LendingClub (NYSE:LC) has filed a new form with the Securities and Exchange Commission (SEC). The Form “FWP” states that LendingClub has suspended the facilitation of new D Grade loans as of April 10, 2020, due to the COVID-19 pandemic.
Recently, LendingClub has taken measures to shore up its lending platform that largely caters to consumer borrowers. At the end of March, LendingClub announced an increase in the interest rate charged to borrowers as intrinsic risk increased due to the Coronavirus. The increase in rates was taken even while the US Federal Reserve rushed to move rates to almost zero in an attempt to offset the fast contracting economy.
LendingClub said that based on observations of a variety of factors over time, they have decided to suspend the offering of D, E, F, and G grade member loans for investment by Notes investors.
Exiting Grade D loans may be viewed as part of an ongoing shift to improve the overall credit risk of the platform. In November 2017 LendingClub suspended the offering of Notes corresponding to F and G grade member loans. Beginning in May 2019, LendingClub ceased facilitating new grade E loans. LendingClub obtains credit information from a variety of sources to assign one of 15 different loan grades from A1 to C5 thus representing various degrees of perceived risk.
In 2019, Grade D loans accounted for 13.88% of originated loans. Since 2007, Grade D loans have had an average interest rate of 18.77% and an adjusted net annualized return of 5.69%.
The COVID-19 crisis has impacted both SME and consumer lenders. A recent report cited information from loan comparison service Monevo, part of the Quint Group, that indicated the market for consumer credit is experiencing a “significant reduction in the demand for personal loans.”
The Monevo stated:
“we’re seeing two key themes play out since the outbreak of the virus; a significant reduction in the demand for personal loans combined with a contraction in the supply of credit across nearly all lenders. We’ve seen a significant contraction in the market with a reduction of 30 to 40% in the demand for personal loans.”