Session title: Lending Club, Social Networks, and Credit Unions
Social networks provide a tremendous opportunity to meet small loan demand through person-to-person direct lending, according to John Donovan, COO of Lending Club. That’s because networks like MySpace and Facebook build connections between people, links that can be used to motivate people to invest in each other.
Lending Club is a peer-to-peer lending application available through Facebook, which has more than 50 million current users, with 250,000 new users joining every day. Each user can establish a “friend” relationship with anyone else on the network, and most do based on common interests.
Lending Club uses these links to bring people in need of money together with those who have it and are looking for better-than-market return. Potential lenders choose a risk level, which determines their “loan asking price.” Currently “low risk” translates to an interest rate of about 8%, while “high risk” sets a rate of about 14% (17.5% is Lending Club’s maximum).
Lending Club vets loan applicants, using conventional credit reports. It requires a minimum FICO score of 640. It is licensed in individual states to lend and resell loans.
Lending Club matches borrowers with lenders that fit the criteria. For example, Donovan displayed a borrower’s record showing need for $10,000 and a two-week deadline. To date, 15 people had offered 90% of the requested funds. Each lender was able to view the borrower’s qualifications, including credit rating, employment history, and intended use of the money. In the future, lenders will also be able to ask questions of prospective borrowers.
Prosper, the largest peer-to-peer lending service, has funded abuot $100 million in loans.
Zopa, the peer-to-peer lender based in the U.K., recently announced partnerships with several U.S. credit unions. The potential benefits to these credit unions include new loans and experience with new markets.
Monday, December 03, 2007
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3 comments:
This really does 'seem' like a win win situation all around.
My questions:
What is the default rate of these loans?
And I think I recall some discussion over collections... does the company (Lending Club) itself pay for collections; I'd be curios to learn how that works.
I know the question was posed on how credit unions could benefit from this service; I think it he said something about how it would be useful for smaller loan amounts (since traditionally it would be difficult to get a loan under 15K). However-- credit unions are known for offering smaller loans in increments as low as $500 or even smaller in some cases.
I am pondering the thought that maybe someone who cannot get a loan from a FI would still have chance through Lending Club? Or would that be essentially a version of predatory lending? And in that case, it would go against the mantra that CUs will not lend to someone they feel cannot pay it back (and hence not put the member in a predatory situation)
Or am I just seeking a fit that doesn't exist? Or maybe I just wish I had 20K lying around that I could get 15% interest on... who knows.
Interestingly enough, I just saw this piece today in News Now.
Six CUs partner with online peer-to-peer lending initiative
Six credit unions have partnered with Zopa, an online peer-to-peer lending initiative that has recently begun operations in the U.S.
Zopa, or Zone of Possible Agreement, originated in the United Kingdom several years ago. It seeks to help those in need of small loans by matching them with lenders.
The credit unions that have partnered with Zopa include: Addison Avenue FCU, Palo Alto, Calif.; Affinity Plus FCU, St. Paul, Minn.; FirstTech CU, Beaverton, Ore.; FORUM CU, Indianapolis; Provident CU, Redwood City, Calif.; and USA FCU, San Diego (Net Banker Dec. 2).
Read More...
So you're a "Type T lender."
You could always dabble in the Lending Club with a $500 investment.
Let's see if we can get John Donovan to answer your collections question.
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