In a fantastic mark of my own procrastination, I’ve never talked about my relationship with Lending Club here in depth. For those of you who still haven’t heard of them, Lending Club facilitates lending from one person to another person. Instead of holding onto deposits and lending them out to whoever they choose as a traditional bank would, Lending Club cuts out the work of the middleman and puts the onus on the investor to choose who to lend money to. This results, in an ideal world, in lower interest rates for borrowers and higher interest rates for would-be depositors.
Since its inception ten years ago, this peer-to-peer lending site has slowly become a mini-darling in the personal finance sphere. Mostly this happened after the big boy himself said he was experimenting with it in September 2012. That was about 18 months after I started using the site, I might add. I started as an investor (read: lender) at Lending Club in April of 2011. Since then, the total amount of loans at Lending Club has exploded, from about $500 million when I joined, to well over $18 billion today.
Initially we got returns around of 12 or 13%. But as the loans have gotten older and more people have defaulted,our returns have pretty much flat-lined around 9.5%. That’s still really good, and though I haven’t invested anything new in a year, preferring instead to max out all of our tax-advantaged retirement plans, I don’t have any plans to withdraw from the account either. And since they enabled automatic re-investing based on your own customizable filters, I spend hardly any time on the site anymore.
I believe in the business plan and mission of Lending Club. As you probably remember, I don’t like it when financial institutions take more than their fair share of our money. So anyone helping the common man to claw back profits from the likes Visa, Mastercard or any of the big banks is a friend of mine. I also think the promise and implications of peer-to-peer lending are huge. “Sharing economy” and all that. I was such a fan boy of Lending Club in 2011 that they sent me a fancy glass water bottle which I display prominently in my kitchen.
So when the company went public in 2014, I bought 100 shares. Like many Lending Club lenders, I got in at the IPO price of $15.
So what’s the problem?
All is not well in Lending Club Land. As an LC diehard, I put a lot of trust in their sailing Frenchman CEO Renaud Laplanche. He talked the talk about seeing inefficiencies in the consumer credit market and really did seem like he was trying his darndest to make Lending Club a behemoth. But he made a couple very bad decisions, and that’s why Lending Club has been in the news recently.
From what I understand, he didn’t disclose his financial interest in another company that Lending Club invested in. Also, they sold some bundles of loans to Wall Street banks, but misled the banks about what types of loans were in the bundles. I don’t like the idea of Lending Club selling securitized loans to Wall Street to begin with, but this is doubly bad.
So now I’ve gotten a letter in the mail from some law office putting together a civil action lawsuit because the company made false statements and was lacking internal controls. I think what they will be seeking is a return of the equity lost from the time before the information was known to after it became known. Maybe something like $3 or $4 a share? So the question is…
Do I sue Lending Club?
I still believe in the company. I definitely still believe in the mission, and I still think there is money to be made for lenders and money to be saved for borrowers.
I do feel terribly for suing a company I hold in such high esteem. It’s akin to a tech geek suing Apple, or a mid-life crisis biker dude suing Harley Davidson. And it isn’t really the company’s fault for failing to recognize the conflict of interest. It’s Renaud’s fault. So conflicted!
My current thinking is that I should sign on for the lawsuit. If the lawsuit goes through, it’s going through whether I am in it or not. I can personally justify it by using any money gained to make more loans through the website.