Author Topic: Effect of Payment Plan on 60 month note  (Read 3255 times)

Grant

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Effect of Payment Plan on 60 month note
« on: January 05, 2013, 02:44:10 PM »
I called LC Investor Services yesterday to ask for clarification about some of the information I've seen on one of my notes which went bad after the 1st payment.  One of the questions I asked was "what happens if this 60 month note goes into a payment plan?  If it is put into a payment plan, does that mean payments will be made after 60 months and I won't receive them per the prospectus?"

I was told that 60 month loans will never be extended and one function for a payment plan in this scenario is to divide the missed payments into the remainder of the loan making future payments slightly higher.  Assuming the payment plan is carried through the investor won't lose out on any payment.

Zach

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Re: Effect of Payment Plan on 60 month note
« Reply #1 on: January 05, 2013, 04:09:44 PM »
I called LC Investor Services yesterday to ask for clarification about some of the information I've seen on one of my notes which went bad after the 1st payment.  One of the questions I asked was "what happens if this 60 month note goes into a payment plan?  If it is put into a payment plan, does that mean payments will be made after 60 months and I won't receive them per the prospectus?"

I was told that 60 month loans will never be extended and one function for a payment plan in this scenario is to divide the missed payments into the remainder of the loan making future payments slightly higher.  Assuming the payment plan is carried through the investor won't lose out on any payment.

Even if that were the case, it is Lending Club's policy to remit the payment to investors even after the 5 year period. It should be noted, however, that they're not required to do so.

rawraw

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Re: Effect of Payment Plan on 60 month note
« Reply #2 on: January 05, 2013, 04:38:02 PM »
I called LC Investor Services yesterday to ask for clarification about some of the information I've seen on one of my notes which went bad after the 1st payment.  One of the questions I asked was "what happens if this 60 month note goes into a payment plan?  If it is put into a payment plan, does that mean payments will be made after 60 months and I won't receive them per the prospectus?"

I was told that 60 month loans will never be extended and one function for a payment plan in this scenario is to divide the missed payments into the remainder of the loan making future payments slightly higher.  Assuming the payment plan is carried through the investor won't lose out on any payment.

Even if that were the case, it is Lending Club's policy to remit the payment to investors even after the 5 year period. It should be noted, however, that they're not required to do so.
I thought they didn't remit due to tax issues

Grant

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Re: Effect of Payment Plan on 60 month note
« Reply #3 on: January 05, 2013, 05:40:58 PM »
From the 11/28/2012 Prospectus, page 70: https://www.lendingclub.com/fileDownload.action?file=Clean_As_Filed_20121128.pdf&type=docs
Quote
The maturity date on a five (5) year term Note will not be extended. If a Note had a maturity date beyond five (5) years, the
applicable high yield debt obligation provisions would likely apply because payments on the Notes are dependent on payments on the
corresponding member loans and so have significant OID. The applicable high yield debt obligation provisions only apply to loans
with terms longer than 5 years (and meet certain other requirements). The applicable high yield debt obligation provisions would
disallow a deduction to LendingClub for a portion of the interest paid on the Notes.

Previous discussions on this board (start reading at Roy S's post in this thread: http://www.lendacademy.com/the-changing-face-of-60-month-p2p-loans/ ) indicated that LC would not pay beyond 60 months as the tax treatment of the interest (and OID) suddenly changes and becomes rather unfavorable for LC.  Several of us had been wondering what happens if a 5 year is put on a payment plan and had also been wondering what happens at the 5 year mark if a loan's duration had been extended.  Based on the quoted statement as well as my conversation with LC Investor Services, it seems apparent that payment plans on 5 year loans maintains the same term but may increase monthly payment amount to bring a loan back on track.

Zach

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Re: Effect of Payment Plan on 60 month note
« Reply #4 on: January 05, 2013, 06:38:28 PM »
From the 11/28/2012 Prospectus, page 70: https://www.lendingclub.com/fileDownload.action?file=Clean_As_Filed_20121128.pdf&type=docs
Quote
The maturity date on a five (5) year term Note will not be extended. If a Note had a maturity date beyond five (5) years, the
applicable high yield debt obligation provisions would likely apply because payments on the Notes are dependent on payments on the
corresponding member loans and so have significant OID. The applicable high yield debt obligation provisions only apply to loans
with terms longer than 5 years (and meet certain other requirements). The applicable high yield debt obligation provisions would
disallow a deduction to LendingClub for a portion of the interest paid on the Notes.

Previous discussions on this board (start reading at Roy S's post in this thread: http://www.lendacademy.com/the-changing-face-of-60-month-p2p-loans/ ) indicated that LC would not pay beyond 60 months as the tax treatment of the interest (and OID) suddenly changes and becomes rather unfavorable for LC.  Several of us had been wondering what happens if a 5 year is put on a payment plan and had also been wondering what happens at the 5 year mark if a loan's duration had been extended.  Based on the quoted statement as well as my conversation with LC Investor Services, it seems apparent that payment plans on 5 year loans maintains the same term but may increase monthly payment amount to bring a loan back on track.

I do realize the text of the prospectus. I spoke with someone at LC a number of weeks ago and she researched this issue with a senior level person. Initially, I thought that the SEC would not allow them to remit payment after the maturity date but that is not true.