Lending Club PRIME account

You won’t see that headline splashed across Lending Club’s home page.

Unfortunately for Lending Club, like most people who file for income taxes, this is the time of year when I review my year-end bank and investment statements to see how things are going.

I guess Lending Club is counting on me (and the rest of its investors) not performing this annual review of investment summary statements.

Because if they were, there would be even more bad press for Lending Club.

I have both Traditional IRA and Roth IRA accounts with Lending Club.  I opened the Roth in 2010, and I opened the Traditional IRA back in 2014.

My weighted average return in 2016 with Lending Club (in tax deferred-accounts) was 3.38 percent.

You read that correctly- By investing in unsecured lines of credit (that’s people who can not obtain or extend a Home Equity Line of Credit), I earned a whopping 3.38 percent on the money I put at risk.   That’s only 1.5% better than a guaranteed, FDIC-insured 5-year CD I can pick up at Navy Federal Credit Union today.  It’s only 1 percent better than today’s (February 2017) TSP G-Fund rate.

So here’s the gory details:

My Roth IRA 2016 Year-End summary shows a return of 3.98 percent:

Lending Club abysmal rates of return

This is in contrast to Lending Club’s time-weighted calculations of 5.92%, which have a historical bias towards the original first few months’ worth of returns (when everything is rosy and none of your lenders have defaulted):

Lending Club abysmal returns

… you can see the same stuff going on in my Traditional IRA account when you compare the 2016 year-end summary return of 2.28% versus the 4.40% Lending Club says I earned historically:

Lending Club abysmal returns

 

Lending Club abysmal returns

…Adding it all up, my weighted average Rate of Return between the two retirement accounts for 2016 was 3.38%.  From the data I’ve shared above, you can see I’m not a ‘corner case’ with all of my money in 5 loans.  I’ve done what Lending Club recommends – ‘diversify’ with more than 800 loans spread across multiple grades of loans.

Lending Club has a real problem on its hands.  They are peddling the junkiest of junk bonds to investors but providing net returns barely above 5-year CD rates. 

In addition to the (deservedly) bad press they are dealing with, Lending Club has the problem of Investors who actually look at their year-end statements and ask themselves, “Where’s the Beef?”.

Investors expect returns  commensurate with the risk they assume in any investment, including the purchase of consumer loan debt through Lending Club.  At present, Lending Club is not providing its investors with much of a premium above a risk-free return (such as a CD).

I’m starting to think that Lending Club is a zero-sum game for investors, and that the only money to be made with Lending Club is on the Trading Platform (at other Lending Club investors’ expense).

There’s plenty of other evidence indicating that the peer lending marketplace model is broken.  If my sampling of recent history is representative of other Lending Club investors’ experiences, there’s plenty of reason for Lending Club investors to head for the exits.

[Disclosure:  At the time of this writing I am not liquidating my Lending Club retirement accounts, but I’m not making additional investments, either]


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