Lending Club’s borrowers get better credit score within three months
Yesterday Lending Club responded to the US Treasury Department’s Request for Information (RFI) on how online lenders operate and “how the financial regulatory framework should evolve to support the safe growth of this industry.” In its response, Lending Club highlights that its peer-to-peer model helps consumers pay off existing loans and credit card balances, adding the typical borrowers increase their credit scores by 21 points within three months of obtaining their loans through Lending Club. Also included were a series of recommendations, such as tax incentives for investing in underserved areas. Lastly, Lending Club also wants the IRS to create an API for the tax return transcript process, which would make it easier for consumers and small business owners to provide their tax information to prospective lenders.

Source: Lending Club

Lending Club (LC), the world's largest online marketplace connecting borrowers and investors, today submitted a response to the U.S. Treasury Department's Request for Information (RFI) on Expanding Access to Credit through Online Marketplace Lending.

"We appreciate the Treasury Department's continued interest in understanding how online marketplace lending can expand access to credit, and how the financial regulatory framework should evolve to support the industry's safe growth," said Lending Club founder and CEO Renaud Laplanche. "Our response reflects our company values and commitment to transparency, consumer friendliness, and responsible credit products, and takes advantage of this opportunity to offer input and ideas that can help the industry grow safely and responsibly."

Lending Club's response starts by explaining the benefits it delivers to both borrowers and investors. Lending Club uses technology to reduce costs and pass on the cost savings to borrowers in the form of lower interest rates and to investors in the form of better returns. More specifically, borrower benefits include:

Significant cost savings: Over 70% of borrowers on our platform report using their loan to pay off an existing loan or credit card balance, and report that the interest rate on their Lending Club loan was an average of 7 percentage points lower than they were paying on their outstanding debt or credit cards.1

Responsible credit: Customers who use the Lending Club platform to refinance their credit card balance are replacing revolving, non-amortizing, variable rate debt with a fully amortizing, fixed rate installment loan. This product provides for a more responsible way to manage their credit, and helps improve the customer's credit score by reducing the amount of open-ended credit. In fact 77% of these customers experienced a FICO score increase within three months of obtaining their loan through Lending Club, with an average score increase of 21 points.2

Investor benefits include:

Access to credit asset classes that individual investors didn't have access to before and institutional investors only had limited access to on a pool basis.

Steady cash flow and net annual returns averaging between 6%-9%3 since inception.

Full control and transparency as to loan quality and performance. Individual investors decide which loans to invest in based on their investment objectives, and have access to a tremendous amount of historical performance data to ground their investment decisions.

At the invitation of the Treasury, Lending Club offered four recommendations for legislative or regulatory consideration that it believes would enhance or clarify the development and operation of online credit marketplaces to the benefit of consumers, small businesses, investors and the financial system more broadly: