Much to my chagrin, I have managed to pick a Lending Club loan that is now 121+ days late. I thought it a good time to go over how Lending Club handles these situations… They take a different approach and it seems a much more clear cut approach from my account’s perspective.
Here is the page where Lending Club details there approach: http://www.lendingclub.com/info/collection-agencies.action. Here is the relevant portion:
If a payment can not be collected for 3 months after the loan was sent to the collection agencies (that is, 120 days past due), the loan will be removed from the lenders’ portfolios as a total loss (a charge-off). Lending Club will continue to collect on the charged-off loans until the loans are finally packaged and sold to a debt purchaser, which may take another six to nine months. Any recovery of the loan will be credited to the lenders’ accounts as extraordinary income.
The key points:
- The loan is immediately defaulted as a total loss. (Total loss is good from a tax perspective.)
- Any future collections or debt sale will be credited back as extraordinary income.
- Lending Club will work the loan as it see fit and gives no definite time frame on a sale: “may take 6 to 9 months”
This is a clean approach from my perspective (trying to keep an accurate representation of the account in Quicken.)
I also now have a total of 4 loans from Lending Club that are in some form of late and I continue to move money out on a semi-regular basis until such time as Lending Club reopens to lenders. Here is my current account screen.
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4 comments ↓
It’s prettier and removing it may make the lender feel better in the short term, (no nasty 120+ loans to remind you of mistakes), but they take 6-9 months to actually get you the proceeds of the loan sale which is a heck of a lot longer than Prosper in most cases. Also, since they say they will credit it as extraordinary income, will they give you a breakdown so you can see how much on the dollar you got for your loan ?
It’s nice, but it doesn’t seem quite as transparent as Prosper.
@Chrisfs
I was not trying to compare to Prosper, but a comparison is inevitable…
As for accounting for the return, by splitting the way Lending Club does here is how my quicken would look.
I transferred X Dollars into LC, I bought some loans, I made some interest, I had some principal default, I made some more income.
The Return of the entire account would account for the total return of my dollars transferred in. The return on the vehicle “LendingClub Loan” would not have any extraordinary income included in the calculation…
I am not a tax expert but it seems cleaner on taxes too. Given their quiet period who knows if this is how they will continue to handle defaults in the future.
As for transparency, if they are not providing the data then they are not being transparent. How they treat the loan that is in default is irrelevant; as long as, they tell me completely transparently how all loans on an individual basis performed as they moved through the various stats of default.
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Looks like Prosper has basically taken that approach with their latest debt sale announcement.
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