Author Topic: FTC Files Complaint Against LC, Accuses of Deceptive Practices  (Read 2424 times)

MoMoney

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #45 on: May 03, 2018, 12:07:10 AM »
Why would the lenders care about this?

Didn't slow me down. Yet I've heard rather bright people confuse investing in LC's stock with investing in LC loans. I somewhat doubt seasonality, as this is a more serious swing than I've seen before. More likely one of the other factors you note.

Edward

Unlike other investments, LC's success or failure is intertwined with the loans.  Our bankruptcy laws are untested when it comes to this type of investment, and LC never has implemented a BRV for marketplace investors.  If a major brokerage went under, you still own the stock, and your cash is insured.  If LC went under, we know the loans would still be serviced, but would investors get their money back?  If a more traditional financial institution bought out LC, I imagine they will shut down the marketplace and focus on institutional investors and securitization since supporting many small investors is costly and not the primary source of revenue.

What does this issue have to do with them going bankrupt? They have a billion dollars in assets, a huge line of credit they can tap into and tens of millions of dollars in free cash flow. I really doubt institutional investors are worried about lending club going bankrupt in the span of 3 years(life of the loan) because of political statement by FTC which worse case scenario would result in a fine (which it won't because they have no case)
Also, in the event of bankruptcy, they also have contracts with third party servicing platforms to service the loans.

MoMoney

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #46 on: May 03, 2018, 12:26:30 AM »
Looking at https://www.lendingclub.com/browse/browse.action and filtering by Time left, out of 685 pages of loans, only half a page is loans between 21-28 days left. The other 684.5 pages are loans 29 days left. Am I not looking at the right thing?

That's loans, not pages (currently 646 loans).

If you have a "time left" filter, then you are looking at a different UI from me. I can filter by "listing expires in", but my only choices are 3 or 7 days.

However, I look at the first 60 loans in the list, and only 4 are 29 days left. the other 56 are 20-28 days. 41 are under 25 days. That's for all loans, not just the ones in the filter I use.

Quote
Retail note investors are very small portion of lending club investor mix. I hope banks and fund managers know the difference between lending club stock and their notes :)

Sure, but I'm only talking about retail.

Edward

Oh yeah you're right. I see the same thing. Around 300 loans are 20-27 days left. How many usually do you normally see in that range?
I think there are too many variables that could influence things. In addition to the previous reasons I mentioned, other reasons could include:
- Tweaks in underwriting approve more people for loans (they have done that before.)
- The timing of their securatization and how many loans are available based on that. They mentioned in their earning calls that they could have irregular loan originations based on the timing of closing deals.
- As you mentioned, some investors might have paused because of this FTC issue but I would think that's not as likely.
But also we are talking about ~6 million dollars worth of loans spread over a week that are not fully funded yet which would be around 73 million dollars for the whole quarter. That's a very small amount of their originations so I wouldn't draw too many conclusions based on just this data point.
« Last Edit: May 03, 2018, 12:29:28 AM by MoMoney »

Fred93

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #47 on: May 03, 2018, 03:24:01 AM »
Oh yeah you're right. I see the same thing. Around 300 loans are 20-27 days left. How many usually do you normally see in that range?
I think there are too many variables that could influence things. In addition to the previous reasons I mentioned, other reasons could include:
- Tweaks in underwriting approve more people for loans (they have done that before.)
- The timing of their securatization and how many loans are available based on that...
- As you mentioned, some investors might have paused because of this FTC issue but I would think that's not as likely. ...

Yea, all those variables are sorta valid, and just scratch the surface.

I don't know of anyone who has kept track of # loans in the retail inventory with X days left to run.  However, we all observe # of loans in retail inventory, because we login and look at loans available.  I've been doing this for 10 years now and I've seen that inventory fluctuate wildly.  Sometimes as low as 100.  Sometimes >1000.  I would suggest not trying to read too much into it.

There is a fellow somewhere in LC who sets some parameters (turns some knobs) every day.  He tells the computers what fraction of loans to allocate to the retail market, and within the retail market, what fraction of loans to allocate to the fractional market vs whole-loan market.  He makes this judgement based on information about the relative demand here and there, specifically, the securitization program, the whole-loan market, and the fractional market.  He is no better at predicting the future than anybody else, but he has this job, so he has to turn the knobs.  He guesses.

Sometimes for several weeks he gets sloppy and lets the retail inventory get really low.  After all one implication of a healthy-sized retail inventory is that some of it doesn't get fully subscribed, and you occasionally lose the opportunity to lend to some borrower.  When that happens repeatedly, there's a natural tendency to turn the knob to allocate fewer loans to retail.  When you do that, retail inventory gets low, which pisses off retail investors.  When that happens many investors (I've been one of them) complain explaining that the retail market cannot function without inventory.  Investors expect to be able to login and see loans to pick from.  When he gets some complaints from this side or that, it influences his knob-turning for the next few months, until he forgets about them.

Over time I've seen the personality of these decisions change too.  I suspect different people have held this job at different times.  For example, in the past, it was common to see similar numbers of loans posted every day, including weekends, in the retail market, and also similar numbers of loans at the four postings per day.  In the past few months there have been almost zero (often 1 or 2 or 3 or 4, but not quite zero) postings on weekends, and almost zero (but not quite zero) at the 6AM posting.  In other words, instead of 4x7 = 28 significant postings per week, we have reduced to 3x5 = 15.  What has changed is the "style" of operating the market, as if a different person were setting these policies.

So just expect a lot of fluctuation.  I would suggest not reading too much into it.


storm

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #48 on: May 03, 2018, 03:38:16 AM »
What does this issue have to do with them going bankrupt? They have a billion dollars in assets, a huge line of credit they can tap into and tens of millions of dollars in free cash flow. I really doubt institutional investors are worried about lending club going bankrupt in the span of 3 years(life of the loan) because of political statement by FTC which worse case scenario would result in a fine (which it won't because they have no case)
Also, in the event of bankruptcy, they also have contracts with third party servicing platforms to service the loans.

I'm just pointing out that LC may have to spend some money to reverse the trajectory of their falling stock price.

What proof do you have that the FTC charges are political?  What makes you think the charges are false?  I can't remember another time when Washington has been so pro-business.  Seems odd they would single out LC.

MoMoney

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #49 on: May 03, 2018, 03:19:53 PM »
What does this issue have to do with them going bankrupt? They have a billion dollars in assets, a huge line of credit they can tap into and tens of millions of dollars in free cash flow. I really doubt institutional investors are worried about lending club going bankrupt in the span of 3 years(life of the loan) because of political statement by FTC which worse case scenario would result in a fine (which it won't because they have no case)
Also, in the event of bankruptcy, they also have contracts with third party servicing platforms to service the loans.

I'm just pointing out that LC may have to spend some money to reverse the trajectory of their falling stock price.

What proof do you have that the FTC charges are political?  What makes you think the charges are false?  I can't remember another time when Washington has been so pro-business.  Seems odd they would single out LC.

I think Peter does a great job explaining the matter in this article https://www.lendacademy.com/ftc-files-complaint-against-lendingclub/
It doesn't look like the administration has been incompetent to even nominate people for FTC. This excerpt from the article shows why it's political:
"The Commission is headed by five Commissioners, nominated by the President and confirmed by the Senate, each serving a seven-year term. No more than three Commissioners can be of the same political party. The President chooses one Commissioner to act as Chairman."
"Currently there are only two commissioners. Not only that, but one of the commissioners is leaving on Friday, so there will be just one commissioner in the job starting next week. My understanding from people close to the FTC investigation of LendingClub was that it was going well and all parties were working in a cooperative fashion. This announcement appears to have came out of left field this week right as one of the commissioners was getting ready to leave."

storm

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #50 on: May 03, 2018, 07:11:59 PM »
If you scroll up, Peter says, "I should preface these statements by saying that I have had a long, close relationship with LendingClub. I have been an investor in the loans since 2009, an equity investor since their IPO in 2014 and LendingClub has been a sponsor of every LendIt conference since 2013. So, I am hardly impartial in this matter."

As of last week when the charges were announced, there were one Democrat and one Republican/chairperson running the FTC.  The Democrat resigned Saturday.  On Tuesday, four new commissioners were sworn in to fill the vacancies.  The current chair was nominated by the President and is waiting to be approved for a judgeship on the Federal Claims Court before giving up her current position which expires in September.

I will ask again...What proof do you have that the FTC charges are political?  What makes you think the charges are baseless?

sources:  https://www.politico.com/story/2018/04/26/ftc-commissioners-senate-approval-1108262
https://www.politico.com/story/2018/05/03/trump-federal-trade-commission-ohlhausen-511570

Fred93

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #51 on: May 04, 2018, 06:14:15 AM »
I will ask again...What proof do you have that the FTC charges are political?  What makes you think the charges are baseless?

You've read Politico stories, but I read the actual FTC charges.  I find them baseless.  See my earlier comments.  15 complaints out of 2 million loans.  I'll bet the government has received a larger ratio of complaints regarding every major bank and credit card company in the country!

In addition, I have long experience with the FTC, which provides me some experience in how they operate.  This provides me context to recognize bad behavior when I see it.

In today's news environment, I suggest using primary sources, rather than what some guy writes about a situation. 

The charges provided by the FTC (explaining their justification), along with facts provided by LC in their blog (fewer than 15 complaints to CFPB) and my knowledge of the # of loans LC has processed (over 2 million) lead me to this understanding of the situation.  I explained my thinking in more detail in earlier postings.

Its ok if you have a different opinion.  I'm not here to argue.  However, when you simply demand "proof" repeatedly, that doesn't advance our understanding.

I suspect that one problem in this discussion is that different people use the word "political" differently.  In today's polarized climate some folks mean "republican vs democrat".  Others have long used the word in a broader sense, as in "office politics", meaning acting to advance your own position.  The dictionary puts it this way...

Political
derogatory
relating to, affecting, or acting according to the interests of status or authority within an organization rather than matters of principle.


Bureaucrats who raise inappropriate and unfair complaints against companies to extort large fines and advance their status or authority when such complaints are unjustified can be described as acting in a political fashion.  There's a lot of this sort of thing going on in the world today.
« Last Edit: May 04, 2018, 06:19:34 AM by Fred93 »

Tomp

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #52 on: May 04, 2018, 12:32:20 PM »
Is your primary source a Lending Club press release?

lascott

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #53 on: May 04, 2018, 02:19:07 PM »
Is your primary source a Lending Club press release?
He said "I read the actual FTC charges".  There are links to the FTC in the LC article he points to. Geez.
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MoMoney

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #54 on: May 04, 2018, 05:14:20 PM »
If you scroll up, Peter says, "I should preface these statements by saying that I have had a long, close relationship with LendingClub. I have been an investor in the loans since 2009, an equity investor since their IPO in 2014 and LendingClub has been a sponsor of every LendIt conference since 2013. So, I am hardly impartial in this matter."

As of last week when the charges were announced, there were one Democrat and one Republican/chairperson running the FTC.  The Democrat resigned Saturday.  On Tuesday, four new commissioners were sworn in to fill the vacancies.  The current chair was nominated by the President and is waiting to be approved for a judgeship on the Federal Claims Court before giving up her current position which expires in September.

I will ask again...What proof do you have that the FTC charges are political?  What makes you think the charges are baseless?

sources:  https://www.politico.com/story/2018/04/26/ftc-commissioners-senate-approval-1108262
https://www.politico.com/story/2018/05/03/trump-federal-trade-commission-ohlhausen-511570

In a pretty efficient equity market as an investor my job is to distinguish between real bad news and just the hyped up ones. That's how I can get my edge. I listen to conference calls, read the transcripts over and over, looks at all the data I can find. I have been following lending club for a while. Sometimes it takes a lot of research to distinguish between real bad news and hyped up bad news but in this case it doesn't really take a lot of research or a genius to do that. The most "damming" thing in the FTC is the "hidden" origination fees. Some of the other claims such as sending emails “Investors Have Backed Your Loan” are just laughable. For example, they had a software bug that sent the emails for a few days before they fixed it. Things like this are common place in any software company.

But let's get to the most "damming" claim that lending club has "hidden" origination fee. This is so easy to disprove it's laughable. All you need to do is to go through an application to see how many times the origination fee is highlighted. Or just watch this video peter also posted in that article: https://www.youtube.com/watch?time_continue=202&v=MIAEuNRvoNI
I don't know if you have ever gotten a loan but almost any loans (car, mortgage) has origination fees. For mortgages for mortgages good faith estimate is where the origination fees need to be posted. For lending club, Truth in Lending Act form would be the only place they would need to post the origination fees to legally be in clear. But they have gone above and beyond that. Not just the fees are highlighted in truth in lending form many times, but it also can be found in other places when you go through the application process. No wonder they have such a high customer satisfaction rating and so many costumers returning for loans again. There hasn't been any surprises.

My friends who work in fintech business interacting with fintech companies say that lending club is so careful about their processes and making sure they don't do something that hunts them back later since Renaud's ouster (which was over something so minor btw) to the point that they are much slower than any other fintech company they work with. You can also see how many times they have adjusted their underwriting in ways that have excluded people getting loans which affects revenue in material way in short term in order to improv loan returns for investors and building the business for long term.

I'm not even gonna go over how lending club has been a leader in transparency in fintech lending and now they are pushing other lenders to also focus consumer credit/financial health. (watch Scott Sanborn's lendit keynote speach) 
« Last Edit: May 04, 2018, 05:16:05 PM by MoMoney »

MoMoney

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #55 on: May 04, 2018, 05:21:26 PM »
I will ask again...What proof do you have that the FTC charges are political?  What makes you think the charges are baseless?

You've read Politico stories, but I read the actual FTC charges.  I find them baseless.  See my earlier comments.  15 complaints out of 2 million loans.  I'll bet the government has received a larger ratio of complaints regarding every major bank and credit card company in the country!

In addition, I have long experience with the FTC, which provides me some experience in how they operate.  This provides me context to recognize bad behavior when I see it.

In today's news environment, I suggest using primary sources, rather than what some guy writes about a situation. 

The charges provided by the FTC (explaining their justification), along with facts provided by LC in their blog (fewer than 15 complaints to CFPB) and my knowledge of the # of loans LC has processed (over 2 million) lead me to this understanding of the situation.  I explained my thinking in more detail in earlier postings.

Its ok if you have a different opinion.  I'm not here to argue.  However, when you simply demand "proof" repeatedly, that doesn't advance our understanding.

I suspect that one problem in this discussion is that different people use the word "political" differently.  In today's polarized climate some folks mean "republican vs democrat".  Others have long used the word in a broader sense, as in "office politics", meaning acting to advance your own position.  The dictionary puts it this way...

Political
derogatory
relating to, affecting, or acting according to the interests of status or authority within an organization rather than matters of principle.


Bureaucrats who raise inappropriate and unfair complaints against companies to extort large fines and advance their status or authority when such complaints are unjustified can be described as acting in a political fashion.  There's a lot of this sort of thing going on in the world today.
+1

Fred93

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #56 on: May 04, 2018, 08:06:36 PM »

storm

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #57 on: May 04, 2018, 10:16:53 PM »
I was genuinely curious why everyone formed the viewpoint they did.  At a time when alternative facts and fake news are all too common, it never hurts to think critically about the information we are given and where it originates before accepting it. 

I was expecting somebody would inform me that someone at the FTC has ties to a competitor or the banking industry and wants to see LC go down in flames.  A unanimous vote by the two FTC commissioners on opposite ends of the political spectrum hardly strikes me as political.

Reading between the lines of the FTC case and press releases, I believe the charges were brought on because of the lack of urgency by LC to address the complaints.  The case has screen shots showing how the origination fee was buried during the application process as of a few years ago.  It is hard to argue one way or another about the other charges without more specifics.  I was taught at a young age the customer is always right, and if they are going to the trouble of filing multiple FTC complaints, then things need to change.  Instead of refuting each charge, LC should have issued a blanket apology and said its working to improve its loan application process and servicing.  That is Public Relations 101.

MoMoney

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #58 on: May 08, 2018, 06:03:05 PM »
Lending club reported their earnings above their midpoint guidance and beating the expectations with a respectable revenue increase of 22% YoY and strong Adjusted EBIDTA of $15.3 million up from $0.2 million last year. Notable things from the conference call:
* The CLUB Certificates were the highlight of the earnings. They attracted over $160 million in new funding from several of the top names in asset management. They are planing on expanding the rollout.
* Lending club maintains that FTC claims are factually unwarranted and don't see any problems with their practices and expect to resolve the FTC issue.
* FTC complaint has not affected either investor side or borrower side. Scott pretty much said that investors are on the same page with lending club on the FTC issue, and see no problem going forward.
* They have expanded margins and also were able to lower marketing expenses partly because of their scale.
* Bank participation has gone up again following a decrease last quarter.

I think this was a great earnings report for lending club. I think this is a very attractive price point for the stock. It looks like the stock has barely budged after hours. I'm disappointed that there was no news of share repurchase given the depressed stock price.

Things I wish they had talked about:
* Product roadmap and why they are so slow in launching new products when they said they have new products in pipeline a while ago. I would expect a credit monitoring service by now. Upgrade got this done in a few months. I hope the new CTO is more competent.
* More information on Cross selling products in the pipeline if there is any
* More information on how the car loan refinance and business loans are doing
* What percentage of users are repeating users vs new users. They had promised to touch on this in the last earnings call.
* Why did they need to tap to their credit facility to finance loans when they have so much cash on hand which is also increasing with positive EBIDTA.
* Why no share repurchase plan when they believe "FTC claims are factually unwarranted" and share prices are at such a depressed level, and when they had previously launched one at much higher prices.



« Last Edit: May 08, 2018, 06:35:31 PM by MoMoney »

Reginald

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Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
« Reply #59 on: June 14, 2018, 03:58:08 PM »
The real deception is the underwriting of these loans. This is another sub-prime crisis in the making. They are simply not doing a good job of screening out fraud. Investors (of these notes) beware! Stock investors - thats another story. LC's  financial situation gets better and better with more defaults and chargeoffs. At least until the investor-sucker-well runs dry.

https://www.bloomberg.com/news/articles/2017-06-14/biggest-online-lenders-don-t-always-check-key-borrower-details
« Last Edit: June 14, 2018, 04:00:08 PM by Reginald »