One Lending Club Investor Uncovered Its Questionable Practices

Lending Club suffered a widely publicized downfall this year when its CEO resigned after revelations of potential improper lending practices. Three months later, reports have surfaced as to how those practices first came to light.

Bloomberg detailed the process of investor Bryan Sims, an entrepreneur who invested $1,000 in Lending Club stock once it went public in 2014. Sims had taken an interest in Lending Club and its transparency and willingness to share data with investors, reports explained.

During one earnings call, Sims said he took note that Lending Club’s then-CEO Renaud Laplanche revealed that 14 percent of borrowers came back to the platform for a second loan. It struck him, said reports, because, of all the data Lending Club offers, it does not reveal information on repeat customers.

Following the call, Sims told reporters he generated a spreadsheet of all the loans in which he invested via Lending Club.

The first pattern he found was for two loans to two individuals with the same employer, in the same town, both opening their first lines of credit. Sims realized these two loans were for the same person, but Lending Club wasn’t identifying this borrower as a repeat customer, instead treating them as unrelated loans with different interest rates (one at 15 percent and another at 9 percent, according to reports).

“That meant the investors who held only the second loan were leaving money on the table,” Bloomberg stated. “And Lending Club didn’t seem to be doing anything to help them.”

Laplanche resigned due to allegations of conflicts of interest and ethical breaches, and during that time, Sims began to develop a tool to rate Lending Club loans in an effort to identify loans taken out by the same person with two different interest rates. It was through this initiative that Sims discovered instances that suggested multiple loans that were seemingly independent were taken out by the same people.

In some cases, reports said, loans were taken out once a day by the same person, only minimally changing addresses and annual incomes on the application. It may suggest identity theft, or it could imply that Lending Club was manipulating its own data, according to Sims.

“It’s crazy to me that nobody else has come across this,” Sims told the outlet.

It wasn’t until a few weeks later that reports surfaced that Laplanche and his family had taken out the loans identified by Sims as representing strange borrowing behavior; Laplanche’s goal was to boost loan volumes, according to reports, with following revelations that insider borrowing within Lending Club was a widespread practice in its early days.