The Bloomberg article, co-authored by Max Chafkin and Noah Buhayar, hammered Lending Club by questioning the practice of not correlating repeat borrowers and resurfacing the fact that former CEO Renaud Laplanche and his family took out loans during the “beta period” of the platform. These loans were ostensibly designed to boost platform performance. The report is largely based off of the experience of Bryan Sims, an individual investor who did a deep dive into the publicly available loan data which remains posted on the Lending Club site.
Renton, in defending the platform, acknowledges the missteps by Laplanche in taking loans on the platform back in 2009 (all paid back). He also agrees that repeat borrowers should be identified on Lending Club – something competitor Prosper already presents. But Renton corrects an assumption that repeat borrowers hold higher risk. Renton states;
“I believe Lending Club should be providing details on repeat borrowers. Why? Because repeat borrowers actually perform BETTER than borrowers who take out just one loan. Allow me to explain with examples from Prosper. Lending Club’s rival provides details on repeat borrowers – in fact Prosper has 15 elements exposed including details on loan amount, earliest pay off, number of prior loans, number of prior loans still active, balances outstanding, details on late loans etc.
Anyone (including Bloomberg reporters) can use NSR Invest (note: Renton is a co-founder of NSR Invest) to analyze loan performance on any of these filter criteria and through this you can get a really good understanding of how repeat borrowers perform.”
The Bloomberg article presents the historic data as indicative of future shortcomings. As we all know, the past is not necessarily the best indicator of future results – either better or worse. Laplanche is long gone and Lending Club is now under the leadership of Scott Sanborn who is working to rebuild investor confidence and platform growth. Renton criticizes Sims as presenting incomplete data and assuming he knows more than the Lending Club underwriting team. Renton points to the fact that “investor performance has been strong now for many years”.
“A deeper analysis would have led to a more complete story but probably one that would have been less controversial. And in the end the story should have come to a quite different conclusion,” stated Renton.
The one topic neither article addressed was the occurrence of “stacking” where borrowers jump from platform to platform to take out loans. This is something that can be more difficult to track.
The entire Laplanche fiasco has been damaging for the marketplace lending sector. The drama has garnered global attention. But the nascent sector of finance still holds great promise for both the underbanked and investors in search of better risk-adjusted yield.