Author Topic: Accrued Interest and Paid-Off Loans  (Read 6499 times)

Bohb Daishi

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Accrued Interest and Paid-Off Loans
« on: February 17, 2014, 03:09:21 AM »
This is a follow-up from my earlier post about losing out on accrued interest when a note became paid off. I felt that this warrants a new thread because it is useful information.

Long story short, according to LendingClub policy, a borrower is typically NOT held liable for accrued interest if they pay off their loan. The only exception is that the loan must have been brought current first (including past-due accrued interest). After it becomes current, the only payoff amount is the current principal, but not the current interest.

For example, take a "current" note with a 24% rate, a due date of March 1st, and a Feb 1st principal balance of $100. In theory, the note should accrue about $2 in interest between 2/1 and 3/1. However, if the borrower pays off the note on 2/28 with a $100 payment, LendingClub will NOT go after the borrower for the accrued interest, nor will they credit investors for that amount. Even if the note showed as having ~$2 in accrued interest on 2/27, investors still will not receive it.

The silver lining is that if the borrower pays AFTER the next due date (or on 3/2, according to the example), borrowers ARE held liable for that full month of accrued interest.
« Last Edit: February 17, 2014, 03:11:23 AM by Bohb Daishi »
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Fred

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Re: Accrued Interest and Paid-Off Loans
« Reply #1 on: February 17, 2014, 03:25:16 AM »
Long story short, according to LendingClub policy, a borrower is typically NOT held liable for accrued interest if they pay off their loan. The only exception is that the loan must have been brought current first (including past-due accrued interest). After it becomes current, the only payoff amount is the current principal, but not the current interest.

Per LC's page 35 of 10-K most recent filing to the SEC:  http://www.sec.gov/Archives/edgar/data/1409970/000119312513136975/d450565d10k.htm

"In the event of a prepayment of the entire remaining unpaid principal amount of a Member Loan on which the Notes are dependent, you will receive your share of such prepayment, net of our 1.00% service fee applicable to Notes, but further interest will not accrue after the date on which the payment is made."

It does imply that "interest will accrue until the date on which the payment is made", right?

Bohb Daishi

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Re: Accrued Interest and Paid-Off Loans
« Reply #2 on: February 17, 2014, 03:35:52 AM »
It does imply that "interest will accrue until the date on which the payment is made", right?

Correct - their statement does imply that interest will accrue until the payment date. However, in actuality, all accrued interest is forgiven if the borrower doesn't include it in their payoff amount.
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core

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Re: Accrued Interest and Paid-Off Loans
« Reply #3 on: February 17, 2014, 04:23:35 AM »
It does imply that "interest will accrue until the date on which the payment is made", right?

Yes, but that's old information.  You can't go by what's in the 10-K, prospectus, nor what's on LC's site.  Lending Club has shown time and time again that they are not shy about changing the rules in the middle of the game.  Sometimes they even change the rules after the game is over, if they do not like the final score.

Bohb Daishi

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Re: Accrued Interest and Paid-Off Loans
« Reply #4 on: February 17, 2014, 08:19:12 AM »
Lending Club has shown time and time again that they are not shy about changing the rules in the middle of the game.  Sometimes they even change the rules after the game is over, if they do not like the final score.

R.I.P. Bankrupt note trading...  :'(
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yojoakak

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Re: Accrued Interest and Paid-Off Loans
« Reply #5 on: February 17, 2014, 01:26:21 PM »
Here are some other places I've seen LendingClub drop interest. Can you think of any more?


- Loan goes into Default: accrued interest resets to 0 and interest stops accruing.

- Borrower requests a different payment date: 2 or 3 weeks worth of interest just disappears.

- "Completed - xx days late" but it's just regular interest and not even a late fee. Even when there's no borrower contact, no payment plan, no extenuating circumstances, no nothing.

core

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Re: Accrued Interest and Paid-Off Loans
« Reply #6 on: February 17, 2014, 01:47:23 PM »
I could probably run a query to find more cases, but that would rely upon the accrued interest at least being updated properly when such changes are made.  No luck there.

You know what, I've been thinking.  Our notes are between Lending Club and us.  If LC wants to forgive interest charged to the borrower out of kindness, that is their business.  It does not, however, change their obligations to note holders.

One of these days, Lending Club is going to get their butts sued.  When that day comes I will be there with my popcorn to watch them fry.  I believe it's class action time soon. 

Bohb Daishi

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Re: Accrued Interest and Paid-Off Loans
« Reply #7 on: February 18, 2014, 02:25:21 AM »
- Loan goes into Default: accrued interest resets to 0 and interest stops accruing.

Do you mean loans that charge off? Because every "default" loan in my inventory has accrued interest.
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yojoakak

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Re: Accrued Interest and Paid-Off Loans
« Reply #8 on: February 18, 2014, 11:44:55 AM »
- Loan goes into Default: accrued interest resets to 0 and interest stops accruing.

Do you mean loans that charge off? Because every "default" loan in my inventory has accrued interest.

Find one that's in Default and receives a payment. It's applied 100% towards Principal. They're pretty rare, so I don't know if they eventually end up paying some interest or not (assuming they keep paying, of course)

e.g. https://www.lendingclub.com/foliofn/loanPerf.action?loan_id=1313392&order_id=2787986&note_id=10925059



See also:
http://www.lendacademy.com/forum/index.php?topic=489.0

yaoyao

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Re: Accrued Interest and Paid-Off Loans
« Reply #9 on: February 18, 2014, 02:47:46 PM »
It does imply that "interest will accrue until the date on which the payment is made", right?

Yes, but that's old information.  You can't go by what's in the 10-K, prospectus, nor what's on LC's site.  Lending Club has shown time and time again that they are not shy about changing the rules in the middle of the game.  Sometimes they even change the rules after the game is over, if they do not like the final score.

I think this is what happened with my two earlier paid-off loans.  LC backdated them to the dates earlier than my purchase date.  The interest was not paid between backdated date and actual paid-off date.  The investors who purchased such loans would lose money unless they buy them with discounts.

Rob L

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Re: Accrued Interest and Paid-Off Loans
« Reply #10 on: February 18, 2014, 07:00:57 PM »
Okay, this is a little over my head but it seems clear from this and many other things that LC's simply making this stuff up as they go; no?

Randawl

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Re: Accrued Interest and Paid-Off Loans
« Reply #11 on: February 18, 2014, 09:37:31 PM »
Okay, this is a little over my head but it seems clear from this and many other things that LC's simply making this stuff up as they go; no?

You're catching on       ;)

Bohb Daishi

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Re: Accrued Interest and Paid-Off Loans
« Reply #12 on: February 19, 2014, 05:28:01 AM »
I think this is what happened with my two earlier paid-off loans.  LC backdated them to the dates earlier than my purchase date.  The interest was not paid between backdated date and actual paid-off date.  The investors who purchased such loans would lose money unless they buy them with discounts.

Those didn't happen to be Note ID's 6859290 and 6903402, purchased on 2/10 and 2/11, were they? If so, guess who the seller was.  ;D
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yaoyao

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Re: Accrued Interest and Paid-Off Loans
« Reply #13 on: February 19, 2014, 12:06:53 PM »
No.  Those two loans were paid-off last year.  I went back to check on them when I read your post.  I also sent LC an email about these two loans.  They told me that I bought them at slight markup, so I lost money on them.  I know I didn't.  I usually dont buy marked-up notes.  But it seems that I dont have a way to check.