As a credit marketplace connecting borrowers and investors, LendingClub continuously adjusts to serve both borrowers and investors. To best serve our members, frequent adjustments are made to the platform based on a variety of inputs like investor feedback, marketplace demand, loan performance, and the general interest rate environment.
Adjustments are made to the platform regularly to adapt to changing market conditions and new insights. These changes have included a wide variety of actions over time, including new borrower features (for example, adding the ability for borrowers to apply jointly and the ability to pay off debt directly), interest rate changes (to both respond to and anticipate changes in the interest rate environment), and credit expansions or tightening (to offer competitive risk-adjusted returns to investors). These types of features and changes enable us to responsibly serve more borrowers while keeping risk within guardrails.
In 2018, the credit policy was tightened gradually and consistently throughout the year to respond to investor demand for lower-risk assets, and interest rates were raised several times to react to the prevailing interest rate environment. Over the past several months, we’ve undertaken additional tests around pricing, loan size, and user experience.
Most recently, the credit policy was tightened on certain loan grades and terms, and interest rates were increased for loan grades B-E 1 by a weighted average of 0.57%. Grades D and E saw a few specific changes that are intended to improve investor returns. In Grade D, interest rates went from a range of 17.97%-22.35% to a range of 17.97%-28.80%. In parallel, some higher risk applicants who were previously categorized as E were screened out of the borrower population using a new set of tools we have developed to identify borrowers most likely to go into delinquency early in the life of their loan. Other applicants who would have been previously classified as E will be assigned D grades going forward given the strength of their credit profiles and the new, wider interest rate range of Grade D. This changes the composition of Grade E going forward from a larger set of higher-risk borrowers to a more limited set of borrowers who we believe offer improved risk/return profiles. Finally, interest rates for Grade E were also increased from a range of 23.40%-27.27% to a range of 28.90%-29.00%. We expect that these changes could impact investors in two ways:
- We anticipate Grade D will offer higher average interest rates and marginally greater volume relative to historical levels
- Grade E loan volume has been contracting for some time (in 2018 it represented less than 4% of the platform) and these changes will further reduce volume going forward. Given a smaller borrower population, Grade E investors could experience higher volatility. Likewise, retail investors with larger allocations to Grade E could experience some cash drag due to limited loan supply, so investors who want to deploy cash more quickly might consider adjusting their strategy.
As you know, it’s a best practice to occasionally monitor your overall portfolio to ensure it’s still in line with your investment goals. 2 Should you want to make changes to your LendingClub investment strategy given the information above, you can make automated investing changes here and manual changes here.3 As always, please reach out to our Investor Services Team with any further questions
1 As of May 7, 2019, LendingClub stopped offering new grade E Notes except those corresponding to certain previously qualified or approved loans. Effective July 1, 2019, no grade E Notes or loans will be available on the platform.
2 LendingClub loan grades are our way of grouping borrowers with common credit risk factors including credit scores, additional credit bureau information, requested loan amount, and other borrower attributes. These categories reflect broad indications of risk, rather than static definitions, and the criteria for a particular grade may change over time. Investors may want to consider information regarding a loan’s grade, purpose, and term (36 or 60 months), and borrower Debt-to-Income (DTI) ratio and most recent credit score (as well as other factors) to help them select Notes and build a portfolio that suits their investment goals and risk tolerance. For more on risks and investment considerations, please see the Prospectus.
3 This information is not intended to be investment advice. LendingClub Notes are not guaranteed or insured, and investors may lose some or all of the principal invested. Notes are offered by prospectus filed with the SEC and investors should review the risks and uncertainties described in the prospectus prior to investing. Investors should consult their financial advisor with questions or if they need additional information. Actual results may vary.