Your guide to peer to peer lending

Lending Club Changes How Investors Can Ask Questions

by Peter Renton on April 15, 2011

Yesterday on the Lending Club blog, in a post titled Protecting Identity and Privacy, CEO Renaud Laplanche announced a change. There has always been a fertile Q&A area on every loan where investors could ask any question to a borrower. Not any more.

Starting today, investors will only be able to ask questions from a predefined list. No free format questions will be allowed. No doubt many investors will be distressed about this, but I see their point. Often as I read these Q&A’s it became clear that with a little digging I could find out the borrower’s identity.

Too Much Information

For example, a common question has always been about employment. Borrowers will often reply with complete detail about this. Someone might say I have been the office manager at ABC Company in Little Rock, Arkansas for 5 years. If I so choose, with a tiny bit of research on Google I could find the phone number and most likely the name for that person at their workplace. From there it is not that difficult to find a home address and social media profiles. No doubt some “enterprising” investors have done something like this, which likely prompted this change.

I don’t think this a big deal personally and I completely see Lending Club’s point. While the Q&A is a nice feature it is not something I focus on. What it shows me more than anything is the responsiveness of the borrower and their attention to detail. Did they answer the question and how long did they take? This is useful information, but I have to admit lately I am moving away from the importance I have placed on them. My reason? I have noticed on several of my defaults when I went back to look at the loan listing, I saw they answered the questions precisely and in detail and looked like a great risk for an investment. Then a few months later they defaulted on the loan.

The List of Questions

The preset questions that Lending Club will allow differs depending on the purpose of the loan. For a debt consolidation loan there are three questions only that may be asked:

1. What is your intended use of the loan proceeds?
2. What are your current monthly expenses (rent, transportation, utilities, phone, insurance, food, etc.)?
3. What are your current debt balances, interest rates, and monthly payments by type (credit cards, student loans, mortgages, lines of credit, etc)?

Considering debt consolidation is by far the most popular category it would have been nice if Lending Club allowed for a few more questions here. For a small business loan there are eight allowable questions, including questions one and two above. In fact, the first two questions are available for every loan category it seems and then the other questions vary depending on the category.

The one downside I see is that there is no space now for questions regarding specific verifiable information like the kind that ReadyForZero provides. It is sort of covered in question 3 above, but it is now completely up to the borrower to proactively provide this information. I would like to see more integration with a service like this and that may well come in the future. I am sure Lending Club is monitoring how this change lands with investors and may well make an adjustment or two as they see how everything plays out.

What do others think? Are you outraged or like me, do you think this is not a big deal for investors? Please share your thoughts in the comments.

[Update: Just heard from Lending Club and they said that the number of questions are not fixed. Investors can ask for questions to be added by sending their requests to [email protected].  It will take them 2-3 weeks to review questions and get them added (if approved). Also, as Ken from points out in the comments, it looks like Prosper has completely eliminated investor questions. No warning from them either. It can't be a coincidence that both companies made this change basically on the same day.]

[Update 2: I have been informed that this change has been mandated by WebBank, the company that underwrites the loans for Lending Club and Prosper]

{ 81 comments… read them below or add one }

Mike April 15, 2011 at 4:57 pm

April Fools Day was two weeks ago. Is this post for real???

Dan B April 15, 2011 at 5:28 pm

If your lending money then you should have the right to ask whatever you want. The borrower is not obligated to reply & in that case you can make up your own mind as to how you want to interpret a non-response or evasive response.
On the other hand this will cut down on the ridiculously long winded questions/comments that are asked of pretty much every borrower by 1 or 2 lenders. The other thing is that I know for a fact that at least one lender has used the previous format to advise/admonish/comment/ridicule some borrowers regarding their loan applications. I am that lender. Call me insensitive but for example, I have a real tough time with people who title their loan as “dept conciladition” or some other permutation of the above…………when they can just copy the spelling correctly from 12, 000 other locations on the same website. Or people who list a 17,500 monthly income unverified & are asking for a $10k loan.
Personally…………I rarely read the questions/answers any more so it makes little difference to me.

Peter Renton April 15, 2011 at 6:25 pm

@Mike, This is no joke I am afraid.

@Dan, I disagree that you should have the right to ask anything you want. As you point out some of these borrowers are not that sophisticated and may not see any problem in giving out their phone number or email address if asked. Lending Club is just trying to protect these people from themselves. And the SEC might have something to say to LC if it saw borrower harassment or identity theft.

Investor Junkie April 15, 2011 at 7:23 pm

I agree with you Peter. I doesn’t really affect my loan decisions. Though it if their responses are really good or bad it might change my mind. Overall it does not affect me.

To the other commentators, keep in mind if you are doing 200+ loans and asking questions for each borrower and monitoring them, that would take up too much time IMHO.

I like the idea of predetermined questions. If anything to save time.

Lou April 15, 2011 at 7:26 pm

I agree with @Dan, my money my questions. If they are worried about privacy concerns, they need to censor the answers not the questions.
They also need to censor the usernames, some of them are pretty easy to decipher.

Dan B April 15, 2011 at 7:28 pm

@Peter………..I’ll be sure to remind you of your position on this when I hit you up for some money in a few months. I’ll supply you with my credit report, screen name & tell you how much I make. I might tell you the truth, or not. Then you can ask me any question that’s on that list that Lending Club listed. :)

Lou April 15, 2011 at 7:29 pm

Also, if a lender contacts a borrower, then Lending Club should give them 30 days (or 15) to liquidate their portfolio and then kick them off the platform. Most likely they will have to take a loss to do that. That should be a deterrent.

Peter Renton April 15, 2011 at 7:41 pm

@IJ, That is part of my reasoning. I want a peer to peer lending investment system that can scale. And spending too much much time on questions is simply not scalable.

@Lou, While censoring the answers would be an ideal situation, in reality it is not manageable with the hundreds of notes on the platform at any one time. Good point on the usernames, although most people do choose the generic names thankfully. Then, of course, there is the loan title. I just noticed a loan on there today titled Natasha. Hmmmm.

Peter Renton April 15, 2011 at 7:43 pm

@Dan, If your credit data meets my filtering criteria then you might end up getting an investment from me regardless….

Dan B April 15, 2011 at 8:19 pm

I want something that is practical & quick as well………..& like I’ve said this change won’t affect me personally. Nevertheless I’m opposed on principal because I believe that a lender has the right to ask questions to the borrower as he sees fit…………………not as some lawyer sees fit. Some lawyer that likely has no money at stake in the outcome of that loan, I might add.

Dan B April 15, 2011 at 8:22 pm

@Peter……….That’s great Peter. I’ll make sure to leet you now when I neid that dept concilidation loan to pay of my credut cardz.

Max April 15, 2011 at 8:24 pm

I don’t think this is a good strategy by lending club unless they expand their list to a bigger set of questions which would cover a lot of scenarios

But really there are lot of things that can go answered especially with so many mistake son income and no reporting of credit

For example how can u explain somebody has a debt to income ratio of 25% but a 25$ cc balance and staying on rent. I need to be able to ask the borrower to explain.

I think this change has once again made lenders more dependent on the lending club cross hair analysis rather than his own. In that case you can pretty much invest only based on grade. Not a good idea for all lenders who want to spend more time figuring out before investing their money and taking on the risk

Its the same as Lending club saying ” Trust us and invest based on our grade but take on the risk if we screwed up in our analysis which is easy with so many loans out there

I think lenders take a hit and time will tell how much

Peter Renton April 15, 2011 at 10:23 pm

@Dan, It is a very unfortunate situation that this business is dominated by the decisions of lawyers. But it seems to be a necessary evil. And I look forward to reading your fewture lone aplicayshon…..

@Max, I think you will see the list of questions expand in the next few weeks, but the kind of personalized question of the example you give is probably gone forever. I can see that it is going to become more a number game, where the main tools of research will be the numbers provided on the credit report. But unless there is a change back, you will likely not be able to dig to find the reasons behind the numbers.

Max April 16, 2011 at 2:14 am

@Peter – I think the list should def expand to increase investor confidence
Also from what i see the lender has to ask each question one at a time , cannot ask multiple questions at one go (a bit annoying)

Coming back to my above post recently a lot of loans have been showing yearly gross income as income per month. With no flexibility to ask question lender needs to take a guess. Sometimes all the other factors look really great but there are 6 inquires on credit report again without asking ur not going to know. Another important thing is spouse income or why the borrower is requesting more than his cc debit and the list can go on depending on what you see in a particular loan and the description provided. Sometimes u ask questions to clarify the lenders response , how do u account for thing like that

Im not saying u will do all this for every loan but then again there are various places u might want to be safe than sorry if you as a lender are not confident. With these changes the lender might not invest at all which will slow down amount of lending per day.

Also sometimes lending club comes out with bonuses, transfer x dollars and invest into platform to get y commission. If investor is going to invest slowly these offers wont be attractive anymore

Finally there is talk about expanding and making the list of questions exhaustive, in that case cant the borrower be back to revealing some personal info… then back to square 1.

This sudden move by LC dosen’t make a whole lot of sense . Why cant LC caution the borrower to refrain from including too much personal info into the answers against answering the intent of why the loan is being taken and why u should feel confident investing into them

Lou April 16, 2011 at 5:14 am

@Peter, they can automate the scrubbing process. If they designate certain data fields as off limits, they can create a program to either kick the answers back or “redact” the info. (redacting would probably work better otherwise a borrower might get frustrated)
For instance any data entered in the Name or address field of the App would be pulled out of an answer and a marker put in it’s place.
“Hi my name is ***** and I live at **** **** in the town of ****”
I think @Max is right, they want us to rely more on the credit grades and other data (FICO,PRs, etc) they collect and less on the touchy feely stuff. Maybe they’re thinking it will speed up the amount we lend…

KenL April 16, 2011 at 11:47 am

It looks like Prosper has completely eliminated questioning. So I guess these changes must have been brought on by another party.

Dan B April 16, 2011 at 4:15 pm

I suppose this can be interpreted as just another subtle reminder that we are NOT lending money to individual borrowers. We are in fact lending money to Lending Club & Prosper…………who are in turn lending that money to individual borrowers & paying us an interest rate based on their risk assessment of those borrowers.

Frankly if we had any real brains (& money) we would pool all of it & form a VC company……….then lend the lump sum directly to LC (the next time they run out of funding) at 10% plus warrants. That’ll give us a predictable 10% return, potential to cash in with the warrants in if they become profitable & put us near the front of the queue in case they go under. There is of course one downside to all this. We’ll need $20 million or so to get into that game.

Peter Renton April 16, 2011 at 8:11 pm

Thanks for all the comments.

It is very curious that Prosper has appear to have eliminated the Q&A ability completely (without an announcement) at the exact same time as Lending Club. Makes me think that either the lawyers came up with this idea at exactly the same time (unlikely), or there may have been some kind of communication from the SEC. Who knows? But it looks like this kind of open interaction between lender and borrower has gone forever.

You all make valid points here. To some extent the skill involved in selecting a loan has changed now. No longer can you make a decision based on the back and forth with a borrower. Sure, some of the human touch will now be gone. But let’s face it, there are hundreds of borrowers funding each loan and only usually a small number (two or three) who are asking questions. I think Prosper and Lending Club realized they would annoy these people, and they decided that was worth it. Or they were forced to make the change.

If I find out the real reason behind the change, I will be sure to let everyone know here.

taxpayer April 18, 2011 at 8:48 am

This change means that any previous analysis, relating the borrower’s answers to subsequent loan performance, is pretty much inapplicable to future loan decisions.

Altho I may be technically lending money to Lending Club, repayment depends on the borrower’s performance and it seems fair that I should have as much information as s/he wishes to provide.

I will be watching how this plays out before deciding whether to make any more loans. Or, if enough lenders are turned off, it might be a good time to buy some loans thru Foliofn.

Bilgefisher April 18, 2011 at 12:59 pm

If I had to guess, they were contacted by some govt entity. They have to be very careful with the questions. Suppose race, gender or any other protected class were asked about. They could quickly be in a lot of hot water because they hosted the question. Makes no difference whether they asked it or not, by allowing it on their site, they have effectively allowed an illegal question. There is no way to positively filter every random question.

That said, this may be a bit of a knee jerk reaction. They may both expand their questioning a bit to fill lenders needs. It will likely still only be specific lawyer scrutinized questions from a drop down menu.


John E. April 18, 2011 at 1:59 pm

Peter, you should not assume that the few number of questions relative to the number of lenders means that only a few of the lenders are interested in the answers to those questions. I try to avoid asking questions because it takes time, but I am very interested in the questions and answers, and will also ask a question if I think it’s important and nobody else has ask it (e.g. current mortgage balance and home value).

I am very displeased with this turn of events. It is going to severely hamper my ability to assess the loans. I can only hope that they very quickly add more reasonably useful questions. Currently their questions don’t even always make sense. For example, they ask mortgage holders about rent expense. Come on, you can do better than that! And they don’t ask the very common question I mentioned above about mortgage balance and home value. I almost never lend to somebody whose home is under water, and if I can’t ascertain that I will simply never again lend to mortgage holders.


Dan B April 18, 2011 at 2:23 pm

@Bilgefisher………….Under the previous format we only got to see the questions if the borrower decided to answer. We definitely did not get to see every random question. But I do understand your larger point & you may be correct as to why this change has come about. We should all keep a close eye on the filtering categories to see if any of them suddenly disappear. That to me would be confirmation that something is up.

Aaron April 18, 2011 at 8:08 pm

Interesting comments. Now for my take. With the increased institutional investment and the complete dilution of lender to borrower interaction, how in the world could this still be considered SOCIAL LENDING. I think in reality, we have become nothing more than bond holders in CDOs.

Dan B April 18, 2011 at 10:22 pm

@Aaron……….I’m not sure why you’d you’d call this CDOs as in collateralized. Hell I wish it was, but it most definitely isn’t. But putting that issue aside…………….. why is being or not being “social lending” an important distinction? From an investors viewpoint why do you think it’s important that it be pure social lending?
Have we not dispelled the illusion already that borrowers are somehow less likely to stiff us because we’re all part of some touchy feely “social lending” family?

I think that if we want to put an accurate label to it then we’re investors in a “pool of subordinated unsecured personal loans”. If that sounds a bit iffy & high risk that’s because it is.

Which is why I think that a 10%+ real return is the minimum we as investors should accept here. Which is why I think it’s ridiculous that these companies think it’s a good idea to be lending at 6-7%. Oh sure, let’s lend money to Joe the burger flipper at 7%. He’s got a great credit score & says he’s going to pay down debt. Never mind that he might change his mind & put a pool in his backyard instead. Never mind that he could lose his job & then realize that he’s only got $76 in his savings account. Yeah, he’s a good risk at 7%! But I digress…………….

Peter Renton April 19, 2011 at 5:30 am

More great comments everyone, thanks.

@Taxpayer, yes for many of us how we choose loans has now changed. There will no doubt be some investor pull back as people like yourself voice their displeasure in this change. Unfortunately, we don’t make the rules and in many cases neither does Lending Club or Prosper.

@Jason, I have contacted both Lending Club and Prosper to see if we can get to the bottom of the reason for these changes. I will let you know when I hear back something.

@John, You make a valid point. I know I rarely asked a question but I often looked at the answers to others questions. I think you will find more questions will be added, but probably not very quickly. Feel free to use the feedback email address I mentioned. They need to hear from investors like us.

@Aaron, This lending vehicle is no longer really social lending or peer to peer lending for that matter. It is now an investment without a name. If you notice on their home page both Lending Club and Prosper make no mention of peer to peer or social lending. They, particularly Lending Club, are trying to downplay the social component.

@Dan, I have always maintained that the most positive aspect of p2p lending (or whatever you want to call it) is the return on your investment. The social aspect, while nice, was not essential to me. Now, it seems that this part is fading away. Some investors will be disappointed with this change and move on and that is ok.
I couldn’t agree more that 6-7% is not enough reward for an investment in an unsecured personal loan. In any other interest rate environment other than this one, most people would agree. But we have become used to 0.5%, so hey 6% sounds great. In a couple of years when interest rates rise these loans will be going away in p2p lending, and we will be left with higher risk borrowers.

Smith April 19, 2011 at 11:41 am

I think many of the comments here are over reactions. So big deal that LendingClub has removed the free text format for asking questions; the questions aren’t gone. In fact, LendingClub has encouraged investors to submit questions!

“As an investor, feel free to submit additional questions that you would like to see added to list to [email protected].
As always, your comments are welcome as we continue to make improvements to our platform.”

Like Peter, I’m moving away from using the questions anyway. I’d rather not have an emotional reason for investing in a loan. The credit detail gives me all of the information I need to know about the borrower’s attitude toward obtaining credit and repaying the loan!

Dan B April 19, 2011 at 4:30 pm

@Smith……..I don’t personally care if they curtail/eliminate questions or not but if you really think that the “feel free to submit additional questions” line is sincere, then I’m assuming that you also believe in the sincerity of the “in order to serve you better” line…………….. a generic line that precedes every inconvenient to borderline insulting act committed by a virtually all companies/government agencies in the US.

Peter Renton April 19, 2011 at 4:47 pm

I have heard from a source (who wants to remain anonymous) about the reason for this change to the Q&A for Lending Club and Prosper. It seems that it came from WebBank, the bank that originates loans for both companies. There were “privacy concerns” and both companies were given a very short time to make the necessary changes.

@Dan, One shouldn’t always assume that a company isn’t sincere. Particularly in this situation when Lending Club has been told they had to make a change. The may well have not wanted to do anything. Time will tell as we see if the number of questions change.

@Smith, Thanks for joining the conversation. I am with you. I will believe that Lending Club are intending to do the right thing here until proven otherwise.

Dan B April 19, 2011 at 5:09 pm

@Peter………So after almost 4 years & & tens of thousands of loans this privacy issue finally comes up? But why all the half steps? Why not just make the “approved” questions part of the loan application instead & be done with it?
Oh wait, I know………………….The answer is likely the same one that was given when LC was asked why income or job status isn’t verified for all borrowers………………..& that is that they want to make the process as user friendly &/or convenient/easy for borrowers. So the less information asked, the better.

Max April 19, 2011 at 11:06 pm

@Dan : I agree why is lending club always shying away from giving more information about the borrower (not personal but lending capabilities adding more parameters to the list they have in place now will be a great benefit to all lenders) Now that’s not controlled by WebBank. Infact the more parameters they add which can be decided based on lenders feedback the less questions borrowers have to deal with and less scrutinity to get personal information

I think the right way forward to help lenders fund loans quickly is to add more parameter. I had given this feedback to lending club 6 months ago but they didn’t seem interested

Peter Renton April 20, 2011 at 1:35 am

@Dan, I also think that Lending Club didn’t want to leave investors completely out of the loop. Would you have preferred they did what Prosper did and just disable the feature completely?

@Max, By parameters, do you mean the list of questions or some other credit parameters? I expect we will see more questions as times goes on, but probably not enough to satisfy many investors.

Dan B April 20, 2011 at 2:00 am

@Peter……..What I’m saying is that it’s impossible to satisfy people as someone will always say why don’t you offer this question or that question as an option. Before long, if the company is being sincere in wanting feedback they’ll have to hire someone just to answer those types of suggestion emails. So instead of all this nonsense & assuming that the company was in fact told to eliminate the previous setup……………just spend 10 minutes & decide on a handful of specific questions that the borrower has to answer in order to complete the loan application. It’s not brain surgery, it’s almost common sense.
For example…………if a borrower owns a home then one of the required questions could be how much they owed on their mortgage & how much their house was worth (as was suggested by someone here already) Another example would be if someone listed “debt consolidation”……………. then a question on a pop down menu could be………..list all your card balances, loans & their interest rates. You know, a few required common sense questions that have some relevance to the loan in question & the circumstances of the specific borrower & that they can then run by Webbank & that’ll be that.

Max April 20, 2011 at 10:08 am

@Peter – I think both, they can add a few more more credit parameters as well what Dan is suggesting here to have a set of most common predefined questions based on the loan type and have the borrower answer them before the loan is listed on the platform

I would also like to see verification of income and loan type/purpose before loan is listed. lately i have been observing that lot of loans have the income and loan type/purpose messed up and highly misleading. You got to understand sooner or later people will try to game the system. I think these 2 should be verified like all the other credit parameters before loan is listed

Peter Renton April 20, 2011 at 2:49 pm

@Dan, Thanks for the clarifications. These changes all sound good to me. They might lose a few borrowers over it but if someone doesn’t want to reveal that information do we really want them on the platform? It would probably satisfy most (but not all, of course) investors who are craving for more information from the borrowers.

@Max, Loan type is going to be a really tough one to verify. You can contact the borrower about it and they might say, yes this is for debt consolidation, but then go ahead and install a swimming pool once they have the money. I like a feature that Prosper has that can inquire as to the payment performance of a previous p2p loan. Now, you don’t get a huge number of people with a second loan (particularly on Lending Club), but to me if someone has made all their payments on time and paid off their previous loan then they are a better credit risk than someone new to the platform. As p2p lending matures on Lending Club I hope they add this feature as well.

Lou April 20, 2011 at 2:56 pm

I agree with @Max, there are a lot of borrowers who put misleading information up and it takes a question or many questions to get the truth out of them (For example: There was one guy who kept insisting the listed income was monthly, but after about 10-15 people questioned him, he admitted it was his yearly) Since LC doesn’t confirm all incomes, this would have gone unnoticed without the questions and Lending Club will most likely not add that question to their pre-recorded ones. (or the guy who chose loan Purpose=Green/Renewable because he wanted some green to pay off debts)
And I agree with @DanB they should save us some time and automatically have the borrower fill out the prerecorded questions (list the debts, mortgage, home value, etc) in the App process.
I suggested to Christopher Young @ LC that they should add a little Web 2.0 to their site, give us some guidance (what’s legal and illegal) and let the Lenders self police the questions and answers. We have the ability to report the listing, but not to flag questions and answers. How many times have you seen a Borrower sign their name to a question or post their address…

Eliot April 20, 2011 at 7:07 pm

Peter: Thanks for this great thread, I have found it quite useful. I have been starting to read up on LC’s 10-Q quarterly submissions to the SEC. Do you or others have concerns over the fact that they continue to project that they themselves do not expect to be profitable in the coming 12 months? They appear to be hemorraging money with no real end in sight.

I feel like I have well distributed my risks in $25 increments across over 700 loans over the past 14 months – but in the end, LC’s disclosures have me concerned that in the end, I may have been putting all the eggs in one basket. – E

Dan B April 20, 2011 at 8:11 pm

@Lou……………I hear you. I just saw a note on LC a few minutes ago that illustrates your point. Someone with unverified income of $14,000+ per month, asking for a $6900 loan to do some work with their teeth.
And get this………..the interest rate is 5.79%!
Sounds like a real gem of an investment opportunity, don’t you think?

Dan B April 20, 2011 at 8:17 pm

Correction…………it’s listed as a debt reduction loan but is entitled Tassie’s Teeth. I have no idea what that means.
Needless to say the list of approved questions do not include any relating to dental work & this person has virtually no credit card debt. So I’m stumped.

Matt_SF April 21, 2011 at 10:31 am

I’m thinking Lending Club is going to lose me after this new development.

Lending Club attracted me as an investor on many progressive principles, and one of the big ones was increased transparency. For example, I could — could — ask a borrower more detailed questions than I could from a muni bond issuer, corporate bond issuer, etc.

However, removing the investor’s ability to ask a unique question about the borrower’s personal finances versus only allowing us a pre-approved set of questions, goes against the concept of transparency from my point of view.

I get that LC wants to protect borrower identity, and I agree 110% with this policy, but limiting my ability to ask the borrower pertinent financial questions is an unacceptable change.

For example, what is the borrower’s real Debt to Income ratio is versus what Lending Club says it is (e.g. they don’t take into account mortgage payments).

There are dozens of permutations of perfectly acceptable questions that we will no longer be capable of asking. And for that reason, I’ll be halting my reinvestments until the policy is reversed.

Vote with your money, as they say.

Aaron April 21, 2011 at 2:59 pm

@Dan, I have never been under the illusion that the average guy is not going to stiff me on the loan. All I am saying is that the “novel” aspect of this investment vehicle is being dilluted. I came to Prosper/LC because of a unique social function that they were claiming to promote. Now it appears they have thrown it out the window. I am continuing with the current rate of investment, but this doesn’t make me happy.

I don’t really ask many questions either, I am more upset on principle than anything else. Sometimes, (rarely) I do have a question that I would like an answer to. I believe I should have that option.

Bilgefisher April 21, 2011 at 3:10 pm

I don’t ask many questions either, but I do ask real estate questions on business real estate loans. I know the field and can somewhat determine if they are a rookie or more experienced based on the answers.

I have also seen many revealing answers to questions. “This loan is to cover my expenses while i find a new job” or “My income is half and this will cover the rest” etc etc. It doesn’t prevent all problems, but its nice to avoid certain loans when red flags appear.

I am hoping and expecting prosper to create a list of questions we can use and take input in the need for more questions as the need arises.


Dan B April 21, 2011 at 4:26 pm

@Aaron…….We’re not far apart on this at all. I think that every investor would like the option of asking a question if he/she feels that it’s important to their process. I agree in principle that all of us should have that right, it is after all our money.

But then I personally believe I should have the unrestricted right to ask a prospective employee anything I want too……………. but that’s not really possible anymore in this country. So………….

As I’ve said in many previous posts, I think the dilution of the whole “social” aspect is inevitable & in fact a good thing…………as it shows that the investment format is maturing & willing to now stand/fall on the merits of its results. I can’t speak for the motivation of others but as for myself the “social lending” aspect never meant anything to me. As for the borrowers, on the either side of this equation, I’d suspect that in their heart of hearts the vast majority of them don’t give a crap either…………..they’re just looking for money at the best rate.

Dan B April 21, 2011 at 4:29 pm

Or in the case of many borrowers at Prosper……………they’re looking for money at ANY rate.

Mike April 21, 2011 at 5:10 pm

One more minor point about this new policy: you can no longer determine how long it took the borrower to respond to the question.

Dan B April 21, 2011 at 6:04 pm

One other not so minor point is that there is no question that gives the borrower the opportunity to explain any delinquencies in their credit report.

Max April 21, 2011 at 10:01 pm

One Big risk on platform for investors is verified sources of income and lot of borrower’s have been indicating otherwise. This one sole parameter can give a lot of comfort to the investor and avoid defaults. Not sure why LC cant enforce this . I think all investors should write in and suggest to implement this as soon as possible

Dan B April 21, 2011 at 10:22 pm

@Max………….It’s not a matter of “can’t” but rather one of won’t, and LC has essentially said this. In fact LC claims that loans without income verification slightly outperform the ones with.

Dan B April 21, 2011 at 10:43 pm

@MattSF……………It’s not going to be reversed A year from now the majority of “investors” won’t even remember that there was a time when you could ask questions. Two years from now our numbers will be such a minority that we’ll be marginalized to telling stories of the good ‘ol days. After all if this investment that was formerly called p2p is to succeed they will need a lot more new investors who will know nothing of what we could do up until now. Besides people have a notoriously short memory anyway.
But you Matt, can’t leave now. You can’t leave while you still have that obscenely high NAR. You better not leave before it has had the chance to come tumbling down & I’ve had the chance to say I told you so! :)

Matt SF April 22, 2011 at 8:30 am

@Dan B

Yep, they’ve gotten their free publicity out of me, so doubt they’ll care. Too bad b/c the investment club is ~100 members now.

And you’re correct that my high NAR will fall b/c I’m not reinvesting in those 15%+ NAR notes. Not that 15% NAR equates to a real 15% ROI, but that’s a different beef altogether.

Peter Renton April 22, 2011 at 11:28 am

Thanks everyone, you all make interesting points. I jumped on a plane in Sydney, Australia a day and a half ago and by the time I was back to Denver (24 hours later) I was surprised to see so many new comments.

@Lou, I believe you should view all borrower responses with a healthy skepticism, which is why when I do my analysis I try and base it on independent credit data as much as possible. Having said that, it is one thing for a borrower to “fudge” a little on a borrower application, it is another to state an outright lie to a prospective investor. Some will, but I think the vast majority of borrowers will try and give something close to the truth when pressed. Which is why I view it as a shame that the Q&A is going away, but it is not a game changer for me.

@Eliot, This financial sustainability of both Lending Club and Prosper casts a constant shadow over the future of peer to peer lending. Neither company has demonstrated that they are capable of making a profit yet. But Lending Club is certainly on the right trajectory so one of these days I hope to see significant improvement in their financials. They just finished their financial year on March 31st, so we should get full year financials next month. I will do a blog post on this when their results come out.

@Matt_SF, Well it will be certainly sad to see you depart the p2p lending landscape. I understand your decision because I know you have always placed great stock in the Q&A section. I will miss your always insightful updates.

@Aaron, Keep in mind this was not a decision of Lending Club, it was mandated on them (and Prosper) from WebBank. Not that that makes any difference in practical terms. But I believe the social part of social lending is going to continue to erode (maybe I should change the name of this blog!) as more big money players join us.

@Bilgefisher, I have no news yet on whether Prosper will be allowing a prescreened list of questions, but I expect they will. It looks kind of funny on the loan listing page with the new loans still showing a Q&A section that is always blank and with no ability to add a question.

@Mike, Good catch on that. Now, when the question is asked it is not time stamped, only when it is answered. Seems like a feature request to me.

@Max, As Dan pointed out LC could verify all loans, but chose to only verify a subset. From their perspective they flag certain loans verification where they think it is necessary or there is some red flag that causes concern in the application. But in an article from February, CEO Renaud Lapalanche did state that unverified loans slightly outperform verified loans. Now, this maybe because the verified loans are higher risk loans in general, although we really don’t know what caused the income verification trigger.

@Dan, Thanks for acting as quasi-moderator while I was offline.

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