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Lending Club Discussion => Investors - LC => Topic started by: Rob L on April 25, 2018, 12:45:06 PM

Title: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Rob L on April 25, 2018, 12:45:06 PM
See:

https://www.bloomberg.com/news/articles/2018-04-25/ftc-files-complaint-against-lendingclub-over-hidden-fees-loans (https://www.bloomberg.com/news/articles/2018-04-25/ftc-files-complaint-against-lendingclub-over-hidden-fees-loans)

Stock is now at $3.02, down $0.24 or about 7%. At its low so far earlier today, it reached $2.92.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Tomp on April 25, 2018, 12:53:36 PM
Been saying these men are incompetent crooks since LC was at $25.....hmm why do think Larry just resigned from the Board.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Tomp on April 25, 2018, 01:05:47 PM
https://www.ftc.gov/system/files/documents/cases/lending_club_complaint.pdf

This is really damning....I'm in this space and this stuff is compliance 101. Institutional Investors have been calling LC out on it (noted in the complaint). Can't even fathom how egregious their actions were.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: bkcarp00 on April 25, 2018, 01:58:31 PM
Lendingclub Responds:

https://blog.lendingclub.com/lendingclub-responds-to-federal-trade-commission-complaint/ (https://blog.lendingclub.com/lendingclub-responds-to-federal-trade-commission-complaint/)
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Fred93 on April 25, 2018, 02:02:08 PM
I've read the complaint.  I don't find it "damning" at all.  I find it typical bureaucratic regulatory hooha.

The primary issue is that FTC says that the loan application fee is "hidden".  In other words, LC isn't clear ENOUGH about it.  They do mention it several places, so it isn't completely hidden.  This is about whether it is obvious ENOUGH.

A few other issues thrown in...

Second issue is that FTC is claiming violation of privacy regulations, because LC didn't deliver the "privacy notice" to customers well enough.  FTC admits that you can click on something and read the privacy notice, but that isn't good enough because LC didn't stick it in the customer's face.  You know, I get these damn privacy notices now required by law from a zillion financial companies, and I've stopped reading them.  They do nothing to improve my privacy.  Therefore it is difficult for me to have sympathy with the FTC on this one.

Third issue is that LC has occasionally made accidental double withdrawals from some borrower's bank accounts.  We knew this, because we've heard people discuss this on this forum.  However, what is not clear is how often this has happened.  The FTC complaint doesn't say.  It says "numerous instances".  Well, that could mean that FTC received three or four complaints out of over 1.5 million loans.  We just don't know. 

Fourth issue is that FTC claims that LC's language is not clear enough about the status of the application as it proceeds, and some people thought their loan was approved when it was not yet approved, so were surprised later to find they didn't get the loan.  I know that some people were surprised, but I wonder if there is a specific regulation about how obvious or in-your-face the language needs to be.

In my prior experiences with regulators in general, and FTC in particular, I find many of their actions petty and idiotic.  In the past, in my opinion, the FTC has often undertaken massive campaigns that were extralegal, ie without statutory authority or regulatory process.  (In other words, there needs to be a law passed by congress, and regulations written and subject to public review, and printed in the Federal Register.  Often the FTC has acted without this authority.)   That said, they certainly do have clear legal authority on the privacy notice issue, although the issue that the customer had to click a link does make it seem somewhat petty.  The FTC has the authority to be petty.

You will recall that Goldman Sachs Marcus doesn't have an up front fee.  I wouldn't be surprised if GS lobbyists planted the idea with the FTC that LC's up front fee was "hidden".

However, regulators have a big stick, so LC is in some serious legal trouble here, which will distract management and probably result in the payment of a substantial fine.  In addition, regulators have a "kick 'em while they're down" mentality, so expect extra scrutiny to be applied on all regulatory interfaces for the next year or two.

Some of these issues are clearly a failure of LC's compliance function.  I believe a lot of internal functions have gone downhill since Renaud left.  I see it in other areas.  Why should compliance be any different.  They don't have people who are on their toes any more.

Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Fred93 on April 25, 2018, 02:04:12 PM
Lendingclub Responds:

https://blog.lendingclub.com/lendingclub-responds-to-federal-trade-commission-complaint/ (https://blog.lendingclub.com/lendingclub-responds-to-federal-trade-commission-complaint/)

Good response.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Tomp on April 25, 2018, 02:11:14 PM
I've read the complaint.  I don't find it "damning" at all.  I find it typical bureaucratic regulatory hooha.

The primary issue is that FTC says that the loan application fee is "hidden".  In other words, LC isn't clear ENOUGH about it.  They do mention it several places, so it isn't completely hidden.  This is about whether it is obvious ENOUGH.

A few other issues thrown in...

Second issue is that FTC is claiming violation of privacy regulations, because LC didn't deliver the "privacy notice" to customers well enough.  FTC admits that you can click on something and read the privacy notice, but that isn't good enough because LC didn't stick it in the customer's face.  You know, I get these damn privacy notices now required by law from a zillion financial companies, and I've stopped reading them.  They do nothing to improve my privacy.  Therefore it is difficult for me to have sympathy with the FTC on this one.

Third issue is that LC has occasionally made accidental double withdrawals from some borrower's bank accounts.  We knew this, because we've heard people discuss this on this forum.  However, what is not clear is how often this has happened.  The FTC complaint doesn't say.  It says "numerous instances".  Well, that could mean that FTC received three or four complaints out of over 1.5 million loans.  We just don't know. 

Fourth issue is that FTC claims that LC's language is not clear enough about the status of the application as it proceeds, and some people thought their loan was approved when it was not yet approved, so were surprised later to find they didn't get the loan.  I know that some people were surprised, but I wonder if there is a specific regulation about how obvious or in-your-face the language needs to be.

In my prior experiences with regulators in general, and FTC in particular, I find many of their actions petty and idiotic.  In the past, in my opinion, the FTC has often undertaken massive campaigns that were extralegal, ie without statutory authority or regulatory process.  (In other words, there needs to be a law passed by congress, and regulations written and subject to public review, and printed in the Federal Register.  Often the FTC has acted without this authority.)   That said, they certainly do have clear legal authority on the privacy notice issue, although the issue that the customer had to click a link does make it seem somewhat petty.  The FTC has the authority to be petty.

You will recall that Goldman Sachs Marcus doesn't have an up front fee.  I wouldn't be surprised if GS lobbyists planted the idea with the FTC that LC's up front fee was "hidden".

However, regulators have a big stick, so LC is in some serious legal trouble here, which will distract management and probably result in the payment of a substantial fine.  In addition, regulators have a "kick 'em while they're down" mentality, so expect extra scrutiny to be applied on all regulatory interfaces for the next year or two.

Some of these issues are clearly a failure of LC's compliance function.  I believe a lot of internal functions have gone downhill since Renaud left.  I see it in other areas.  Why should compliance be any different.  They don't have people who are on their toes any more.

$25 to $2.92........all is well-my bad
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: jd on April 25, 2018, 02:32:09 PM
Quote
$25 to $2.92........all is well-my bad

Does every stock that goes down equal crimes being committed?  Does every stock going up equal total compliance?

Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: toben88 on April 25, 2018, 04:52:23 PM
I bought a tiny bit of stock at $7.00 thinking the company is going to turn around as the investing side was working for me.
At $5 I bought a little bit more thinking we are getting cheap.
When it went below $4 I bought a whole bunch thinking all the bad news is behind them and all they need to do is not have a major screw up, they would easily become profitable this year and the stock to go back up.  So much for that idea...



Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Rob L on April 25, 2018, 05:50:25 PM
You will recall that Goldman Sachs Marcus doesn't have an up front fee.  I wouldn't be surprised if GS lobbyists planted the idea with the FTC that LC's up front fee was "hidden".

That was my first thought. Mentioned it to my wife so she'll vouch. Just my suspicious mind.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on April 25, 2018, 06:22:12 PM
I bought a tiny bit of stock at $7.00 thinking the company is going to turn around as the investing side was working for me.
At $5 I bought a little bit more thinking we are getting cheap.
When it went below $4 I bought a whole bunch thinking all the bad news is behind them and all they need to do is not have a major screw up, they would easily become profitable this year and the stock to go back up.  So much for that idea...

Value and price are two different things. Lending club's fundamental's have not changed, but their price has. I don't see the recent FTC development as a major risk and am happy with Lending club's response. Lending club is probably the most conservative company now after their CEO's ouster as far as making sure they are abiding by the books to the point that sometimes it interferes with their growth but I am very happy with the current price of shares and picked up a lot today. I would be happier the lower it goes. Excluding cash the company is valued lower than half a billion dollars. Much lower than prosper and other companies in the industry where it originates way more loans than those companies. Financials look really good. The company could easily be profitable if they wanted too. There is also going to be major consolidation this year in fintech according to industry experts. A lot of banks are also interested in entering this space. They would much rater pick up a stablished company that's industry leader than start over. That's actually my biggest worry for lending club. I'm worried that they will be at the risk of a take over this cheap, and never realize their full valuation. But at this price, there is not much downside risk but a lot of upside risk.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Rob L on April 25, 2018, 06:49:08 PM
Conflicting claims?
Guess consumers don't bother with the CFPB.

From the FTC:
"33. In fact, many consumers who apply for a loan from Defendant do not know that
Defendant will deduct an up-front fee from their loan proceeds. Indeed, consumers frequently
complain that they only discovered the fee after Defendant disbursed their loan proceeds, when
they noticed that the amounts disbursed were smaller than they were expecting. At least tens of
thousands of consumers contacted Defendant after their loan proceeds were disbursed to ask
about the up-front fee or to ask why they did not receive the full loan amount.
"

From LC's rebuttal:

We track all of our customer inquiries and complaints as part of our ongoing process of transparency and continuous improvement. The percentage of borrowers who complain about the origination fee is just a fraction of one percent. As we drive for more transparency, LendingClub voluntarily registered in the CFPB’s public Consumer Complaint Database in 2015. Since then, with more than two million borrowers served, the CFPB has registered fewer than 15 complaints about LendingClub’s origination fees.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Tomp on April 26, 2018, 01:27:33 AM
You will recall that Goldman Sachs Marcus doesn't have an up front fee.  I wouldn't be surprised if GS lobbyists planted the idea with the FTC that LC's up front fee was "hidden".

That was my first thought. Mentioned it to my wife so she'll vouch. Just my suspicious mind.

Entirely possible....also possible that LC's "studies" which they touted in their response were likely due to connections of Larry Summers. So...alls fair, live by the sword/die by the sword. Hard to believe that this was "sudden" and Larry didn't know it was going done when he left the Board only 3 weeks ago. It is completely f*cked up that FTC currently only has 2 of the five directors positions filled and I guess one is leaving. Tough to deal with a gutted government, MAGA and whatnot.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Fred93 on April 26, 2018, 04:56:21 AM
Conflicting claims?

The claims look completely consistent (ie not conflicting) to me.  It appears that each side is simply choosing which statistic to tout, to make a statement that sounds the best for their side.

Quote
From the FTC:
"33. In fact, many consumers who apply for a loan from Defendant do not know that
Defendant will deduct an up-front fee from their loan proceeds. Indeed, consumers frequently
complain that they only discovered the fee after Defendant disbursed their loan proceeds, when
they noticed that the amounts disbursed were smaller than they were expecting. At least tens of
thousands of consumers contacted Defendant after their loan proceeds were disbursed to ask
about the up-front fee or to ask why they did not receive the full loan amount.
"

When I first read that I thought it was strange that FTC was quoting the number people contacted LC to ask about the fee, rather than the number of people who contacted CFPB/FTC/etc.  I also thought it was strange to that FTC quoted the number of complaints, rather than the fraction of customers who complained.  Obviously its the fraction that matters.

10,000 people asking divided by 2,000,000 loans = 0.5% which seems like a small number.  Obviously when you're writing a complaint (which is like writing a press release) and trying to make every part of it sound big and bold you wouldn't want to use a number like one half of one percent, because that just doesn't sound big and bold, where as "tens of thousands" (whatever that means exactly) does sound big. 

By the way, technically, "tens of thousands" could mean anything from 10,000 to 99,999, but I believe the number is nearer the low end for the simple reason that if there had been say 75,000 complaints, the FTC would have touted that number, because it sounds bigger and bolder than "tens of thousands".  If "tens of thousands" is the boldest statement the complaint-writers (functionally similar to prosecuting attorneys) could come up with, chances are that the actual number was something like 10,001.

Quote
From LC's rebuttal:
We track all of our customer inquiries and complaints as part of our ongoing process of transparency and continuous improvement. The percentage of borrowers who complain about the origination fee is just a fraction of one percent.

LC's "a fraction of one percent" statement above is perfectly consistent with the calculation I did above from FTC's number.


Quote
with more than two million borrowers served, the CFPB has registered fewer than 15 complaints about LendingClub’s origination fees.

Interesting number to know, and pretty damning for the CFPB/FTC.  The FTC touted as a major problem transparency of this fee based on their receipt of "fewer than 15" complaints out of 2 million loans?  The FTC people behind this should lose their jobs.

Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Rob L on April 27, 2018, 05:20:19 PM
FWIW LC closed at an all time low today of $2.70 (-5.6%) on modest volume.
The low print of the day was $2.68, the high $2.93.
If there was any important news I missed it. Just the usual law firms soliciting shareholders with large losses to join a suit.
Sure wonder if Mr. Chen is a buyer here? IIRC his last average price was around $3.50. He started buying at $3.14 and stopped at $3.80.
Maybe we will find out Monday.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on April 28, 2018, 12:01:08 AM
FWIW LC closed at an all time low today of $2.70 (-5.6%) on modest volume.
The low print of the day was $2.68, the high $2.93.
If there was any important news I missed it. Just the usual law firms soliciting shareholders with large losses to join a suit.
Sure wonder if Mr. Chen is a buyer here? IIRC his last average price was around $3.50. He started buying at $3.14 and stopped at $3.80.
Maybe we will find out Monday.

Xposting from the other thread:
My guess is that they are gonna report results within their guidance but probably at the lower end as cost of borrowing for investors has gone up and bank participation was already sharply lower last quarter partly because of that, and they hinted this could worsen as interest rates hike.
Additionally, according to PeerIQ marketplace securitization was 50% lower in q1 vs q4.
It also looks as if they are having competitive issues on the borrowing side as they have left the interest rates for borrowers unchanged for the most part.
Their CLUB certificates could potentially surprise us tho but the volume was so low in q4 that I don't expect a big origination bump there.
Their interest revenue is probably going to help push the revenue higher although with interest rates having risen so much since last quarter, there could be considerable markdowns (accounting rules).
Having said all of that, the stock is trading at a very attractive valuation right now when you look at their EBIDTA, revenue, and cash on hand so I'm heavily invested in them. I really hope they initiate a stock buyback but that could be unlikely as they are more and more tapping into their balance sheet to originate loans.
The FTC thing is nonsense and political and they will easily clear that but it's unfortunate that their brand is getting a hit from it, and there will be additional legal costs.
Their other legal issues related to the ouster of the CEO are behind them for the most parts.
I think there is a big possibility that they will sell themselves to a bank this year. They have a very strong and well connected board. It's unfortunate that their CEO lacks vision. They could have so much potential as a market leader but the best path forward might be to sell themselves at a good premium. I also hope they won't be subjected to a takeover as that could sharply reduce the premium.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: storm on April 28, 2018, 12:50:26 AM
As someone who's filed more than a few FTC complaints, it takes a lot of complaints to get the FTC to act.  It makes me think there is some basis to these charges.  The CFPB is toothless especially in the current political climate.  It goes to show LC has been suffering from a leadership vacuum the last couple of years, and management hasn't lifted a finger to improve things for borrowers or investors.  This action shouldn't have came as a complete surprise.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Fred93 on April 28, 2018, 02:14:48 AM
If there was any important news I missed it. Just the usual law firms soliciting shareholders with large losses to join a suit.

"Just the usual..." :-)

Quote
Sure wonder if Mr. Chen is a buyer here? IIRC his last average price was around $3.50. He started buying at $3.14 and stopped at $3.80.
Maybe we will find out Monday.

To remind folks on the background, Mr Chen's company "Shanda Asset Management" has bought a huge amount of LC in the past year or so, and now owns 20.43% of the stock.  His intentions are unknown. 

Stock ownership numbers here:  https://finance.yahoo.com/quote/LC/holders?p=LC

You can read about the history of Shanda here... https://www.shanda.com/en-us/home/
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: jd on April 28, 2018, 10:22:56 AM
Quote
Direct Holders (Forms 3 and 4)

How does someone end up on that list (besides the obvious answer of buying enough stock)?  Does the company or person have to file in a different way if they get to a certain % of stock held? 

Mutual fund guy myself.  To each his own but I'd lose sleep worrying about one individual stock.

Thanks

Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Rob L on April 28, 2018, 11:42:54 AM
I think there is a big possibility that they will sell themselves to a bank this year. They have a very strong and well connected board. It's unfortunate that their CEO lacks vision. They could have so much potential as a market leader but the best path forward might be to sell themselves at a good premium. I also hope they won't be subjected to a takeover as that could sharply reduce the premium.

Per the last quarterly report LC has 409M shares outstanding. At $2.70 per share that's a market cap of about $1.1B. As a guess from the trends over past quarters LC still probably has about $400M in cash or equivalents in the bank. So, the market values all the rest of LC at $700M. What do they have that would prompt a bank to pay $700M for the company? Software? A bank doesn't need lenders so half of the LC software would be useless. Analytics and loan scoring? Maybe some value there. Loan servicing? Banks already have that. Brand recognition? Help me out here. What am I missing? Maybe a buyout deal will be announced next week but even at the current price I'm too thick headed to see the value. Maybe Mr. Chen sees something I don't. Probably does and that's why he's a billionaire.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: bobeubanks on April 28, 2018, 12:16:43 PM
A bank doesn't need lenders so half of the LC software would be useless.

They don't need lenders but they might want to expand into an arena where people are willing to give them virtually unsecured money from which they can take 1% off the top at close to zero risk.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on April 28, 2018, 01:36:36 PM
I think there is a big possibility that they will sell themselves to a bank this year. They have a very strong and well connected board. It's unfortunate that their CEO lacks vision. They could have so much potential as a market leader but the best path forward might be to sell themselves at a good premium. I also hope they won't be subjected to a takeover as that could sharply reduce the premium.

Per the last quarterly report LC has 409M shares outstanding. At $2.70 per share that's a market cap of about $1.1B. As a guess from the trends over past quarters LC still probably has about $400M in cash or equivalents in the bank. So, the market values all the rest of LC at $700M. What do they have that would prompt a bank to pay $700M for the company? Software? A bank doesn't need lenders so half of the LC software would be useless. Analytics and loan scoring? Maybe some value there. Loan servicing? Banks already have that. Brand recognition? Help me out here. What am I missing? Maybe a buyout deal will be announced next week but even at the current price I'm too thick headed to see the value. Maybe Mr. Chen sees something I don't. Probably does and that's why he's a billionaire.

I am shocked you don't see value.
The biggest reason would be opportunity cost which is the biggest reason software companies buy other software companies. Not because the buyer can't make software themselves but because to get to the same scale could take years or decades, and that opportunity cost is not worth it. Marcus started many years ago in development and after that many years there are just doing a fraction of the loans lending club is doing. The lending club's segment is huge. Goldman Sachs expects revenue from Marcus to surpass their trading revenue in the future. If I'm a bank, and I want to enter this space or i want to put my clients money into this space, then it's much faster for me to buy lending club to get a competitive advantage and at the same time still be light years ahead of Marcus. GS then might want to outbid me to not give me that opportunity. Spending a couple billion dollars to get ahead of competition by years in a market that's expected to be trillions of dollars is nothing for a bank.

Also, many big banks including the largest bank Chase, hedge funds, institutional investors are already lending on lending club and prosper and the like agreeing to give up a lot of their margin because they still see a lot of value in this segment.

Additionally banks are very bad at software which is even more incentive to purchase a bay area company that can still attract talent. Marcus is not the norm, it's an anomaly.

Another reason would be years of data on this type of unsecured loans that lending club has. No other company in the world has this much data on this segment. That's why being the market leader gives you an advantage too. The more data you have, the better underwriting you have.

In addition, banks are very bad and inefficient at underwriting. That's why it takes months to close your mortgage. It shouldn't take more than a few days if even. The possibilities for a bank purchasing LC are endless.

Banks can not only use their own balance sheet as well as their clients to lend, they can also position themselves as a platform for everybody else to lend which they would be able to do even more efficiently. Credit Unions, other banks, hedge funds, etc can all use that platform. They could position themselves as the Amazon of unsecured loans.

There are also many synergies that could happen that sweeten the deal even more. Even non-banks could be buyer. I could even see intuit buy them. Companies like Credit Karma are worth billions because they make money referring people to sites like lending club. Intuit's Mint could have free customer acquisition which is one of lending club's biggest costs, and it could use it's own trove of data to improve underwriting giving a huge competitive advantage. Then it could even market that product with every other product they sell even their tax software.

Aside from everything above, let's not forget. Lending club could be profitable if they wanted to. They are already cash flow positive excluding the penalties they paid. They could have EBITDA of 75-90 million dollars in 2018. These are not the numbers to sneeze at. Their value right now excluding assets/cash is less than their revenue. That's a bargain. Companies like Prosper and OnDeck are already profitable while originating a fraction of loans just by controlling their costs. Lending club could still realize way more than its value doing what they do. I have just lost hope that they will be the giant at some point I hoped they would be. They should have started a credit scoring platform like creditKarma a long time ago or have bought one. But make no mistake, there is tons of value in lending club. Even tho, I'm expecting their numbers come in the lower range of their guidance, they would still be sharply up from Q1 2017.

Also, it sounds like you are implying that lending club does not have brand recognition or other positive qualities which is not true. The vast majority of borrower come back to lending club if they need another loan or recommend it to others because they were so happy with their experience. That's another reason being a market leader gives you a competitive advantage. It reduces your future customer acquisition cost because people come back to the same product because it's familiar and they were happy with it.

Finally, Mr.Chen could stage a takeover. Maybe take the company private (less likely as it's better to be a public company in this space) but also could some other form of take over such as a Chinese bank partnering up with him to buy lending club. Chinese are also increasingly interested in investing in this space but that's another story.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Rob L on April 28, 2018, 10:12:19 PM
Well put but I disagree with much you have said. Time will tell.
With enough money software is a commodity that can be bought. It's not exclusively Bay area "magic" contrary to popular opinion.
I am neither long nor short LC stock. No dog in this fight.
I prefer LC to succeed rather than fail but am pessimistic. Money wise I am personally agnostic.
Any bank buys LC even at this level of $2.70 per share and I'm stunned; but I'm not a billionaire so what do I know.
I predict LC will continue to plod along as is.
Management continues to benefit from free stock incentives as long as they can keep the company going.
So, with $400M cash left from the IPO, if they keep a lid on things and don't take any chances they can keep it going for quite a while.
Tell me where this management that's getting free stock compensation could go and make more money?

Edit: Guess I'm on a roll but forgot to mention...
LC's underwriting or loan scoring model is designed to optimize originations not loan profitability. They seek to enhance share holder value, not to optimize lender returns. Certainly there is some give and take here. They must walk a fine line to retain enough lenders to provide the money to fund their loans yet maximize their originations (i.e fees). The bank model (Marcus and others) must seek loan profitability since they are funding the loans themselves and profit from their returns. The fundamental goal of the LC underwriting model would have to be revised to place loan profitability ahead of originations.

Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Tomp on April 29, 2018, 12:01:03 PM
FWIW LC closed at an all time low today of $2.70 (-5.6%) on modest volume.
The low print of the day was $2.68, the high $2.93.
If there was any important news I missed it. Just the usual law firms soliciting shareholders with large losses to join a suit.
Sure wonder if Mr. Chen is a buyer here? IIRC his last average price was around $3.50. He started buying at $3.14 and stopped at $3.80.
Maybe we will find out Monday.

Xposting from the other thread:
My guess is that they are gonna report results within their guidance but probably at the lower end as cost of borrowing for investors has gone up and bank participation was already sharply lower last quarter partly because of that, and they hinted this could worsen as interest rates hike.
Additionally, according to PeerIQ marketplace securitization was 50% lower in q1 vs q4.
It also looks as if they are having competitive issues on the borrowing side as they have left the interest rates for borrowers unchanged for the most part.
Their CLUB certificates could potentially surprise us tho but the volume was so low in q4 that I don't expect a big origination bump there.
Their interest revenue is probably going to help push the revenue higher although with interest rates having risen so much since last quarter, there could be considerable markdowns (accounting rules).
Having said all of that, the stock is trading at a very attractive valuation right now when you look at their EBIDTA, revenue, and cash on hand so I'm heavily invested in them. I really hope they initiate a stock buyback but that could be unlikely as they are more and more tapping into their balance sheet to originate loans.
The FTC thing is nonsense and political and they will easily clear that but it's unfortunate that their brand is getting a hit from it, and there will be additional legal costs.
Their other legal issues related to the ouster of the CEO are behind them for the most parts.
I think there is a big possibility that they will sell themselves to a bank this year. They have a very strong and well connected board. It's unfortunate that their CEO lacks vision. They could have so much potential as a market leader but the best path forward might be to sell themselves at a good premium. I also hope they won't be subjected to a takeover as that could sharply reduce the premium.

LC outlook....I got the under....and cash of $502 at 12/31/2017 less $125 M for settlement less $2 M to Massachusetts for lending without license, less legal fees, less cash loss... let's say $300 left.

First Quarter 2018

Total Net Revenue in the range of $145 million to $155 million

Net Income (Loss) (3) in the range of $(25) million to $(20) million

Adjusted EBITDA(2)(3) in the range of $5 million to $10 million

Reconciling Items between net loss and non-GAAP adjusted EBITDA consisting of stock-based compensation of approximately $19 million, and depreciation and amortization and other net adjustments of approximately $11 million

In regard to your comment regarding LC's data and in and of itself makes them better underwriters....they kinda sorta suck at underwriting.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Rob L on April 29, 2018, 01:29:24 PM
Another reason would be years of data on this type of unsecured loans that lending club has. No other company in the world has this much data on this segment. That's why being the market leader gives you an advantage too. The more data you have, the better underwriting you have.

If LC has "hidden" (or obvious) value this could be it. In a world increasingly driven by big data, somebody out there may think they have the mother lode. LC may or may not have done a good job of underwriting using the data but somebody may think they could do very well with it. Could possibly be used for purposes other than unsecured lending; who knows? I haven't a clue how to place a value on it though.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on April 30, 2018, 05:52:07 PM
FWIW LC closed at an all time low today of $2.70 (-5.6%) on modest volume.
The low print of the day was $2.68, the high $2.93.
If there was any important news I missed it. Just the usual law firms soliciting shareholders with large losses to join a suit.
Sure wonder if Mr. Chen is a buyer here? IIRC his last average price was around $3.50. He started buying at $3.14 and stopped at $3.80.
Maybe we will find out Monday.

Xposting from the other thread:
My guess is that they are gonna report results within their guidance but probably at the lower end as cost of borrowing for investors has gone up and bank participation was already sharply lower last quarter partly because of that, and they hinted this could worsen as interest rates hike.
Additionally, according to PeerIQ marketplace securitization was 50% lower in q1 vs q4.
It also looks as if they are having competitive issues on the borrowing side as they have left the interest rates for borrowers unchanged for the most part.
Their CLUB certificates could potentially surprise us tho but the volume was so low in q4 that I don't expect a big origination bump there.
Their interest revenue is probably going to help push the revenue higher although with interest rates having risen so much since last quarter, there could be considerable markdowns (accounting rules).
Having said all of that, the stock is trading at a very attractive valuation right now when you look at their EBIDTA, revenue, and cash on hand so I'm heavily invested in them. I really hope they initiate a stock buyback but that could be unlikely as they are more and more tapping into their balance sheet to originate loans.
The FTC thing is nonsense and political and they will easily clear that but it's unfortunate that their brand is getting a hit from it, and there will be additional legal costs.
Their other legal issues related to the ouster of the CEO are behind them for the most parts.
I think there is a big possibility that they will sell themselves to a bank this year. They have a very strong and well connected board. It's unfortunate that their CEO lacks vision. They could have so much potential as a market leader but the best path forward might be to sell themselves at a good premium. I also hope they won't be subjected to a takeover as that could sharply reduce the premium.

LC outlook....I got the under....and cash of $502 at 12/31/2017 less $125 M for settlement less $2 M to Massachusetts for lending without license, less legal fees, less cash loss... let's say $300 left.

First Quarter 2018

Total Net Revenue in the range of $145 million to $155 million

Net Income (Loss) (3) in the range of $(25) million to $(20) million

Adjusted EBITDA(2)(3) in the range of $5 million to $10 million

Reconciling Items between net loss and non-GAAP adjusted EBITDA consisting of stock-based compensation of approximately $19 million, and depreciation and amortization and other net adjustments of approximately $11 million

In regard to your comment regarding LC's data and in and of itself makes them better underwriters....they kinda sorta suck at underwriting.

The $125 million which was paid from their insurance as well as $75 million cash was already reflected in their last earning report. Also, it's good to note that their cash doesn't tell their whole story. They have loans that they are holding on their balance sheet for sale so they have a lot more assets. Their 10k indicates that they have over $922 million of assets so their business is worth only $200 million according to Mr. Market. Their cash is also expected to go up not down; in fact it's gonna keep going up every quarter even if they stay unprofitable. They are cash flow positive, they are unprofitable because of stock dilution from their RSUs.

In regards to your comment about underwriting, that couldn't be further from the truth. I know this forum loves to bash lending club's returns because people were used to their high single digits/low teens returns that no longer exists, but what they have done with unsecured loans is never done at this scale. F & G loans that got the biggest hit last year were also a very small portion of their total loans. They have had consistently positive returns on all their other loans even through recession. It looks like their new credit model has also improved underwriting significantly. It's also a good long term sign when they have on purpose reduced the pool of people getting approved for loans so that they can have better underwriting. 4-6% consistent returns for such a short term investment vehicle where interest rates are near 0 is very decent. No company has been able to do the same for unsecured loans at this scale. We don't even have data on how Marcus is doing at a much smaller scale.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on April 30, 2018, 06:16:10 PM
Another reason would be years of data on this type of unsecured loans that lending club has. No other company in the world has this much data on this segment. That's why being the market leader gives you an advantage too. The more data you have, the better underwriting you have.

If LC has "hidden" (or obvious) value this could be it. In a world increasingly driven by big data, somebody out there may think they have the mother lode. LC may or may not have done a good job of underwriting using the data but somebody may think they could do very well with it. Could possibly be used for purposes other than unsecured lending; who knows? I haven't a clue how to place a value on it though.
All I will say is that I know many companies with less revenue, growing slower than lending club, but worth a few billion dollars more. The market is valuing the business at around 200 million dollars. That's insanely low for a company that's expected to have a revenue of  $700 million dollars this year and has already shown it can be profitable! 
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Fred93 on April 30, 2018, 06:16:32 PM
Their 10k indicates that they have over $922 million of assets so their business is worth only $200 million according to Mr. Market. Their cash is also expected to go up not down; in fact it's gonna keep going up every quarter even if they stay unprofitable. They are cash flow positive, they are unprofitable because of stock delusion from their RSUs.

;-)  I suspect that when you said "delusion" you meant "dilution".  Looks like spell-checker gotcha.

Yes, but we should take that dilution seriously.  They're diluting at the rate of about 5% per year recently.  (Just looking at fully diluted share count.)  You may not agree with the method of computing the earnings hit for that stock dilution, but it is real. 

If you back out all the noncash items except for stock based employee compensation, they're still losing money. 
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on April 30, 2018, 06:23:17 PM
Well put but I disagree with much you have said. Time will tell.
With enough money software is a commodity that can be bought. It's not exclusively Bay area "magic" contrary to popular opinion.
I am neither long nor short LC stock. No dog in this fight.
I prefer LC to succeed rather than fail but am pessimistic. Money wise I am personally agnostic.
Any bank buys LC even at this level of $2.70 per share and I'm stunned; but I'm not a billionaire so what do I know.
I predict LC will continue to plod along as is.
Management continues to benefit from free stock incentives as long as they can keep the company going.
So, with $400M cash left from the IPO, if they keep a lid on things and don't take any chances they can keep it going for quite a while.
Tell me where this management that's getting free stock compensation could go and make more money?

Edit: Guess I'm on a roll but forgot to mention...
LC's underwriting or loan scoring model is designed to optimize originations not loan profitability. They seek to enhance share holder value, not to optimize lender returns. Certainly there is some give and take here. They must walk a fine line to retain enough lenders to provide the money to fund their loans yet maximize their originations (i.e fees). The bank model (Marcus and others) must seek loan profitability since they are funding the loans themselves and profit from their returns. The fundamental goal of the LC underwriting model would have to be revised to place loan profitability ahead of originations.

As for you comment regarding cash, unless something drastically changes about their business, they will never run out because they are already cash flow positive. In addition, the cash amount is just their cash on hand. They have over $920 million worth of assets when you include the loans they holding on their balance sheet and their other assets.
I don't buy your assumption that lending clubs origination is not designed to maximize loan profitability. Loan profitability and long term origination growth go hand in hand. In addition, lending club is holding more and more loans on their balance sheet. Also, with their new CLUB certificates, legally they have to keep 5% of the loans originated on their balance sheet so they have skin in the game as well. 
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on April 30, 2018, 06:34:29 PM
Their 10k indicates that they have over $922 million of assets so their business is worth only $200 million according to Mr. Market. Their cash is also expected to go up not down; in fact it's gonna keep going up every quarter even if they stay unprofitable. They are cash flow positive, they are unprofitable because of stock delusion from their RSUs.

;-)  I suspect that when you said "delusion" you meant "dilution".  Looks like spell-checker gotcha.

Yes, but we should take that dilution seriously.  They're diluting at the rate of about 5% per year recently.  (Just looking at fully diluted share count.)  You may not agree with the method of computing the earnings hit for that stock dilution, but it is real. 

If you back out all the noncash items except for stock based employee compensation, they're still losing money.

Haha Yes!

Oh I 100% agree! In fact, I'm hope they use their cash for stock buyback because I don't want dilution at prices this low. But lending club could be profitable if they wanted to and have in the past. They don't need 2000 employees to run their business if they wanted to only focus on their core product and not worry about growth. If they laid off half of their employees , that would make them profitable by roughly 50-100 million dollars, giving them a p/e of 2-4 ex assets but they have been growing revenue at a very respectable level yoy so no reason to cut costs like that.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on April 30, 2018, 06:56:38 PM
Another reason would be years of data on this type of unsecured loans that lending club has. No other company in the world has this much data on this segment. That's why being the market leader gives you an advantage too. The more data you have, the better underwriting you have.

If LC has "hidden" (or obvious) value this could be it. In a world increasingly driven by big data, somebody out there may think they have the mother lode. LC may or may not have done a good job of underwriting using the data but somebody may think they could do very well with it. Could possibly be used for purposes other than unsecured lending; who knows? I haven't a clue how to place a value on it though.

One more thing, all it takes to know how much interest banks have in acquiring fin-tech companies in lending space, you can listen to some interviews with Ron Suber (industry legend/founder of prosper)
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on April 30, 2018, 10:43:39 PM
To give a counter argument about owning lending club stock:
Lending club is in a two sided market, the borrower side and the investor side. For them to effectively compete long term with likes of Marcus, they have to make at least one side or both sides cheaper. So either cheaper customer acquisition cost or cheaper cost of capital. Marcus has a cheaper capital cost because it doesn't have a middle man deducting origination fees. It also has the power to undercut lending club by reducing their margins. Lending club doesn't have that power because they are dependent on their investors giving them money.  I don't see Marcus squeezing them in the short term because the more players in the market, the bigger the consumer awareness is and better for all players. However, they could decide to go near 0 margin (amazon business model for a long time) and drive competitors out. This could be even worse if they buy a company like creditKarma and also reduce their cost on the consumer acquisition side as well. Lending club's CEO isn't a visionary. That's why I think the best path for them is to be acquired by a bank or by a company like Intuit (mint) to be able to compete long term.
It's unfortunate Renaud got ousted over something so minor. He was actually a visionary. There is a possibility that lending club ends up buying Upgrade and Renaud  returning as CEO but chances of that is pretty slim.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Rob L on May 01, 2018, 10:17:40 AM
May we live in interesting times.
The stock is presently at $2.64, only $0.02 above the all time low hit earlier today.
Very much looking forward to the 2018Q1 report coming out about a week from now.
 
BTW: Maybe I'm the last to know, but what are Club certificates?
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Tomp on May 01, 2018, 10:49:46 AM
Another reason would be years of data on this type of unsecured loans that lending club has. No other company in the world has this much data on this segment. That's why being the market leader gives you an advantage too. The more data you have, the better underwriting you have.

If LC has "hidden" (or obvious) value this could be it. In a world increasingly driven by big data, somebody out there may think they have the mother lode. LC may or may not have done a good job of underwriting using the data but somebody may think they could do very well with it. Could possibly be used for purposes other than unsecured lending; who knows? I haven't a clue how to place a value on it though.

One more thing, all it takes to know how much interest banks have in acquiring fin-tech companies in lending space, you can listen to some interviews with Ron Suber (industry legend/founder of prosper)

Ron Suber>Charles Ponzi   
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Ran on May 01, 2018, 12:32:37 PM
Well said!
To give a counter argument about owning lending club stock:
Lending club is in a two sided market, the borrower side and the investor side. For them to effectively compete long term with likes of Marcus, they have to make at least one side or both sides cheaper. So either cheaper customer acquisition cost or cheaper cost of capital. Marcus has a cheaper capital cost because it doesn't have a middle man deducting origination fees. It also has the power to undercut lending club by reducing their margins. Lending club doesn't have that power because they are dependent on their investors giving them money.  I don't see Marcus squeezing them in the short term because the more players in the market, the bigger the consumer awareness is and better for all players. However, they could decide to go near 0 margin (amazon business model for a long time) and drive competitors out. This could be even worse if they buy a company like creditKarma and also reduce their cost on the consumer acquisition side as well. Lending club's CEO isn't a visionary. That's why I think the best path for them is to be acquired by a bank or by a company like Intuit (mint) to be able to compete long term.
It's unfortunate Renaud got ousted over something so minor. He was actually a visionary. There is a possibility that lending club ends up buying Upgrade and Renaud  returning as CEO but chances of that is pretty slim.



Sent from my iPhone using Tapatalk
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on May 01, 2018, 03:36:06 PM
Another reason would be years of data on this type of unsecured loans that lending club has. No other company in the world has this much data on this segment. That's why being the market leader gives you an advantage too. The more data you have, the better underwriting you have.

If LC has "hidden" (or obvious) value this could be it. In a world increasingly driven by big data, somebody out there may think they have the mother lode. LC may or may not have done a good job of underwriting using the data but somebody may think they could do very well with it. Could possibly be used for purposes other than unsecured lending; who knows? I haven't a clue how to place a value on it though.

One more thing, all it takes to know how much interest banks have in acquiring fin-tech companies in lending space, you can listen to some interviews with Ron Suber (industry legend/founder of prosper)

Ron Suber>Charles Ponzi

And what is that based on?
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on May 01, 2018, 04:09:21 PM
May we live in interesting times.
The stock is presently at $2.64, only $0.02 above the all time low hit earlier today.
Very much looking forward to the 2018Q1 report coming out about a week from now.
 
BTW: Maybe I'm the last to know, but what are Club certificates?
Club Certificates:
https://www.lendacademy.com/lendingclub-introduces-new-certificate-investment-vehicle/
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Rob L on May 01, 2018, 06:00:00 PM
May we live in interesting times.
The stock is presently at $2.64, only $0.02 above the all time low hit earlier today.
Very much looking forward to the 2018Q1 report coming out about a week from now.
 
BTW: Maybe I'm the last to know, but what are Club certificates?
Club Certificates:
https://www.lendacademy.com/lendingclub-introduces-new-certificate-investment-vehicle/

Thanks for filling me in. Something to look at when the next quarterly comes out.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Edward Reid on May 02, 2018, 06:10:59 PM
10,000 people asking divided by 2,000,000 loans = 0.5% which seems like a small number.  ... chances are that the actual number was something like 10,001.

I'd say the actual number was probably 20,000 based on "tens" (plural). Same argument though.

Half a percent asking ... yeah, seems extremely small. To me, that indicates that LC was doing a very good job of pointing out the fee, given how hard it is to get some people to read.

I hadn't heard about this development. Went on LC today to reinvest proceeds and noticed a lot of loans with 21-27 days left. Hardly ever saw those before (after filtering). Looks like lenders are spooked? Or is there some other reason? On the one hand, I had a lot of loans meeting my criteria to pick from. On the other hand, if it takes a couple of weeks to fund them, or if they don't get funded, that's time (=money) lost. And I'm not in a position to fund the entire loans.

Edward
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on May 02, 2018, 09:02:23 PM
10,000 people asking divided by 2,000,000 loans = 0.5% which seems like a small number.  ... chances are that the actual number was something like 10,001.

I'd say the actual number was probably 20,000 based on "tens" (plural). Same argument though.

Half a percent asking ... yeah, seems extremely small. To me, that indicates that LC was doing a very good job of pointing out the fee, given how hard it is to get some people to read.

I hadn't heard about this development. Went on LC today to reinvest proceeds and noticed a lot of loans with 21-27 days left. Hardly ever saw those before (after filtering). Looks like lenders are spooked? Or is there some other reason? On the one hand, I had a lot of loans meeting my criteria to pick from. On the other hand, if it takes a couple of weeks to fund them, or if they don't get funded, that's time (=money) lost. And I'm not in a position to fund the entire loans.

Edward

Why would the lenders care about this? It wouldn't affect them either way. If anything it would affect borrower demand as they would be the ones paying the "hidden fees".
What you are seeing could just be seasonability. Q1 is supposed to be a slow quarter for them so it's possible that the demand has gone up. Also, looking at the referral traffic to lending club, I see a 17% increase from creditKarma in march and a 9% drop for Marcus so it's possible they are just having more competitive rates. In addition, in the last conference call, Scott said they had large increase in applications yoy so it could be that there is just more demand for their loans as there is increasing consumer awareness about this type of product.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on May 02, 2018, 09:03:44 PM
May we live in interesting times.
The stock is presently at $2.64, only $0.02 above the all time low hit earlier today.
Very much looking forward to the 2018Q1 report coming out about a week from now.
 
BTW: Maybe I'm the last to know, but what are Club certificates?
Club Certificates:
https://www.lendacademy.com/lendingclub-introduces-new-certificate-investment-vehicle/

Thanks for filling me in. Something to look at when the next quarterly comes out.

This could surprise us. Here is what they said in the last conference call about them:
"we have a strong pipeline of demand for the club certificates product and believe it will be an important part of our evolving funding mix"
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Edward Reid on May 02, 2018, 09:26:57 PM
Why would the lenders care about this?

Dunno. 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
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on May 02, 2018, 09:45:22 PM
Why would the lenders care about this?

Dunno. 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

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?

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 :)
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: storm on May 02, 2018, 10:05:44 PM
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.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Edward Reid on May 02, 2018, 10:10:22 PM
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
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney 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.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney 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.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Fred93 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.

Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: storm 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.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney 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."
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: storm 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
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Fred93 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.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Tomp on May 04, 2018, 12:32:20 PM
Is your primary source a Lending Club press release?
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: lascott 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.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney 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) 
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney 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
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Fred93 on May 04, 2018, 08:06:36 PM
Is your primary source a Lending Club press release?

The complaint filed by the FTC...
https://www.ftc.gov/system/files/documents/cases/lending_club_complaint.pdf

Lendingclub's response was published in their blog...
https://blog.lendingclub.com/lendingclub-responds-to-federal-trade-commission-complaint/

Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: storm 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.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney 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.



Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Reginald 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
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on September 14, 2018, 05:31:15 AM
Some positive news regarding the lendingclub lawsuit. They had a hearing for motion to dismiss the lawsuit. They were not granted motion to dismiss; however motions to dismiss are rarely granted so that wasn't a suprise. The judge noted that lending club had already stopped making the no hidden fees advertisement. She encouraged the parties to settle and avoid wasting court resources.  She said, "If they agree not to do it anymore in an enforceable way, then why are we here? That is not a good use of court resources. To me, it's not rational, and it doesn't make sense. I can't conceive of why the case shouldn’t be resolved.”
The judge seemed to lean toward finding for LendingClub on the FTC’s claims seeking injunctive relief, saying “the allegations are thin here.”  Rather than offering money as payment for a wrong in a civil action, injunctive relief is a court order for the defendant to stop a specified act or behavior.

There were some negative comments that the judge made as well which were the basis to deny the motion to dismiss. She argued that lending club customers are "less sophisticated consumers than someone getting a jumbo mortgage" and that they might just scroll through the contract without reading it fully.

In summary, this case will probably go to settlement with no or little monetary settlement. The judge has already said the the "allegations are thin".

I actually hope lending club eliminates the origination fees from the borrower side all together and shift the fees to investors more like Marcus. That would encourage better borrower behavior, and would also attract more financial savvy borrowers and improve charge offs. It would also fit within lending club's new focus on consumer financial health, and would show that they are serious about that. If they do that within the settlement, that could also give a "win" to both sides as it would look really good for FTC that lending club will no longer charge origination fees from consumers moving forward altogether. In addition, lending club mentioned in the last earning call that moving forward, their bottle neck is on the investor side not the borrower side. However, since Laplanche's departure lending club has been slower and a lot more conservative especially on the tech side. They have talked about new products coming for quarters yet little to show for it. Even features such as direct payoffs and car loans are in their infancy after quarters of touting them. In the last earnings call they said that direct payoffs is still not implemented for the majority of borrowers when they have seen very positive results as a result of it. Elon musk changes the break distance with an on air software update. How long does it take to implement a direct payoff features for gods sake. I'm still waiting for new credit monitoring service they had hinted a few quarters ago. We'll have to see if the new CTO is any more competent.

I still maintain that lending club is worth at least $8 based on a very conservative DCF and am heavily long the stock.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Fred93 on September 14, 2018, 06:16:25 AM
I actually hope lending club eliminates the origination fees from the borrower side all together and shift the fees to investors more like Marcus. That would encourage better borrower behavior, and would also attract more financial savvy borrowers and improve charge offs. It would also...

This would require LC to raise the fees charged to lenders, probably by a significant amount.  I'll bet they're scared to do that.  Investors would probably take a dim view.

I'm not sayin' its right or its wrong ... just thinkin' about the way investor customers would react.  I try to put myself in their shoes and think how the hell would I sell that idea to investors?  It would have to come with a significant raise in interest rates. 

The present management doesn't have the guts to make big changes.


Quote
I still maintain that lending club is worth at least $8 based on a very conservative DCF and am heavily long the stock.

When do you expect the stock price to mvoe up to $8?

You're making some assumptions in your DCF calculation.  One of the assumptions is your estimate of future operating expenses.  I've been surprised that they've allowed operating expenses to grow they way they have.  I don't really understand what they're doing with all that money.  I don't see a crack engineering team.  Middle managers?  Have operating expenses been in line with your expectations?
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on September 14, 2018, 07:41:50 AM
I actually hope lending club eliminates the origination fees from the borrower side all together and shift the fees to investors more like Marcus. That would encourage better borrower behavior, and would also attract more financial savvy borrowers and improve charge offs. It would also...

This would require LC to raise the fees charged to lenders, probably by a significant amount.  I'll bet they're scared to do that.  Investors would probably take a dim view.

I'm not sayin' its right or its wrong ... just thinkin' about the way investor customers would react.  I try to put myself in their shoes and think how the hell would I sell that idea to investors?  It would have to come with a significant raise in interest rates. 

The present management doesn't have the guts to make big changes.

I'm not suggesting they change the APR (APR includes origination fees into account). What I'm saying is to charge borrowers a higher interest rate but keep the APR intact. Then instead of deducting origination fees from the borrower, do that on the investor side. The higher interest rate would offset the extra investor fee so it wouldn't make a difference for the investors. On the borrower side, the APR which includes the origination fee wouldn't change. Most borrowers come to lending club directly and the rest come from lead websites such as credit karma. Sites like Credit karma already lists the APR which includes the origination fees so not much really changes as for as competing. LendingClub might lose some less affluent borrowers who don't understand that their payment and APR doesn't really change even though their interest rate listed is a bit more, but lending club doesn't really have a problem attracting borrowers and they're operating at a scale so larger than the closest competitor that it might even be beneficial for them to lose some of those less affluent borrowers. The investors won't see a difference because the higher investor fees will be offset by higher interest rates. I think the biggest challenge for lending club in doing this is actually tech and process change which they're really slow at, not any backslash from investors or borrowers.

Quote
I still maintain that lending club is worth at least $8 based on a very conservative DCF and am heavily long the stock.

When do you expect the stock price to move up to $8?

You're making some assumptions in your DCF calculation.  One of the assumptions is your estimate of future operating expenses.  I've been surprised that they've allowed operating expenses to grow they way they have.  I don't really understand what they're doing with all that money.  I don't see a crack engineering team.  Middle managers?  Have operating expenses been in line with your expectations?

I'm not a wallstreet analyst who would give a price target for a year from now. I can't predict short term. I can just tell you what I think the stock is worth currently. Mr Market will correct the price at some point. However, if I were to guess after the next earnings call there should be a big movement upward. I can tell you that in 2025, conservatively I would expect an EPS of $2 which with a p/e 15 would yield to stock price of $30.

As for your comments regarding costs, I think you're misunderstanding the earnings report. The big items in the cost for the quarter where a non-cash write-down of their patient finance business coming out of their goodwill and the legal fees related to their legacy issues which is almost over.

Some more context from the earnings call regarding cost and what it will be like moving forward:
"Even when normalizing for last year’s insurance reimbursement and legacy expenses, tech and G&A expenses were up only 7%, with revenues up 27%."
"Turning to G&A. Expenses were $37.8 million for the quarter, or 21.3% of revenue, down three points sequentially. Thinking back on our commitment at Investor Day to focus on driving operational leverage and our fixed cost, the second quarter’s a good view into what we can achieve."
"Engineering/operating expenses were $22 million in the second quarter, down $300,000 sequentially, and up $500,000 year-over-year."
"For the quarter, adjusted EBITDA was $25.7 million with margin at 14.5 and improvement of 4.4 points sequentially, an 11.3 points increase year-over-year"
"First, removing the legacy items in the non-cash goodwill impairment, our GAAP net loss would’ve been $6.7 million and ahead of our guidance from last year’s earnings call"
"We have vast scale in our business and are optimistic that we can continue to drive operating leverage as we head into 2019."
"EBITDA margin of 14.5%, up over 11 points, reflecting revenue growth of 27%, set against lower operating expense growth of 12% year-over-year. M&S and O&S efficiency both improved in the quarter, driving a contribution margin of 48.3%."
"We are starting to drive a wedge to expand our operating margin in our business. We believe there are additional opportunities to pursue and have retained an adviser to do a rigorous review of our expense structure to position us for the next wave of growth."


Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: SLCPaladin on September 14, 2018, 11:06:56 AM
Quote
I'm not suggesting they change the APR (APR includes origination fees into account). What I'm saying is to charge borrowers a higher interest rate but keep the APR intact. Then instead of deducting origination fees from the borrower, do that on the investor side. The higher interest rate would offset the extra investor fee so it wouldn't make a difference for the investors. On the borrower side, the APR which includes the origination fee wouldn't change.

I've been clamoring for something like this for years. The fact that the bulk of LC's revenue comes from the upfront origination fee means that there is a less of an incentive for collections and to do rigorous underwriting. If LC's fees were collected along with the servicing of the loan, then LC and investor interests are better aligned. In theory this should lead to better returns.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: MoMoney on September 14, 2018, 01:35:27 PM
Quote
I'm not suggesting they change the APR (APR includes origination fees into account). What I'm saying is to charge borrowers a higher interest rate but keep the APR intact. Then instead of deducting origination fees from the borrower, do that on the investor side. The higher interest rate would offset the extra investor fee so it wouldn't make a difference for the investors. On the borrower side, the APR which includes the origination fee wouldn't change.

I've been clamoring for something like this for years. The fact that the bulk of LC's revenue comes from the upfront origination fee means that there is a less of an incentive for collections and to do rigorous underwriting. If LC's fees were collected along with the servicing of the loan, then LC and investor interests are better aligned. In theory this should lead to better returns.

100% agree. It's honestly a move that benefits everyone:
It benefits the consumers as it makes it less costly for them to be responsible and pay out the loan as soon as they can. It also creates a better customer experience for borrowers so they will be happier to come back for another loan later. There will also be less confusion or bitterness regarding fees or why they didn't get the full amount they asked for. It also allows them to refinance cheaper if their credit profile improves. Marcus has done a lot of research on this already and how much more borrowers would like that.
It benefits the note investors as it both aligns the investor incentives but also attracts higher quality borrowers. In theory it should also delay defaults as the borrower either starts with more money (no origination taken out) or lower payments (less total loan needed since no origination is being taken out.)
It benefits the longer term stock holders as happier/healthier borrowers and investors will mean more originations. It will help them with marketing because now they can say no originations/hidden fees. That also makes them more well positioned to enter new categories such as top tier student loan borrowers and better positioned to compete with likes of SOFI and Marcus. In the short term it will decrease the revenue but long term, it shouldn't make a difference. Early payoffs or charge offs lowers the fees slightly but that can also be offset by slightly increasing the investor fees.
Above all if lending club wants to show they are serious in being a leader in financial and credit consumer health, this is one of the first steps they should take. They can also use this in settlement negotiations with FTC.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Fred93 on September 14, 2018, 04:13:00 PM
I'm not suggesting they change the APR (APR includes origination fees into account). What I'm saying is to charge borrowers a higher interest rate but keep the APR intact. Then instead of deducting origination fees from the borrower, do that on the investor side. The higher interest rate would offset the extra investor fee so it wouldn't make a difference for the investors.

I understand completely.  I'm not arguing with the math.

I just think packaging that up so that most investors will understand is probably beyond the current managment's ability.
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Rob L on September 15, 2018, 10:44:46 AM
LC would take a hit on a change from origination fees to higher APR.

IIRC most loans are paid off early. If LC were to eliminate origination fees and charge a higher monthly service fee then prepayments would hurt them. Rather than a fixed upfront fee LC would receive an indeterminate number of monthly payments. Fewer payments less fee. Prepayments already hurt investors as they are charged a service fee by LC on the final payment for the privilege of simply getting their money (principal) back. To mitigate the investor loss LC does not charge the full 1% on prepayments made within the first 12 months. Very nice they made that change. After 12 months though LC gets a tidy windfall for prepayments as they charge the investor a service fee for returning the remaining principal without actually having to service the remainder of the loan.

There's also the unsubstantiated "conspiracy theory" that LC re solicits its current borrowers that have made a year or more of prompt payments with an offer to refinance their current loan at a much lower interest rate. Marketingwise they are the perfect target. LC gets a new origination fee and the servicing windfall from the original loan described above. Only the current investor(s) get hurt. If true, a switch to higher APR would end this game.

Finally there's cash flow. Those nice up front fees would be spread over the life of the loan. Not a good thing.

Of course LC could up the APR enough to cover all this (they'd have to predict future prepayment rates to do so).
Whether or not the new APR would be competitive is an open question.
 
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: Johnwick88 on October 10, 2018, 04:29:50 AM
Hard to believe that this was "sudden" and Larry didn't know it was going done when he left the Board only 3 weeks ago. It is completely f*cked up that FTC currently only has 2 of the five directors positions filled and I guess one is leaving. Tough to deal with a gutted government, MAGA and whatnot

Gclub mobile (https://gclub.royal-ruby888.com/gclub-mobile.html)
Title: Re: FTC Files Complaint Against LC, Accuses of Deceptive Practices
Post by: hdsouza on October 22, 2018, 07:35:19 PM
The biggest deceptive practice that LC employs is their cash flow system.
If you notice they take 5 days from the time the client makes a payment till the time the payment is effective.
To the normal eye it makes little difference, although LC makes tons of money on it

Again this is my assumption and I apologize if I am incorrect but....
... I was recently researching companies to buy Stocks and I stumbled on m1finance.com. I was surprised when they do not charge any fees for stocks and have an amazing system. So how do they make their money See https://www.reddit.com/r/m1f/comments/7lj33z/how_does_m1_finance_makes_money/  (https://www.reddit.com/r/m1f/comments/7lj33z/how_does_m1_finance_makes_money/) as the owner mentions "They believe eventually every investment platform will be free".

So I would conclude LC is doing the same with the funds they hold for 5 days. Investing it.
Another way.. It should not take 5 days for money to be credited to your account. When i transfer money between banks it is 24 hours.  Transferring money to m1finance was 4 hours!!!!

The difference of 5 days may not make a huge difference to the small investor like us, but i am sure if I received the Borrower payments without the 5 day holdup, I would have invested 5 days earlier.

Dont get me wrong. I am not saying I do not like LC. Actually I love them . I have to.. I have thousands of dollars invested :)