Lending Club uses this graphic in their
recently released SEC filing to help explain how promissary notes will work in their lending platform.
In addition, they answer several questions in the filing which we will reprint here. They can also be found on the SEC's website.
Questions and AnswersQ:
Who is Lending Club?
A:
Lending Club is an Internet-based social lending platform.
Q:
What is the Lending Club platform?A:
Our platform allows qualified borrower members to obtain unsecured loans with lower interest rates than they could through credit cards or traditional banks. Our platform also provides our lender members with the opportunity to invest in notes that are dependent on borrower member loans with credit characteristics, interest rates and other terms the lender members find attractive. As a part of operating our lending platform, we verify the identity of members, obtain borrower members’ credit profiles from consumer reporting agencies, such as TransUnion, Experian or Equifax and screen borrower members for eligibility to participate in the platform. We also service the member loans on an ongoing basis.
Q:
What are our Member Payment Dependent Notes?
A:
Our lender members may buy Member Payment Dependent Notes issued by Lending Club. In this prospectus, we refer to our Member Payment Dependent Notes as the “Notes.” The proceeds of each series of Notes will be designated by the lender members who purchase the Notes of the series to fund a corresponding member loan originated through our platform to an individual consumer who is one of our borrower members. Each series of Notes will have a stated interest rate, which is the interest rate for the corresponding member loan. The principal and interest payments, if any, you will receive on any Note you purchase will be limited to an amount equal to your pro rata portion of the loan payments, if any, we receive on the corresponding member loan, net of our 1.00% service charge, any unsuccessful payment fees, collection fees and any payments due to Lending Club on account of portions of the corresponding member loan, if any, funded by Lending Club in its capacity as a lender on the platform. The service charge will reduce the effective yield on your Notes below their stated interest rate. The Notes are special, limited obligations of Lending Club only and not the borrower members. The Notes will be unsecured and do not represent an ownership interest in the corresponding member loans.
Q:
Who are our lender members?A:
Our lender members are individuals and organizations that have the opportunity to buy our Notes. Lender members must register on our website. During lender registration, potential lender members must agree to a credit profile authorization statement for identification purposes and a tax withholding statement, and must enter into a note purchase agreement with Lending Club, which will govern all purchases of Notes the lender member makes.
Q:
What are the member loans?A:
The member loans are unsecured obligations of individual borrower members with a fixed interest rate and three-year maturity. Each member loan is originated through our website, funded by WebBank at closing, and immediately assigned to Lending Club upon closing in exchange for the aggregate purchase price we have received from lender members who have committed to purchase the Notes dependent on payments to be received on such member loan. A member loan will be issued to a borrower member if the loan has received full funding commitments, or if the borrower chooses to accept partial funding of the loan after receiving partial funding commitments.
Q:
Do member lenders loan funds directly to borrower members?A:
No. Lender members do not make loans directly to our borrower members. Instead, lender members purchase Notes issued by Lending Club, the proceeds of which are designated by the lender members who purchased the Notes for a loan to an individual borrower member originated through the Lending Club platform.
Q:
What member loan amounts are available to borrowers on our platform?A:
Currently, borrowers may request member loans in amounts ranging from $1,000 to $25,000. We do not loan to borrowers in Idaho, Indiana, Iowa, Maine, Mississippi, North Carolina and North Dakota.
Q:
Who are our borrower members?
A:
Lending Club borrower members are individual consumers who have registered on our platform. All Lending Club borrower members:
- must be U.S. residents;
- must be at least 18 years old;
- must have valid email accounts;
- must satisfy our credit criteria (as described below);
- must have a U.S. social security number; and
- must have an account at a financial institution with a routing transit number.
Q:
Does Lending Club participate in the platform as a lender?
A:
From time to time, Lending Club may participate in the Lending Club platform as a lender. For example, during the time when our site was not open to new lender member commitments, borrower members could still apply for loans, which were funded and held only by Lending Club. Although we have no obligation to do so, we may fund portions of loan requests in the future.
Q:
How does Lending Club verify a borrower member’s identity?
A:
During borrower registration, we verify the identity of members by comparing supplied names, social security numbers, addresses and telephone numbers against the names, social security numbers, addresses and telephone numbers in the records of a consumer reporting agency, as well as other anti-fraud and identity verification databases. We also currently require each new borrower member to supply information about the member’s bank account.
Q:
What are the minimum credit criteria for borrower members?
A:
After we receive a loan request from a borrower member, we evaluate whether the prospective borrower member meets our credit criteria. Our borrower member credit criteria are designed to be consistent with WebBank’s loan underwriting requirements and require prospective borrower members to have:
- a minimum FICO score of 640 (as reported by a consumer reporting agency);
- a debt-to-income ratio (excluding mortgage) below 30%, as calculated by Lending Club based on (i) the borrower member’s debt reported by a consumer reporting agency; and (ii) the income reported by the borrower member, which we verify in approximately 25% of cases; and
- a credit profile (as reported by a consumer reporting agency) without any current delinquencies, recent bankruptcy, collections or open tax liens.
Q:
What are Lending Club loan grades?
A:
For borrower members that qualify, we assign one of 35 loan grades, from A1 through G5, to each loan request, based on the borrower member’s FICO score, debt-to-income ratio (calculated as described above) and requested loan amount. A higher credit score, lower debt-to-income ratio and lower requested loan amount are factors that lead to a loan request being more likely to be designated grade A1. See “About the Loan Platform — How the Lending Club Platform Operates — Interest Rates” for more information.
Q:
How do we set interest rates on member loans?
A:
Our interest rate working group sets the interest rates applicable to our loan grades. After a loan request’s loan grade has been determined, we assign an interest rate to the loan request. Interest rates currently range between 7.37% and 18.86%. We set the interests rates we assign to borrower loan grades in three steps. First, we determine Lending Club base rates. Second, we determine an assumed default rate that attempts to project loan default rates. Third, we use the assumed default rate to calculate an upward adjustment to the base rates, which
we call the “Adjustment for Risk and Volatility.” See “About the Loan Platform — How the Lending Club Platform Operates — Interest Rates.”
Q:
Will Lending Club make payments on a Note if the corresponding member loan for the Note defaults?
A:
No. If the member loan corresponding to your Note defaults and the borrower member does not pay Lending Club, Lending Club will not be obligated to make payments on your Note, and you will not receive any payments on your Note. We have no obligation to make any payments of principal or interest on a Note unless, and then only to the extent that, we receive payments in respect of the corresponding member loan, and after deduction of Lending Club’s service charge and any unsuccessful payment fees, collection fees or payments due to Lending Club on account of the portion of the member loan, if any, funded by Lending Club in its capacity as a lender on the platform. For an explanation of a possible bankruptcy exception to the limited nature of the obligations on the Notes, see “Risk Factors — If we were to become subject to a bankruptcy or similar proceeding.”
Q:
Are the Notes secured by any collateral?
A:
No. The Notes are not secured by any collateral, including the corresponding member loans, and are not guaranteed or insured by any governmental agency or instrumentality or any third party. The Notes are not subject to any credit enhancement.
Q:
How do lenders members receive payments on the Notes?
A:
All payments on the Notes are processed through the Lending Club platform. If and when we make a payment on your Notes, the payment will be deposited in your Lending Club account. You may elect to have available balances in your Lending Club account transferred to your bank account at any time, subject to normal execution times for such transfers.
Q:
Can lender members collect on late payments themselves?
A:
No. Lender members must depend on Lending Club or our third-party collection agents to pursue collection on delinquent member loans. If collection action must be taken in respect of a member loan, we or the collection agency will charge a collection fee of between 7% and 30% of any amounts that are obtained. These fees will correspondingly reduce the amounts of any payments you receive on the Notes.
Q:
What happens if a borrower member repays a member loan early?
A:
We allow borrower members to make extra payments on, or prepay, their member loans in part or entirely at any time without penalty. In the event of a prepayment of the entire remaining unpaid principal amount of a member loan on which your Notes are dependent, you will receive your share of such prepayment, net of our service charge, and interest will stop accruing after the date on which such prepayment is received by us. If a borrower member partially prepays a member loan, we will pay you your share of the prepayment amount we receive, net of our service charge, and we will make available to you a revised schedule of anticipated payments reflecting the lower outstanding principal balance and lower monthly payments of the corresponding member loan.
Q:
How does Lending Club make money from the platform?
A:
We earn revenue from the fees we charge our borrower members and lender members. We charge borrower members origination fees, which currently range from 0.75% to 3.00%. We charge lender members a service charge of 1.00% of all amounts paid by Lending Club to lender members with respect to each Note. To a lesser extent, we earn interest on member loans to the extent that we fund those member loans ourselves.
Q:
How are the Notes being offered?
A:
We are offering the Notes directly to our lender members only through our website for a purchase price of 100% of the principal amount of the Notes. We are not using any underwriters, and there will be no underwriting discounts.
Q:
Will I receive a certificate for my Notes?
A:
No. The Notes are issued only in electronic form. This means that each Note will be stored on our website. You can view your Notes online and print copies for your records, by visiting your secure, password-protected webpage in the “My Account” section of our website.
Q:
How are the Notes treated for United States federal income tax purposes?
A:
Although the matter is not free from doubt, Lending Club intends to treat the Notes as indebtedness of Lending Club for U.S. federal income tax purposes. As a result of such treatment, the Notes will have original issue discount, or OID, for U.S. federal income tax purposes because payments on the Notes are dependent on payments on the corresponding member loan. Further, a holder of a Note will be required to include the OID in income as ordinary interest income for U.S. federal income tax purposes as it accrues (which may be in advance of interest being paid on the Note), regardless of such holder’s regular method of accounting. Prospective purchasers of the Notes should consult their own tax advisors regarding the U.S. federal, state, local and non-U.S. tax consequences of the purchase and ownership of the Notes, including any possible differing treatments of the Notes. See “About the Loan Platform — Certain U.S. Federal Income Tax Considerations.”
Q:
Will the Notes be listed on an exchange?
A:
No. The Notes will not be listed on any securities exchange.
Q:
Will I be able to sell my Notes?
A:
The Notes will not be transferable unless and until we are able to establish a resale platform for Notes. Although we are working to establish a resale platform, there can be no assurance we will be able to do so, or, if we are able to do so, when a resale platform would be available. Therefore, lender members must be prepared to hold their Notes to maturity.
Q:
Are there any risks associated with an investment in Notes?
A:
Yes. The Notes are highly risky and speculative. Please see “Risk Factors.”
where he promotes Lending Club as one way to finance your dreams.
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