Author Topic: Collections & Transparency  (Read 15094 times)

william

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Re: Collections & Transparency
« Reply #15 on: December 28, 2012, 02:18:24 PM »
Wow a lot of hostility here!  :(

zpbsfg.....IMO it would not make a difference in most people's returns if LC was more aggressive towards charged off notes because the more aggressive they are, the more their service charge is going to be.

In my main LC account I have 1000+ C and lower notes, none of which are even late. I do what TcH does and sell them while they are in grace period.

The notes.csv file you are requesting from DanB is not proof of anything. The file can easily be modified to not include any distressed notes. A screen shot or video would be better proof.

I do agree with you when you say LC should provide more recovery statistics beyond the one chart that is not up-to-date.

DanB

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Re: Collections & Transparency
« Reply #16 on: December 28, 2012, 03:04:03 PM »
zpbfsg...........You'll be awaiting for a long time. Peter Renton can however confirm that I do know what I'm talking about.

nonattender

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Re: Collections & Transparency
« Reply #17 on: December 28, 2012, 03:51:10 PM »
Well..........As someone who is fine with collections the way they are, I have no interest in subsidizing additional collection efforts. So may I suggest a multi-tiered service charge schedule (below) so that those who want more effort/info/details can pay for more themselves:

 a reduced 0.5%............for those of us who are ok with efforts as they stand.

1.5% for those who want a more rigorous collection effort

2.5% for those like zpbsfg who want a more rigorous effort, more transparency plus a phone contact person at their beck & call who they can discuss each & every late loan with.

This.  But the prices should be higher and the CSR's who have to deal with these (almost always not-properly-diversified and/or
irrationally vengeant and/or shocked-at-human-nature/sheltered-existence type) people should get a cut (for taking the abuse).
A little nonsense now and then is relished by the wisest men.

AmCap

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Re: Collections & Transparency
« Reply #18 on: December 28, 2012, 04:18:20 PM »
You're all very bright, but let's not forget that "works and plays nicely with others" is also part of the grade...

nonattender

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Re: Collections & Transparency
« Reply #19 on: December 28, 2012, 04:36:56 PM »
You're all very bright, but let's not forget that "works and plays nicely with others" is also part of the grade...

That sort of grading scheme is teleologically confused.  ;)
A little nonsense now and then is relished by the wisest men.

yojoakak

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Re: Collections & Transparency
« Reply #20 on: December 28, 2012, 04:45:59 PM »
Well..........As someone who is fine with collections the way they are, I have no interest in subsidizing additional collection efforts. So may I suggest a multi-tiered service charge schedule (below) so that those who want more effort/info/details can pay for more themselves:

 a reduced 0.5%............for those of us who are ok with efforts as they stand.

1.5% for those who want a more rigorous collection effort

2.5% for those like zpbsfg who want a more rigorous effort, more transparency plus a phone contact person at their beck & call who they can discuss each & every late loan with.

This.  But the prices should be higher and the CSR's who have to deal with these (almost always not-properly-diversified and/or
irrationally vengeant and/or shocked-at-human-nature/sheltered-existence type) people should get a cut (for taking the abuse).


Or maybe they could just up the Collection Fee %, to make it more worth the Collection Agency's while? If 30-35% isn't enough incentive, how about 80%?

https://www.lendingclub.com/public/rates-and-fees.action

"Collection Fee

In case of successful collection of late payments, a collection fee is deducted from the collected payment amount before it gets credited to the investors account. The collection fee is a percentage of the amount recovered:

    30% if the member loan is less than 60 days past due and no more than 90 days from the date of origination;
    35% in all other cases, except litigation;
    30% or hourly attorneys' fees in the event of litigation, plus costs.
    There is no collection fee charged if nothing is collected, and no collection fee can exceed the proceeds of collections efforts."

nonattender

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Re: Collections & Transparency
« Reply #21 on: December 28, 2012, 04:56:10 PM »
Well..........As someone who is fine with collections the way they are, I have no interest in subsidizing additional collection efforts. So may I suggest a multi-tiered service charge schedule (below) so that those who want more effort/info/details can pay for more themselves:

 a reduced 0.5%............for those of us who are ok with efforts as they stand.

1.5% for those who want a more rigorous collection effort

2.5% for those like zpbsfg who want a more rigorous effort, more transparency plus a phone contact person at their beck & call who they can discuss each & every late loan with.

This.  But the prices should be higher and the CSR's who have to deal with these (almost always not-properly-diversified and/or
irrationally vengeant and/or shocked-at-human-nature/sheltered-existence type) people should get a cut (for taking the abuse).


Or maybe they could just up the Collection Fee %, to make it more worth the Collection Agency's while? If 30-35% isn't enough incentive, how about 80%?

https://www.lendingclub.com/public/rates-and-fees.action

"Collection Fee

In case of successful collection of late payments, a collection fee is deducted from the collected payment amount before it gets credited to the investors account. The collection fee is a percentage of the amount recovered:

    30% if the member loan is less than 60 days past due and no more than 90 days from the date of origination;
    35% in all other cases, except litigation;
    30% or hourly attorneys' fees in the event of litigation, plus costs.
    There is no collection fee charged if nothing is collected, and no collection fee can exceed the proceeds of collections efforts."

The bad paper that collection agencies buy for $.01 on the dollar gets the same treatment as the stuff that nets them 30% or whatever.  The results are the same.  This is not an incentive alignment problem - it is (mostly) a "blood from turnip" problem.

Have had this discussion many times before.  The math is against you - there's no edge to be had in focusing on collections...

And certainly no scalar complementarity.  So, you can forget the platforms doing it - even if you could pressure them into that.
A little nonsense now and then is relished by the wisest men.

yojoakak

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Re: Collections & Transparency
« Reply #22 on: December 28, 2012, 05:17:12 PM »
And don't forget that since LendingClub makes 50-80% of its fees off a loan before the first payment ever gets made (or not made, as the case may be) they'd rather originate a new loan than spend any time at all trying to collect on a bad loan.

DanB

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Re: Collections & Transparency
« Reply #23 on: December 29, 2012, 12:02:24 AM »
Peerlend is correct. These are unsecured loans. There's no point in spending money endlessly pursuing people who are not, cannot, will not, or do not have to pay you back. It's not a question of anything beyond how the game is set up. Nevertheless there will always be people asking for more effort and more money to be spent chasing people down because they are personally offended by a default. That is fine with me.............I'm just not interested in subsidizing it.

My advice is to get over it..............or better yet, avoid it in the first place. How to do it is not brain surgery.
« Last Edit: December 29, 2012, 12:04:51 AM by DanB »

rawraw

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Re: Collections & Transparency
« Reply #24 on: December 29, 2012, 07:27:09 AM »
Peerlend is correct. These are unsecured loans. There's no point in spending money endlessly pursuing people who are not, cannot, will not, or do not have to pay you back. It's not a question of anything beyond how the game is set up. Nevertheless there will always be people asking for more effort and more money to be spent chasing people down because they are personally offended by a default. That is fine with me.............I'm just not interested in subsidizing it.

My advice is to get over it..............or better yet, avoid it in the first place. How to do it is not brain surgery.
I'm not trying to be particular, but just wanted to point out they do have to pay you back.  It's just that since it is unsecured, the odds of 1) you being at the top of the list of collections and 2) the lawsuit won't cost more than the note amount are very rare.  Then we get into the, if it takes greater than 5 years from origination date LendingClub has incentives not to pass payments onto borrowers, as discussed in the other thread.

And I agree with DanB.  The whole reason I'm on LC is the access to higher quality notes (I have mostly B-D notes, with 50% B).   I don't want to subsidize the poor investment decisions of others, especially given the characteristics and collectability of the debt.

rev

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Re: Collections & Transparency
« Reply #25 on: December 29, 2012, 02:20:37 PM »
First of all, I primarily agree with those who are posting that the animosity is unwarranted. Now, as for the core of the issue, my two cents. Read all below as if each line started with "in my humble opinion...":

1) The pillar of the credit industry is the implied knowledge by borrowers that the creditors can "hurt" them if they don't pay. The loan sharks and the mafia take this literally/physically, but I believe A/B-grade borrowers know that a delinquency will severely impair their borrowing ability (why ruin a beautiful 750 credit score for a US$ 20,000 default?), but C/D/E/F/G-grade borrowers will certainly feel more threatened if you include a legal perspective in the game. Some people can live with no credit, but a wage garnishment would definitely hurt virtually anyone.
So, if you just decide your policy is "never really make too much effort to collect", you're playing with a very important variable that sustains the whole principle of the game.

2) LC is the only agent capable of doing anything to collect. They have to work in the best interest of the lenders when the borrower is not complying to the contract. I agree that there is a price, but they're keeping up to 5% of the amount lent, and that's a servicing fee. Collecting is part of servicing this type of product.

3) Prosper saw in the past what happens when you neglect collections. Go read in the internet about that dark time in their history, and the consequences they are still facing.

4) Collections and lawsuits are not only for secured debts. An entire industry is based on stronger collection efforts, for example, of credit card debts. They work very well. Collection agencies are normally specialized in either unsecured or secured collections. You're not in the bottom of the priority list for being unsecured, because that agency will either have only unsecured paper to collect, or will dedicate a team for unsecured collections.

5) Court costs are an upfront cost that nobody likes to have. You never know how terrible is the debtor's situation. Maybe the person will never be able to pay, or you may never be able to find them or find their assets (equity, employment, bank account). But when they owe you $30,000 and the lawsuit will cost you $400 (average cost of a default judgment), and you will spend a little more trying to get hold of the assets, I think LC is perfectly capable of pursuing this line of action with no impact on the servicing fee they charge from investors.
Look at their fee schedule: http://www.lendingclub.com/public/borrower-rates-and-fees.action
You don't have to complain that you're paying for other people's collections concerns because they buy G notes and you buy only A notes. The A notes have a 1.11% origination fee (to the borrower, not even to you!), and the C/D/E/F/G have a 5% origination fee. Now, LC will certainly spend exactly the same to originate A/C or C-G (I can't think of a reason the cost would be different), so the higher fee for C-G is for...? Collection efforts!

Again, in my humble opinion, that is.
« Last Edit: December 29, 2012, 02:27:38 PM by rev »

Zach

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Re: Collections & Transparency
« Reply #26 on: December 29, 2012, 02:23:44 PM »
First of all, I primarily agree with those who are posting that the animosity is unwarranted. Now, as for the core of the issue, my two cents. Read all below as if each line started with "in my humble opinion...":

1) The pillar of the credit industry is the implied knowledge by borrowers that the creditors can "hurt" them if they don't pay. The loan sharks and the mafia take this literally/physically, but I believe A/B-grade borrowers know that a delinquency will severely impair their borrowing ability (why ruin a beautiful 750 credit score for a US$ 20,000 default?), but C/D/E/F/G-grade borrowers will certainly feel more threatened if you include a legal perspective in the game. Some people can live with no credit, but a wage garnishment would definitely hurt virtually anyone.
So, if you just decide your policy is "never really make too much effort to collect", you're playing with a very important variable that sustains the whole principle of the game.

2) LC is the only agent capable of doing anything to collect. They have to work in the best interest of the lenders when the borrower is not complying to the contract. I agree that there is a price, but they're keeping up to 5% of the amount lent, and that's a servicing fee. Collecting is part of servicing this type of product.

3) Prosper saw in the past what happens when you neglect collections. Go read in the internet about that dark time in their history, and the consequences they are still facing.

4) Collections and lawsuits are not only for secured debts. An entire industry is based on stronger collection efforts, for example, of credit card debts. They work very well. Collection agencies are normally specialized in either unsecured or secured collections. You're not in the bottom of the priority list for being unsecured, because that agency will either have only unsecured paper to collect, or will dedicate a team for unsecured collections.

5) Court costs are an upfront cost that nobody likes to have. You never know how terrible is the debtor's situation. Maybe the person will never be able to pay, or you may never be able to find them or find their assets (equity, employment, bank account). But when they owe you $30,000 and the lawsuit will cost you $400 (average cost of a default judgment), and you will spend a little more trying to get hold of the assets, I think LC is perfectly capable of pursuing this line of action with no impact on the servicing fee they charge from investors.
Look at their fee schedule: http://www.lendingclub.com/public/borrower-rates-and-fees.action
You don't have to complain that you're paying for other people's collections concerns because they buy G notes and you buy only A notes. The A notes have a 1.11% origination fee (to the borrower, not even to you!), and the C/D/E/F/G have a 5% origination fee. Now, LC will certainly spend exactly the same to originate A/C or C-G (I can't think of a reason the cost would be different), so the higher fee for C-G is for...? Collection efforts!

Again, in my humble opinion, that is.

Very well put... :D

For number 5, it could also be that they don't have to be as competitive with APRs with lower credit quality, whereas with "A grade borrowers" they have to be highly competitive with rates to encourage an origination. Both could very well be true!
« Last Edit: December 29, 2012, 02:36:09 PM by zpbsfg »

DanB

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Re: Collections & Transparency
« Reply #27 on: December 29, 2012, 05:17:16 PM »
Rev............What animosity? It could easily be called a "spirited" discussion (barely spirited, actually). Keep in mind that this is not the first or the twentieth time the "more collection effort" discussion has been discussed. We're never going to agree on this so after glancing at your post & realizing that I knew & considered all that content already, I've decided I'd rather go & perform an act of contrition instead  of reading the rest of it, then glazing over & offering another spirited/sarcastic rebuttal that will never appease those of you on the other side of this issue . I hope you will find it in your heart to forgive me for exiting this discussion.  :)


rev

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Re: Collections & Transparency
« Reply #28 on: December 29, 2012, 09:01:08 PM »
No, don't exit it yet! Group hug!
Ok, I bore you, I'm sorry, see you next time you fail to exercise your contrition.

It's interesting that the "sides" of the issue appears to be the "conservative" A/B investors and the "aggressive" C-G investors. I understand the ecosystem will always have all kinds of players, from the A1 superconservative to the guy buying Late notes in the secondary market for a gamble. I think there's room for all. LC is a great investment for those seeking a safe 6-10% return, but also a very fertile terrain if you want to be "creative" (I prefer this over "aggressive") and explore ways to try and reach real 15-20% returns. Nothing wrong with either approach, as long as you know what you want in life and how much energy you want/can spend pursuing it.
« Last Edit: December 29, 2012, 09:06:45 PM by rev »

AmCap

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Re: Collections & Transparency
« Reply #29 on: December 29, 2012, 09:18:51 PM »
That's an interesting observation rev.  I can tell you that in the context of tranched structured finance transactions with high default levels (think 2006-2008 RMBS and CDO deals) a very similar conversation frequently goes on between people who hold highly tranched securities and those who hold low tranched and equity level securities (people generally called it tranche warfare).  Generally, the holders of low risk securities are less willing to allow servicers to engage in loan modifications, and instead prefer to foreclose and sell the underlying properties as quickly as possible; lower level holders have the opposite desire.  The people with the more conservative holdings don't wish to incur more cost just to protect people with higher yield, riskier, securities.

The following Forbes article illustrates the point better than I can (sorry I have dinner plans haha...gotta run!): http://www.forbes.com/2008/12/18/cdo-foreclosure-mitigation-markets-bonds-cx_md_1217markets38.html.