Folio notes bought but never got -- ie buy orders cancelled by LC

[mark78]

Currently my https://www.lendingclub.com/foliofn/tradingAccount.action shows about 50 "Purchased this month" and 25 "Canceled Buy Orders", for a success rate of 67%.

[wcwei5800]

Not sure if anyone have been experience this problem lately, but my cancellation rate has gone up in last few month to be around 50% consistently now. This really hurts since there are that many notes to invest on to begin with.

Sorry the first answer I posted an hour or so ago was wrong.  I researched my past writings and...

You should expect around 20% failure, based on how the secondary market works.

Here's the text I posted on Jan 14, 2018, somewhere on this forum, tho I can't find it here now, and also emailed to LC on same day...


I think I have figured out the order processing timeline, and why so many buy orders are cancelled.

In the past I'd been looking at historical data for months gone by, and LC gives us no way at all to track down what happened for notes we bought in prior months but did not settle, so I couldn't look at note by note details.  Generally, you can't look up the payment history on the note unless you own it, or it is offered for sale on Folio.  One exception is notes that you've tried to buy during the CURRENT month.  The "my account" page on Folio has links to the note detail for all these notes.  However, if you let time slip into the next month, all these links disappear.  This page provides an opportunity to look at the payment details of notes for which a buy order has been cancelled!  You've just got to do it before the links disappear!  That's what I did tonite.

Tonite I looked at notes I bought this month, looking up the status of the purchase transaction, and the note payment dates on the note detail pages for a considerable number of notes.  Lots of notes.  My fingers are very tired.

I now believe I know how the purchase timeline works.  Its pretty wonky.  We all know that lots of sell orders are cancelled for note payment, and I always figured this was done to protect the buyer.  Not so.   The sell orders are cancelled way too late to help buyers.  Sale offers are NOT cancelled while payments are processing.  As a result of this, the buyer has quite a hazard.   

Loan payment processing timeline...

Lets reference dates to the note "due date".  I'll call this 'D'.  This is when the payment processing window begins.  No payment has been made yet.  This is simply the day when a process starts.  On that day, or the closest business day, LC sends a request to the bank, via the ACH system, to grab some money from borrower's account.  A few days later, if the money has arrived, LC considers the payment "settled".  This is the "settlement date".  Lets call it 'S'.  (Due date and settlement date are shown on the note detail page.)

Settlement date S can be = D+3, D+4, D+5 or D+6.  This occurs because LC only works on weekdays.  So if no weekend or holiday intervenes, settlement is D+3.  If a holiday is in there, then it's D+4.  If a weekend intervenes, it's D+5.  If you have both a weekend and a holiday, then settlement is D+6.

So payment processing takes 3,4,5, or 6 days.  ...but there's more!

Now, the LC/folio note order processing timeline...

When I place a successful buy order on day 'B', LC does not process that the same day.  They process it the next day.  You can see this on your "my account" page.  The "order date" is always 1 day later than the day you placed the order.  Recent email from LC claimed the settlement process runs every day at 3PM, but this is misleading.  That may be the time that the software runs, but the time cutoff it uses is midnight.  Buy orders up to but not including midnight on 1/1/18 are logged by LC as ordered on 1/2/18.  In other words "order date" shown by LC is always B+1.

Now, when is a buy order cancelled?

A buy order is cancelled if B is in the range [D-1 thru S] inclusive.  In other words, the hazard window is one day more than settlement.

As an example, suppose a note had a due date on the 1st of a month.  Suppose there's a weekend and a holiday in there, so settlement is the 7th of the month.  Now you come along on the 7th and see this note listed for sale, and you buy it, and get a SUCCESS_PENDING_SETTLEMENT response.  Cool.  You think you've bought a note.  You haven't.  That order is gonna get cancelled for sure.

This is astonishing.  Its goofy that they know that they're gonna cancel the order if you buy, and they have known this for SEVERAL DAYS before you buy, but they let you buy, and then cancel.  Extra processing for them.  Extra processing for you.  Things are harder to track.  The right thing to do would have been to remove the sell order from folio once the window began, so that buyers didn't waste their time.  That's not what LC does.

I've had orders where I bought on D-1 and the order was cancelled after I bought.  (For the record note# 126688481.  I bought 1/1/18.  LC order date 1/2/18.  Due 1/2/18.  Settle 1/5/18.)

I've had orders where I bought on D+6 and the order was cancelled after I bought.  (For the record note# 119577848.  I bought on 1/2/18.  LC order date 1/3/18.  Due 12/27/17.  Settle 1/2/18.)

So the bottom line is that for each payment, ie every month, each note has a window of 4,5,6, or 7 days in which if you order in that window, the order will be cancelled.  Most of the time its 4 or 6 days.  The other two possibilities require holidays, and there aren't very many of those.  There are 4 days of each non-holiday week which have 4 day windows, and three days that have 6 day windows.  From this we can calculate that the average window is 4.857 days.  (Not considering holidays, which would make it a little bit bigger.)

Payments come 12 times per year.  Each payment has a 4.857 day hazard window.  That's 12x4.857 hazard days per year.  (The occasional extra payment will bump this up a little, as will holidays.  Missed payments will bump it down a little.)

D can occur on any day of the year.  Yea, I know LC only processes on weekdays, but we've already handled that with all that stuff about settlement sometimes being D+3 and sometimes D+5.  So there are 365 days to consider, and ...

Probability that a note order is cancelled = 12x4.857 / 365 = 18.46%

Now you may recall that I've had some periods when I calculated much higher failure rates for my own account.  Keep in mind that this calculation is an average.   Different months have different numbers of holidays and different alignment to weekends.  Also the luck of the draw will cause some variation.  Finally some of the much higher numbers I calculated a few days ago were from manual calculations which because of the difficulty of calculating by hand were for single days, which of course will vary much more than months.  There is probably also some day-of-week bias when loans originate.  This number above is just an average calculation all other things being equal.

Here (again) are the calcs I did for the last 6 months on all buy orders in my account.


November and December have a couple of holidays each, so they're expected to be a little higher.  These numbers look like they sorta agree with the theory.

The marketplace is simply designed so that about 1 out of 5 buy transactions will fail.

your answer make sense. However, I been seem consistent high cancellation rates with my order which is really odd. My cancelled percentages are 45%, 37%, 40%, and 32% from March to June respectively. For July, this number is currently at 54%... The "day since last payment" is always around 14 days, so I don't this is the reason. The sample size is fairly large as well, so I don't believe they are due to random chances.

[Fred93]

your answer make sense. However, I been seem consistent high cancellation rates with my order which is really odd. My cancelled percentages are 45%, 37%, 40%, and 32% from March to June respectively. For July, this number is currently at 54%... The "day since last payment" is always around 14 days, so I don't this is the reason. The sample size is fairly large as well, so I don't believe they are due to random chances.

Strange. 

Just to be clear... these are orders where the order ended with "SUCCESS_PENDING..." and then you did not actually get.  Right?

[wcwei5800]

Yep, only count notes with SUCCESS status. I have emailed LC, but don't expect to get any fruitful answer from them.

[Fred93]

Yep, only count notes with SUCCESS status. I have emailed LC, but don't expect to get any fruitful answer from them.

It is very difficult to get past the front line people to someone who actually understands what you're talking about.  Even the people the front line folks refer one to tend to not understand something like this. 

When I started complaining about all the cancelled orders last year sometime they gave me funky theories about how I must be choosing notes that had a payment coming up.  Later I showed them that wasn't true.  Finally I reverse engineered the cancellations, working case by case, and worked out the math. 

I suspect that the software developers who did the initial hookup between LC and folio are long gone, and the maintenance people don't really know how it works.  When you look into this monster, it is quite a hack job.