Lending Club Borrower Exceeded 5 Credit Inquiries | Investors Raise Eyebrows

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credit riskUnblinking investors on the Lending Club marketplace called attention to an anomaly through the LendAcademy forum two weeks ago. At issue was a borrower whose profile reportedly had 9 recent credit inquiries, which exceeded Lending Club’s maximum eligibility to even be listed. As the prospectus of each loan stipulates “5 or fewer inquiries (or recently opened accounts) in the last 6 months,” investors wondered how somebody with 9 had slipped through the cracks.

But it wasn’t just one, user Fred revealed that this was a very common occurrence. “In my database of LC loans collected so far, I saw 1000+ loans with 6+ inquiries in the last 6 months,” he wrote.

Concerned, somebody reached out to Lending Club to find out what the deal was.

The response they got back was that auto or mortgage inquiries do not count as inquiries in their underwriting. However, their system had glitched and was inadvertently including them. That meant the borrower showing 9 inquiries did indeed have 9 but 4 of them were auto and mortgage related and therefore weren’t subject to the cap of 5.

While car loans and mortgages might not be as relevant to unsecured consumer debt activities, it is interesting that these inquiries are supposed to be glossed over in the total inquiries revealed to potential investors.

For instance, in this case, a borrower with approximately 720 credit earning $73,000 a year has 11 inquiries but for all points and purposes, Lending Club is only counting up to 5 of them. They were seeking a $29,175 personal loan for “business purposes.” The loan was eventually removed for reasons unknown.

For those buying these notes, as always, buyer beware.

Last modified: December 5, 2015
Sean Murray

Category: p2p lending

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