P2P Lending / NFT Lending Forum

One aspect of both Prosper and Lending Club that has always angered me in terms of transparency is the collections/recovery of defaulted loans. As I'm sure many of you will agree, you would like to see everything going on with your non-performing loans.

In past, I was particularly impressed by the no-longer SVP of Legal and Collections, Jack Cohen. While I always understood that there are limitations on information that can be disclosed to investors on late loans, he was always eager and willing to take my calls (anytime) to address questions on specific loans and provide general information on his team, and collections processes. After a recent attempt to collect further information from the new collections manager, she continually insisted on transferring me to investor services without answers to any questions. I feel strongly that there should be more information available to investors on detailed collections processes, and recovery statistics (beyond the one chart that is not up-to-date).

Another flash from the past were the regular investor webinars to keep us up-to-date on different topics going on inside Lending Club and some how-to invest guides. Due to changes in personnel, combined with a plentiful supply of investor dollars, there is no need to divulge resources in this area. I would love to see these webinars return on different topics.

Finally, I am curious as to whether or not anyone has seen any cases of legal action against a borrower. I have never seen such an occurance with my notes. At the same time, I'm not sure if litigation is always noted in the collection logs or if a recovery payment would simply show up. The recovery payments also should be more apparent to investors and have an impact on the loan itself itself (otherwise recovery payments cannot be accounted for in response to defaults, as currently they don't impact principal balances in note detail).

I would like to hear others thoughts on these collections/transparency issues!

Here's one where they drafted the lawsuit 6 times. Is that some kind of record?

Never collected a dime on it, though.

https://www.lendingclub.com/account/loanPerf.action?loan_id=459562&order_id=855865

from: yojoakak on December 26, 2012, 10:48:30 PM

Well..........As someone who is fine with collections the way they are, I have no interest in subsidizing additional collection efforts. So may I suggest a multi-tiered service charge schedule (below) so that those who want more effort/info/details can pay for more themselves:

 a reduced 0.5%............for those of us who are ok with efforts as they stand.

1.5% for those who want a more rigorous collection effort

2.5% for those like zpbsfg who want a more rigorous effort, more transparency plus a phone contact person at their beck & call who they can discuss each & every late loan with.

Makes sense to me. 

from: DanB on December 27, 2012, 04:51:53 PM

zpbfsg...........Hey, I'm just responding to stuff you mentioned was important to you...............& suggesting where the money should come from (i.e. from you)

And no, I don't really have to care about collection efforts because I don't have & haven't had notes in collections for almost 2 years now. So, I'm sorry but yes I'm reluctant to pay for futile collection efforts that don't have anything to do with me.................just so that others can feel that something is being done for them.

from: DanB on December 27, 2012, 10:13:59 PM

No offense but if you surmise that the only way of not having notes in collection is due to not having "much money" in p2p lending then I'm afraid that our respective p2p "knowledge gap" is too great for me to help you bridge it at this point in time. I have over 1700 notes in just one personal LC account.............to say nothing of the other ones. 

from: zpbsfg on December 27, 2012, 10:29:24 PM

from: DanB on December 27, 2012, 10:41:00 PM

If you have 4 years experience & thousands of loans then you're likely trying to pull my leg & already know the answer to the questions you're asking. Furthermore, you also likely know that what I'm saying is very possible regardless of the avg. age of my loans (which range from 16-24 months) &/or the "grade" of my notes (which are approx. 60-70% C or below) I have virtually no A rated ones.

 If in fact I'm wrong with all my above assumptions, then may I be so bold to suggest that perhaps you've spent way too much of the last 4 yrs. concerning yourself with dead end issues like improving "collections" which even if implemented would likely yield but a tiny increase in your returns 

from: DanB on December 28, 2012, 06:37:33 AM

I am also curious about defaults and how best to handle them.  Maybe start a new thread.

I currently have over 500 notes almost 2 years with 1 default and none in any other bucket except issued or current.  My assumption is DanB sells notes on Folio like I do.  I dump them as they enter grace period.  I can see that almost 90% of any note I sell in Folio default and are charged off.  I currently have sold a total of 28 notes at a average discount of 20% off the principal left at the time of sell.  My average loan is a C to D range so I am on the riskier side.  I know this default rate doesn't correspond to LC averages so don't ask me why.  I don't have a good answer yet.

I wonder if this is good or bad?  I also wonder if this is what DanB is doing? 

Now on a side note I do run one portfolio that has only A/B for about a year and I have not seen one note move to Grace. 

My conservative XIRR is 8% and my aggressive is 13%.  I spend a ton of time on the aggressive so I currently don't know if the 5% is worth it? 

This has been a very interesting series of comments to read.  I'm primarily a Prosper investor, though I just started a very small LC cash account so I could learn their 'system' as well. 

As a Prosper investor, I cannot sell notes once they've become even one day late so I don't have the opportunity you LC investors do to dump a loan on it's way down the drain.  While I've played on Prosper with under $500 for 5 years, I only got serious in February 2012.  So with a 10 month old portfolio and about 1,200 notes I have 16 charge-offs.  Granted I invest in C-grade and lower mostly (closer to D-grade an lower on the LC scale).

IMHO it's more worth my time doing statistical analysis to improve my investing and forget about the one's who aren't going to pay.  My average charge-offs repaid 8% of their principal.  At $25 to $100 per note, it's seems futile to me to further concern myself with late notes.   Just my 2 cents.

You see in my signature I've got a pretty good return... but the 'youth' of my portfolio contributes to that.  We'll see if I'm eating crow this time next year with my lack of concern for charge-offs.

Wow a lot of hostility here! 

zpbsfg.....IMO it would not make a difference in most people's returns if LC was more aggressive towards charged off notes because the more aggressive they are, the more their service charge is going to be.

In my main LC account I have 1000+ C and lower notes, none of which are even late. I do what TcH does and sell them while they are in grace period.

The notes.csv file you are requesting from DanB is not proof of anything. The file can easily be modified to not include any distressed notes. A screen shot or video would be better proof.

I do agree with you when you say LC should provide more recovery statistics beyond the one chart that is not up-to-date.

zpbfsg...........You'll be awaiting for a long time. Peter Renton can however confirm that I do know what I'm talking about.

Quote"> from: DanB on December 27, 2012, 04:51:53 PM

You're all very bright, but let's not forget that "works and plays nicely with others" is also part of the grade...

from: VultureGuy on December 28, 2012, 04:18:20 PM

from: PeerLend on December 28, 2012, 03:51:10 PM

from: yojoakak on December 28, 2012, 04:45:59 PM

And don't forget that since LendingClub makes 50-80% of its fees off a loan before the first payment ever gets made (or not made, as the case may be) they'd rather originate a new loan than spend any time at all trying to collect on a bad loan.

Peerlend is correct. These are unsecured loans. There's no point in spending money endlessly pursuing people who are not, cannot, will not, or do not have to pay you back. It's not a question of anything beyond how the game is set up. Nevertheless there will always be people asking for more effort and more money to be spent chasing people down because they are personally offended by a default. That is fine with me.............I'm just not interested in subsidizing it.

My advice is to get over it..............or better yet, avoid it in the first place. How to do it is not brain surgery.

from: DanB on December 29, 2012, 12:02:24 AM

First of all, I primarily agree with those who are posting that the animosity is unwarranted. Now, as for the core of the issue, my two cents. Read all below as if each line started with "in my humble opinion...":

1) The pillar of the credit industry is the implied knowledge by borrowers that the creditors can "hurt" them if they don't pay. The loan sharks and the mafia take this literally/physically, but I believe A/B-grade borrowers know that a delinquency will severely impair their borrowing ability (why ruin a beautiful 750 credit score for a US$ 20,000 default?), but C/D/E/F/G-grade borrowers will certainly feel more threatened if you include a legal perspective in the game. Some people can live with no credit, but a wage garnishment would definitely hurt virtually anyone.
So, if you just decide your policy is "never really make too much effort to collect", you're playing with a very important variable that sustains the whole principle of the game.

2) LC is the only agent capable of doing anything to collect. They have to work in the best interest of the lenders when the borrower is not complying to the contract. I agree that there is a price, but they're keeping up to 5% of the amount lent, and that's a servicing fee. Collecting is part of servicing this type of product.

3) Prosper saw in the past what happens when you neglect collections. Go read in the internet about that dark time in their history, and the consequences they are still facing.

4) Collections and lawsuits are not only for secured debts. An entire industry is based on stronger collection efforts, for example, of credit card debts. They work very well. Collection agencies are normally specialized in either unsecured or secured collections. You're not in the bottom of the priority list for being unsecured, because that agency will either have only unsecured paper to collect, or will dedicate a team for unsecured collections.

5) Court costs are an upfront cost that nobody likes to have. You never know how terrible is the debtor's situation. Maybe the person will never be able to pay, or you may never be able to find them or find their assets (equity, employment, bank account). But when they owe you $30,000 and the lawsuit will cost you $400 (average cost of a default judgment), and you will spend a little more trying to get hold of the assets, I think LC is perfectly capable of pursuing this line of action with no impact on the servicing fee they charge from investors.
Look at their fee schedule: http://www.lendingclub.com/public/borrower-rates-and-fees.action
You don't have to complain that you're paying for other people's collections concerns because they buy G notes and you buy only A notes. The A notes have a 1.11% origination fee (to the borrower, not even to you!), and the C/D/E/F/G have a 5% origination fee. Now, LC will certainly spend exactly the same to originate A/C or C-G (I can't think of a reason the cost would be different), so the higher fee for C-G is for...? Collection efforts!

Again, in my humble opinion, that is.

from: rev on December 29, 2012, 02:20:37 PM

Rev............What animosity? It could easily be called a "spirited" discussion (barely spirited, actually). Keep in mind that this is not the first or the twentieth time the "more collection effort" discussion has been discussed. We're never going to agree on this so after glancing at your post & realizing that I knew & considered all that content already, I've decided I'd rather go & perform an act of contrition instead  of reading the rest of it, then glazing over & offering another spirited/sarcastic rebuttal that will never appease those of you on the other side of this issue . I hope you will find it in your heart to forgive me for exiting this discussion. 

No, don't exit it yet! Group hug!
Ok, I bore you, I'm sorry, see you next time you fail to exercise your contrition.

It's interesting that the "sides" of the issue appears to be the "conservative" A/B investors and the "aggressive" C-G investors. I understand the ecosystem will always have all kinds of players, from the A1 superconservative to the guy buying Late notes in the secondary market for a gamble. I think there's room for all. LC is a great investment for those seeking a safe 6-10% return, but also a very fertile terrain if you want to be "creative" (I prefer this over "aggressive") and explore ways to try and reach real 15-20% returns. Nothing wrong with either approach, as long as you know what you want in life and how much energy you want/can spend pursuing it.

That's an interesting observation rev.  I can tell you that in the context of tranched structured finance transactions with high default levels (think 2006-2008 RMBS and CDO deals) a very similar conversation frequently goes on between people who hold highly tranched securities and those who hold low tranched and equity level securities (people generally called it tranche warfare).  Generally, the holders of low risk securities are less willing to allow servicers to engage in loan modifications, and instead prefer to foreclose and sell the underlying properties as quickly as possible; lower level holders have the opposite desire.  The people with the more conservative holdings don't wish to incur more cost just to protect people with higher yield, riskier, securities.

The following Forbes article illustrates the point better than I can (sorry I have dinner plans haha...gotta run!): http://www.forbes.com/2008/12/18/cdo-foreclosure-mitigation-markets-bonds-cx_md_1217markets38.html.