for individual investing. It is also no longer possible to sell existing loans through a secondary marketplace, as was once the case.
LendingClub was initially launched on Facebook as one of Facebook's firstly applications. After receiving $10.26 million in a Series A funding round in August 2007, from venture capital investors Norwest Venture Partners and Canaan Partners, LendingClub was developed into a full-scale peer-to-peer lending company.
On April 8, 2008, LendingClub temporarily suspended new lender registration, canceled its affiliate program and entered a "quiet period" while it awaited approval to issue promissory notes to lenders. On June 20, 2008, LendingClub filed an S-1 statement with the U.S. Securities and Exchange Commission (SEC) seeking the registration of $600 million in "Member Payment Dependent Notes" to be issued on its Web site. On August 1, 2008, LendingClub filed an amendment to its Form S-1 outlining new interest rate formulas as well as more details on a "resale trading system". On October 14, 2008, LendingClub announced its completion of the SEC registration process, posted the filed prospectus on its website, and resumed new lender registration. Notes issued on or after October 14, 2008 represent LendingClub securities rather than direct obligations of the ultimate borrower and are tradable (can be bought and sold) on the Foliofn trading platform. In March 2009, LendingClub raised $12 million in a Series B funding round led by Morgenthaler Ventures.
In April 2010, the company raised $24.5 million in a Series C funding led by Foundation Capital and joined by existing investors including Morgenthaler Ventures, Norwest Venture Partners and Canaan Partners.
In August 2011, LendingClub raised an additional $25 million in venture capital from Union Square Ventures and Thomvest, owned by the Thomson family of Thomson-Reuters. This led to LendingClub earning a $275 million post-money valuation and an increase of $80 million in valuation from the preceding year. Thomson-Reuters founder Peter J. Thomson also invested an unspecified amount of his personal fortune into LendingClub. In fall 2011, LendingClub's headquarters moved to downtown San Francisco; its earlier offices were located in Sunnyvale and Redwood City. Co-founder Soul Htite moved to China to start Dianrong.com, a peer-to-peer lending company based in Shanghai.
In 2012, the company employed about 80 people, with Renaud Laplanche continuing as the company CEO and chairman of the Board of Directors. The company averaged about $1.5 million in loan originations daily, with a total of $600 million since its founding. In April 2012, LendingClub's SEC registration from 2008 was renewed for $1 billion USD in Member Payment Dependent Notes and became effective on April 10, 2012. In June 2012, the company received $15 million in new funding from Kleiner Perkins Caufield & Byers and $2.5 million of personal investments from John J. Mack. Kleiner Perkins partner Mary Meeker joined Mack on LendingClub's board of directors. This led to a $570 million valuation of the company. In November 2012, LendingClub surpassed $1 billion in loans issued since inception and announced they were now cash flow positive.
In May 2013, Google Capital purchased a stake in LendingClub. LendingClub also began partnering with smaller banks in order to help streamline their small loans operations. In June 2013 the company partnered with Titan Bank in Texas and Congressional Bank in Maryland in order to help them facilitate loans that would have been otherwise unprofitable for them.
Initial public offering (IPO)
In March 2014, LendingClub began providing loans to small businesses. In April 2014 LendingClub acquired Springstone Financial. In May 2014 LendingClub formed a partnership with Union Bank. On August 27, 2014, LendingClub filed for an IPO with the SEC, the offering taking place in December 2014. On December 10, 2014, the company raised almost $900 million in the largest U.S. tech IPO of 2014. The stock ended the first trading day up 56%, valuing the company at $8.5bn.
Car loans and mortgages
Laplanche told Forbes in April 2015 that LendingClub would expand into car loans and mortgages. LendingClub also announced a partnership with Google to extend credit to smaller companies that use Google's business services. The company signed partnerships with Google, Alibaba.com, BancAlliance, and HomeAdvisor, including vetting community bank lenders for BancAlliance (a group of 200 banks), in order to send people on its platform to various community finance institutions. That year LendingClub partnered with Opportunity Fund, announced by former President Bill Clinton at the Clinton Global Initiative. The partnership intended to provide $10 million to small businesses in areas of California that are underserved by lenders. LendingClub and other small business lenders partnered with Sam’s Club to deliver its “business lending center” product. In August 2015 the company created Lending Club Open Integration (LCOI). In October, the company launched a multi-draw line of credit product for small businesses.
Scandal and struggle, 2016–2017
Like other peer-to-peer lenders including Prosper, Sofi, and Khutzpa, LendingClub experienced increasing difficulty attracting investors during early 2016. This led the firm to increase the interest rate it charges borrowers on three occasions during the first months of the year. The increase in interest rates and concerns over the impact of the slowing United States economy caused a large drop in LendingClub's share price.
In April 2016, a LendingClub employee reported to Laplanche that the dates on approximately $US 3 million in the firm's loans appeared to have been altered. LendingClub's internal auditor engaged an outside firm to investigate the report. This investigation found additional problems with loans, including that $US 22 million in loans which had been sold to the Jefferies investment bank did not in fact meet the bank's investment criteria. LendingClub bought these loans back from the bank and resold them.
The New York Times reported that the investigation found that Laplanche had not disclosed to the board that he owned part of an investment fund which LendingClub was considering purchasing.The Wall Street Journal also stated that Laplanche was found to have not fully disclosed what he knew about the problematic loans.
On 6 May LendingClub's board made it clear to Laplanche that he no longer had their confidence, leading to his resignation on 9 May.The Wall Street Journal reported that Laplanche had been fired by the board. Three of the firm's other managers had also been fired or had resigned by that time as a result of the problematic loans. LendingClub's stock price fell by a further 34 percent after Laplanche's departure was announced. This placed the stock price at 70 percent of the price at the time of the firm's initial public offering. As a result of the incident, the Securities and Exchange Commission was reported to be investigating LendingClub's disclosures to investors.
In December 2017 the Financial Times reported that LendingClub "has struggled to overcome the effects of a governance scandal last May", and that the firm "has battled to keep big investors buying loans" despite improvements to its internal governance. These challenges have led it to raise its loss estimate, and have led to further drops in its share price. At this time many other peer to peer lending companies were also experiencing difficulties.
End of P2P platform, 2019–2020
In an interview with Business Insider in December 2019, executive Valerie Kay noted that LendingClub had switched focus to institutional investors as well as its traditional peer-to-peer lending through a new project called "Scale", focused on delivering representative samples of loans instead of individual loans – labeled its "Select" program. LendingClub had grown to $10.8 billion in annual loan originations in the year 2018.
In April 2020, the company announced it would lay off around one third of its employees in anticipation of the economic downturn resulting from the COVID-19 pandemic.
In August 2020, the company discontinued its secondary trading platform, hosted by Folio, reducing liquidity for existing peer-to-peer investors.
In October 2020, the company ceased all new loan accounts on their website as part of restructuring into a neobank after the acquisition of Radius Bank.
As of December 31, 2020, Lending Club will no longer operate as a peer-to-peer lender.
LendingClub enabled borrowers to create loan listings on its website by supplying details about themselves and the loans that they would like to request. All loans were unsecured personal loans and could be between $1,000–40,000. On the basis of the borrower’s credit score, credit history, desired loan amount and the borrower’s debt-to-income ratio, LendingClub determined whether the borrower was creditworthy and assigned to its approved loans a credit grade that determined the payable interest rate and fees. The standard loan period was three years; a five-year period was available at a higher interest rate and additional fees. The loans can be repaid at any time without penalty.
Only investors in 39 US states were eligible to purchase notes on the LendingClub platform. However, eligibility differed when purchasing notes on the secondary market, FolioFN. Borrowers from all but two US states were eligible to apply for a loan.
Investors were able to search and browse the loan listings on LendingClub website and select loans that they wanted to invest in based on the information supplied about the borrower, amount of loan, loan grade, and loan purpose. The loans could only be chosen at the interest rates assigned by LendingClub, but investors could decide how much to fund each borrower, with a minimum investment of $25 per note.
Investors made money from interest. Rates varied from 6.03% to 26.06%, depending on the credit grade assigned to the loan request. The grades assigned to these requests ranged alphabetically from A to G, with A being the highest-grade, lowest-interest loan. Each of these letter grades had five finer-grain sub-grades, numbered 1 to 5, with 1 being the highest sub-grade. LendingClub made money by charging borrowers an origination fee and investors a service fee. The size of the origination fee depended on the credit grade and ranges to be 1.1–5.0% of the loan amount. The size of the service fee was 1% on all amounts the borrower pays. The company facilitated interest rates that were better for lenders and borrowers than they would receive from most banks. It averaged between a six and nine percent return to investors between its founding and 2013. However, because lenders were making personal loans to individuals on the site, their gains were taxable as personal income instead of investment income. Therefore, income from LendingClub loans could be taxed at a higher rate than investments taxed at the capital gains rate.
Current business model
“LendingClub plans to offer a full suite of products as a bank,” the company said in its latest SEC filing. The company provides commercial and industrial, commercial real estate, small business, and equipment loans, as well as leases equipment; and unsecured personal and auto, patient finance, and education finance loans.
After the notes were issued, LendingClub purchased the loans from the issuing bank and notes became the obligations of LendingClub, and not of the ultimate borrower: LendingClub has promised to pay the noteholder monies it receives from the borrower less its service fees, while the holders of LendingClub notes have the status of unsecured creditors of LendingClub. This means that there is a risk that the investor may lose all or part of the investment if LendingClub becomes insolvent or declares bankruptcy, even if the ultimate borrower continues to pay.
Until August 2020, investors had the ability to put notes up for sale before the notes have reached maturity. This service was offered in a partnership with FOLIOfn Investments which charged a 1% fee on note sales, making LendingClub the first peer-to-peer lending network to offer a secondary market for peer-to-peer loans. Other peer-to-peer lending networks, subsequently also partnered with FOLIOfn Investments to offer a secondary market. Effective August 28, 2020, the secondary market for trading Lending Club notes was discontinued.
As of 2016, a high proportion of funds for LendingClub-facilitated loans came from hedge funds. During May of that year, LendingClub was seeking to sell hundreds of millions of dollars worth of loans as bonds as part of a strategy to overcome difficulties in accessing sufficient funding.
When initially founded, LendingClub positioned itself as a social networking service and set up opportunities for members to identify group affinities, based on a theory that borrowers would be less likely to default to lenders with whom they had affinities and social relationships. It developed an algorithm called LendingMatch for identifying common relationship factors such as geographic location, educational and professional background, and connectedness within a given social network.
After registering with the SEC, LendingClub stopped presenting itself as a social network and maintaining that social affinity will necessarily reduce the defaulting risk. It now presents the algorithm just as a search tool for investors to find Notes they would like to purchase, using borrower and loan attributes such as the length of a loan term, target weighted average interest rate, borrower credit score, employment tenure, homeownership status, and others. To reduce default risk, LendingClub focuses on high-credit-worthy borrowers, declining approximately 90% of the loan applications it received as of 2012 and assigning higher interest rates to riskier borrowers within its credit criteria. Only borrowers with FICO score of 660 or higher can be approved for loans.
The statistics on LendingClub's website state that, as of December 31, 2016, 62.3 percent of borrowers report using their loans to refinance other loans or pay credit card debt.
Loan performance statistics
As of June 30, 2015, the average LendingClub borrower has a FICO score of 699, 17.7% debt-to-income ratio (excluding mortgage), 16.2 years of credit history, $73,945 of personal income and takes out an average loan of $14,553 that s/he uses for debt consolidation or for paying off credit card debts. The investors had funded $11,217,348,156 in loans, with $1,911,759,192 coming from Q2 2015. The nominal average interest rate is 14.08%, default rate 3.39%, and an average net annualized return (net of defaults and service fees) of 8.93%. The average returns of investment for LendingClub lenders are between 5.47% and 10.22%, with 23 straight quarters of positive returns as of the second quarter of 2013.
In 2011 and 2012 the company was named to as one of the AlwaysOn Global 250. LendingClub is the winner of the World Economic Forum 2012 Technology Pioneer Award. It has been recognized by Forbes as one of America’s 20 most promising companies in 2011 and 2012, and by Fast Company as one of the ten most innovative financial companies in the world. It was named one of the Disruptor 50 by CNBC in May 2013 and 2014, as a disruptive innovator in next generation financial services. In 2014, LendingClub was recognized by Inc. as one of the 500 Fastest Growing Private Companies in America at #248.Renaud Laplanche, the company’s founder and CEO, also received The Economist Innovation Award in 2014 for the consumer products category.
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