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Lending Club Discussion => Investors - LC => Topic started by: Fred93 on March 19, 2017, 09:38:50 PM

Title: The identiy fraud repayment promise
Post by: Fred93 on March 19, 2017, 09:38:50 PM
Lending Club promises to buy back loans (notes) "where the loan was obtained as a result of identity theft or fraud".

From the LC investor agreement...
https://www.lendingclub.com/info/lender-agreement.action
Quote
4. Limited Repurchase Obligation for Identity Fraud. If the Member Loan designated for the proceeds of your purchase of a Note was obtained as a result of identity theft or fraud on the part of the purported Borrower Member, we will (a) provide notification either directly or indirectly to you as soon as reasonably practicable upon our becoming aware of such a situation; and (b) repurchase your Note by crediting your account for the outstanding principal balance of your Note. For the avoidance of doubt, (i) if you purchased the Note indirectly through a third-party platform or entity, we will work with such third party to credit your investment account through that entity or platform for the outstanding principal balance of your Note, and (ii) if you purchased the Note through FOLIOfn Investments, Inc., we will credit the Lending Club account that you established in order to purchase Notes through FOLIOfn Investments, Inc. We may, in our reasonable discretion, require proof of the identity theft, such as a copy of the police report filed by the person whose identity was wrongfully used to obtain the fraudulently-induced Member Loan, before we credit your applicable account and repurchase your Note. You agree that you will have no rights with respect to any such Notes except the crediting of the purchase price to your applicable account

Here's the thing that bothers me.  Since 2009 I have bought 8399 notes from Lending Club.  (I bought some before 2009 too, but I don't know how many, because they aren't included in my notes file any more.)  Given that I have bought a very large number of notes, how come I don't recall LC ever notifying me of an identity theft note?  Not even once!

How can this be?  I figure LC is pretty good at weeding out identity theft, but there are people who work at it all day long every day.  There was one talk at Lendit where the speaker talked about massive amazon cloud driven identity theft attacks on lenders.  Wow.  So even if LC is very very good at weeding out ID theft, one would imagine that a few still get thru.  If so, then some fraction of notes we buy from LC must be ID theft notes, and ID theft notes will surely charge off, which concerns us, right?

If even 0.1% of LC notes are ID theft, then out of the 8399 notes I have purchased, there would be about 8 ID Theft notes, right?

Why have I never seen one?

Perhaps LC has been notifying me, and I've been ignoring the notifications somehow.  So I'll ask the rest of you...

Have you ever been notified by LC that a note you have purchased is an ID theft note? 

Ever had such a note repurchased?

If none of us have ever been notified or reimbursed, then there is something wrong, because I refuse to believe that 1.3 Million loans have been issued without a single case of ID theft.
Title: Re: The identiy fraud repayment promise
Post by: BritishJim on March 20, 2017, 12:38:43 AM
I currently have over 70,000 active notes and easily have double that amount purchased since Lending Club opened their doors. I've never looked to see if I was ever reimbursed for an identity thef loan but I think I keep a pretty good eye on my account and would have noticed that. Excellent question and one as a group of investors would be worth getting an answer to.
Title: Re: The identiy fraud repayment promise
Post by: rawraw on March 20, 2017, 07:52:52 AM
The one time I saw it happen, there was no notification. Just a notation in the collection log of a previously defaulted note

Sent from my SAMSUNG-SM-G935A using Tapatalk

Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 20, 2017, 05:58:18 PM
The one time I saw it happen, there was no notification. Just a notation in the collection log of a previously defaulted note

Then did you actually receive the money back?

What did the note in the collection log say exactly?
Title: Re: The identiy fraud repayment promise
Post by: rawraw on March 20, 2017, 05:59:28 PM
Yes I received the principal. I don't remember what the language was. Now that your asking, I'm questioning if I imagined it! Lol

Sent from my SAMSUNG-SM-G935A using Tapatalk

Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 20, 2017, 06:27:34 PM
I'm wondering how these loans show up on the web site, on my statements, in the notes file, etc.

I'm thinkin' maybe they DON'T show up most of these places.  Maybe they are made invisible, like non-persons.  (Ie are dropped from my notes file.)

There would have to be a transaction, ie cash moving to my account, but the way the LC web site works these days, transactions are incredibly difficult to look for.  They are hidden in daily sums, and the pop up windows which expand the daily sums don't let you do anything useful. 

Seems like a transaction would have to appear on my statement, but unless I know the words they use to describe such a transaction on a statement, I won't know what to search for. 
Title: Re: The identiy fraud repayment promise
Post by: jheizer on March 20, 2017, 07:15:41 PM
I tried skimming my statements in the recovery type section and didn't see anything.  Be nice if it was a loan status.
Title: Re: The identiy fraud repayment promise
Post by: AnilG on March 20, 2017, 08:15:44 PM
I also remember in the past we discussed such "identity fraud" loans on the forum. IIRC, Lending Club made investors whole when loans were discovered to be "fraud". Also at one time few years ago there was a big news (may be just forum discussion or disclosure by Lending Club) with few fraudulent Loan IDs being disclosed. Sorry, don't remember more specific details.
Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 21, 2017, 02:57:23 AM
...at one time few years ago there was a big news (may be just forum discussion or disclosure by Lending Club) with few fraudulent Loan IDs being disclosed. Sorry, don't remember more specific details.

I also have a vague memory of something like that.

Seems like it should be happening EVERY DAY tho!
Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 21, 2017, 03:06:50 AM
I got a response from LC.  I take this as an initial response, not necessarily the whole story...

They say that there is presently no notification.  They say they're working on a uniform process to communicate these events.  They say these loans show up as "full payment" on the loan status page.

These answers raise many more questions, for which I have no answers.

I have asked them to tell me all the loans for which this has occurred.  This may seem like a bold request, but I pointed out that notification was and is an explicit formal requirement of the lender agreement.  In other words, they were supposed to tell us, and they didn't tell us, so the very least they can do now is to tell us now, after the fact.  Doesn't make up for their omission, but it would at least show good faith.
Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 21, 2017, 03:23:35 PM
2nd response from LC, clarifying ... They say such loans will definitely show up as prepayments.  The loans are not deleted. 
Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 21, 2017, 04:53:37 PM
3rd response from LC, clarifying...  They say they are preparing a list showing which of MY loans (not everybody's loans) were repurchased due to identity theft.

I intend to share info when it arrives.

Title: Re: The identiy fraud repayment promise
Post by: BritishJim on March 22, 2017, 01:46:46 AM
How did you contact Lending Club? I wouldn't mind getting a list for my loans.
Title: Re: The identiy fraud repayment promise
Post by: nonattender on March 22, 2017, 08:01:27 AM
Yes, who doesn't want to see these notes annotated to reflect their true state(s)?

LC attacking this on a case-by-case or user-by-user basis - especially when they have a clear, legal obligation to notify when such is the case - strikes me as someone thinking small and trying to save workload, when, in fact, they ought to just update their database to properly reflect all loans which have been bought back due to the ID theft guarantee.  This may also have some positive implication vis a vis the prepayment rates (which all investors monitor, closely - or should) and would likely reduce that number (and thereby some of the concerns which arise around the prepayment rate, if the ID-thefy reimbursements show up merely as "fully paid", in the data, shortly after origination) - not mentioning some other benefits which may accrue, regarding backtesting for investors and credibility for the platform.

There's no good reason not to do it for the entire dataset.  If they're going to do it, they may as well do it right.

Good catch, Fred.  I had the same thoughts when I watched Scott's keynote (which otherwise I liked) --- my mind instantly went to the opposite of what he said re: "we have a strong incentive to catch ID theft since we're on the hook" (paraphrased), to which my mind immediately translated "no, you have a perverse/reverse incentive not to monitor for ID theft, since otherwise you're on the hook".

Transparency solves for most of that.  Let's see it.  Thanks.
Title: Re: The identiy fraud repayment promise
Post by: Rob L on March 22, 2017, 09:31:36 AM
Good catch, Fred.  I had the same thoughts when I watched Scott's keynote (which otherwise I liked) --- my mind instantly went to the opposite of what he said re: "we have a strong incentive to catch ID theft since we're on the hook" (paraphrased), to which my mind immediately translated "no, you have a perverse/reverse incentive not to monitor for ID theft, since otherwise you're on the hook".

Transparency solves for most of that.  Let's see it.  Thanks.

I had the identical thought. LC has negative incentive to identify identity theft. By not segregating out the numbers it's impossible for us to tell if they are detecting an overall number of cases consistent with  industry averages.
Title: Re: The identiy fraud repayment promise
Post by: jheizer on March 22, 2017, 09:38:06 AM
I'm kind of curious if once you get the list if it is as easy as filtering your fully paid loans and finding ones where the PaymentsReceivedToDate = Note amount, or just INTEREST_RECEIVED = 0.  I wouldn't think they'd pay us any interest unless they were trying to hide these.  All mine had interest paid.
Title: Re: The identiy fraud repayment promise
Post by: bluto on March 22, 2017, 10:26:57 AM
I had a late loan get credited by lendingclub a few years ago.  It was classified as "Adjustments/Credits" on the cash details page and shown under miscellaneous under the transaction log with the description "credit for ineligible loanID 26048338".  After the transaction it doesn't show up in my notes (as a prepaid loan) it's gone as though I sold it. I can't seem to find any other records for it. 
Title: Re: The identiy fraud repayment promise
Post by: anabio on March 22, 2017, 10:36:32 AM
Good catch, Fred.  I had the same thoughts when I watched Scott's keynote (which otherwise I liked) --- my mind instantly went to the opposite of what he said re: "we have a strong incentive to catch ID theft since we're on the hook" (paraphrased), to which my mind immediately translated "no, you have a perverse/reverse incentive not to monitor for ID theft, since otherwise you're on the hook".

Transparency solves for most of that.  Let's see it.  Thanks.

I had the identical thought. LC has negative incentive to identify identity theft. By not segregating out the numbers it's impossible for us to tell if they are detecting an overall number of cases consistent with  industry averages.

This all goes back to a few of the Q&A's I read before I started investing in LC.

LC's answer to those questions was on the order of: Yes, we could do that but please trust us not to do that. After all, if we did that  we would upset our investors and we wouldn't want to do that.

Of course at that time their investor base only included retail investors, not banks. Methinks their retail investors mean a lot less to them now...
Title: Re: The identiy fraud repayment promise
Post by: arcee49 on March 22, 2017, 12:17:31 PM
I'm kind of curious if once you get the list if it is as easy as filtering your fully paid loans and finding ones where the PaymentsReceivedToDate = Note amount, or just INTEREST_RECEIVED = 0.  I wouldn't think they'd pay us any interest unless they were trying to hide these.  All mine had interest paid.

On a related note, does LC take out their servicing fees on these reimbursed loans?  Presumably they're repaid before the one year mark so they'd only take 1% of what the first payment amount would have been.
Title: Re: The identiy fraud repayment promise
Post by: RT45 on March 22, 2017, 01:44:38 PM
Agreed, would be helpful knowing how you contacted LC to get a list of which loans were fraudulent for my accounts.
Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 22, 2017, 03:44:18 PM
How did you contact Lending Club? I wouldn't mind getting a list for my loans.

They request that you contact the retail support team via investing@lendingclub.com
Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 22, 2017, 05:59:51 PM
I had a late loan get credited by lendingclub a few years ago.  It was classified as "Adjustments/Credits" on the cash details page and shown under miscellaneous under the transaction log with the description "credit for ineligible loanID 26048338".  After the transaction it doesn't show up in my notes (as a prepaid loan) it's gone as though I sold it. I can't seem to find any other records for it.

I suspect that there are different categories.  Perhaps "ineligible loan" is something different than "identity theft loan".  I'm guessing, as there has been very little (no) information to date. 

Once some of us have lists of notes that were bought back because of identity theft, we find them on our statements.  You can check for example if that loan in particular is one of them.
Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 27, 2017, 03:00:20 PM
I heard back from Lendingclub today.  They say that they have determined that I have had ZERO loans affected by identity theft in my 9 years and 8399 loans worth of investing at LC.
Title: Re: The identiy fraud repayment promise
Post by: Rob L on March 27, 2017, 05:39:55 PM
Now there's a real surprise!
Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 28, 2017, 02:35:19 AM
I currently have over 70,000 active notes and easily have double that amount purchased since Lending Club opened their doors.

Please make a request directly to LC for this info.  With your larger # of notes, it will be more difficult for them to claim with a straight face that identity theft has never happened.
Title: Re: The identiy fraud repayment promise
Post by: .Ryan. on March 29, 2017, 01:35:02 AM
I heard back from Lendingclub today.  They say that they have determined that I have had ZERO loans affected by identity theft in my 9 years and 8399 loans worth of investing at LC.

Well, at least if your note picking skills ever seem to be going down the shitter, you can take solace in the fact you have phenomenal judgement of character.  ;)
Title: Re: The identiy fraud repayment promise
Post by: Fred93 on March 29, 2017, 01:49:55 PM
REQUEST FOR YOUR ACTION

I hope many of you have some interest in this identify-fraud issue.  For many years, LC has promised that they will repurchase notes from loans where the borrower was an identity-fraudster.  Its explicit right in the lender agreement.

For many years we've discussed whether they might actually be doing this or not. 

Recently they admitted that they had not been notifying lenders, as required by the agreement, and that the repurchased notes would show up as prepays.  They agreed to identify which of the notes I have purchased over the past 9 years were repurchased due to identity-theft.  Answer came back a few days later: NONE.

That might be right.  Could be none out of nearly 10,000 loans.  I have no evidence one way or the other, except that 0 out of 10,000 would be a very very low rate of identity-theft. 

I urge you to make the same request of LC for your own account.  Call them or send them email, and ask them to identify which of your loans were repurchased by LC due to identity-theft.

If we can establish that some loans have been repurchased from some lenders, that will help us understand and believe what is going on.
Title: Re: The identiy fraud repayment promise
Post by: RT45 on March 29, 2017, 04:31:09 PM
I have submitted a request with my notes.

AnilG - any way you could email your users to notify them about requesting LendingClub to disclose if they've had any fraudulent loans that could be up for reimbursement? Might make Peercube pay for itself instantly. :)
Title: Re: The identiy fraud repayment promise
Post by: Lovinglifestyle on March 30, 2017, 08:30:33 PM
I was informed today that I have 0 (out of 12,117) notes that were issued as a result of identity fraud.
Title: Re: The identiy fraud repayment promise
Post by: au88 on April 01, 2017, 10:36:20 AM
Long time reader, first time poster. I have had ~21000 notes in my account over its 8 year history. I've reached out to LC and will let you know what they say.
Title: Re: The identiy fraud repayment promise
Post by: RT45 on April 01, 2017, 02:11:21 PM
Still waiting to hear back for a response from my end.
Title: Re: The identiy fraud repayment promise
Post by: rawraw on April 02, 2017, 05:25:57 AM
I'm no stats quant, but I'm starting to think the probability of something being fishy is high if their identity theft rate is near 1%.
Title: Re: The identiy fraud repayment promise
Post by: Edward Reid on April 02, 2017, 12:34:58 PM
Interesting, though I don't have enough notes to be worth contacting LC ... I'll wait to hear more here. I found this article (http://www.creditcards.com/credit-card-news/credit-card-security-id-theft-fraud-statistics-1276.php) stating that 4.4% of identity theft involves loan fraud. (The article lists references, but I did not follow them to find out where they got this number.)

OTOH ... I wonder. LC only provides the loan proceeds as a direct transfer to a bank account. This means a loan fraudster not only has to impersonate the victim to LC, they also have to either gain access to the victim's bank account or set up an account in the victim's name. (LC probably does at least some rudimentary name match checks on the accounts they send money to.) If they have access to the victim's account, it's probably easier for them just to drain the account and not worry about refilling it. And perhaps this complication -- the need to break in twice rather than just one -- is enough of a hassle and delay to make the thieves look elsewhere. "I don't have to outrun the bear, I just have to outrun you."

I'll certainly be interested in the results, given that what LC has already told those who have requested the info is that their identify fraud rate is essentially zero.

Edward
Title: Re: The identiy fraud repayment promise
Post by: au88 on April 04, 2017, 08:11:35 AM
The results are in. LC says I've had 3 notes (out of ~20000). They gave me the 3 loan ID numbers.
Title: Re: The identiy fraud repayment promise
Post by: Fred93 on April 04, 2017, 03:11:51 PM
I found this article (http://www.creditcards.com/credit-card-news/credit-card-security-id-theft-fraud-statistics-1276.php) stating that 4.4% of identity theft involves loan fraud. (The article lists references, but I did not follow them to find out where they got this number.)

I followed to ...
https://www.ftc.gov/system/files/documents/reports/consumer-sentinel-network-data-book-january-december-2014/sentinel-cy2014-1.pdf

Produced by FTC, with contributions from a network of contributors.  Large contributors were: Privacy Star,  Better Business Bureau, FTC.

Identity theft was largest category, ie most reported incidents, in their survey, at 332,646 incidents.  Page 12 shows "Loan Fraud" to be a growing fraction of total identity theft reports.  2012: 2.4%,  2013: 4.0%, 2014: 4.4% .

I then jumped to the latest book...
https://www.ftc.gov/reports/consumer-sentinel-network-data-book-january-december-2016
Identity theft was 399,225 complaints, and 13% of the total complaints.
Among identity theft, loan fraud was, page 12,  ... 2014: 5.1%, 2015: 3.9%, 2016: 6.8%

Yea, I know, they changed the 2014 number.  Govt agencies love to revise historical statistics.

So in 2016, this one network of info providers counted 27,147 cases of loan fraud.  However, because these providers are complaint gathering agencies, rather than banks, there is no total number of loans that I can divide by to get a fraction of new loans one might expect were opened by identity thieves.

Note tho that the growth from 2012 to 2016 was from 2.4% of total to 6.8% of total.  This probably aligns with the growth of online lending, online banking, etc.

Quote
..a loan fraudster not only has to impersonate the victim to LC, they also have to either gain access to the victim's bank account or set up an account in the victim's name. (LC probably does at least some rudimentary name match checks on the accounts they send money to.)

Most people underestimate the level of effort that serious thieves are willing to apply.  They may fail most of the time, but each time they win, they walk away with $25,000. or so.  If the bad guys gain access to a bank account, they could apply for multiple loans AND drain the existing money in the account.  Its not either-or.

A few years ago, I had money wired out of my account at a major stock broker.  The thieves were very well organized.  I was amazed at the array of techniques they had to delay detection.  They filed a change of address request with the broker, to misdirect my monthly statement.  (This was before we all went paperless.)  They deposited a (bad) check same day they wired out money, so that if anyone checked, the balance would look same for a few days.  Banks don't check signatures on checks, so this check looked like it went thru, and then was pulled something like 10 days later.  I got a call at that time "Say, that check you deposited a few days ago bounced."  to which I replied "What check?"

I got to know the back room people at the broker, and learned that a large number of accounts were hit the same day. 

There were other details that made it clear this was a very well organized team effort.  I won't explain all the details here, because it is off topic, and a long story.  I'll just say that there is a term for criminal team efforts that are well organized.  They call it "organized crime".

I think its a mistake to underestimate the bad guys.
Title: Re: The identiy fraud repayment promise
Post by: Edward Reid on April 04, 2017, 10:18:53 PM
I think its a mistake to underestimate the bad guys.

Oh yeah. I brought up one possible factor, but the numbers LC is passing out (like the 3 in 20K that au88 posted) sound very low to me. The ones that didn't make any payments, or only one, and LC was never able to contact them and charged off the loan ... how many of those were loan fraud, not just individuals taking a loan they don't intend to pay but, as you say, organized crime.

Still, I tend to think that loan fraud is harder than, say, skimming a credit card. But I don't doubt for a second that Bad Guys are working hard.

Edward
Title: Re: The identiy fraud repayment promise
Post by: nonattender on April 05, 2017, 02:00:40 AM
I think its a mistake to underestimate the bad guys.

After reading your post, I put on my tiger-team hat for a second.  I now think it was I who was "thinking small" - and I see some wisdom in LC's decision to address these requests on an investor-by-investor basis, only for notes in which those investors have legitimate interests.