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Author Topic: Why Does Lending Club Set Interest Rates?


f
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Why Does Lending Club Set Interest Rates?
#1: April 26, 2016, 11:00:00 PM
People actually filter out some sub grade sets?  Like others have pointed out with LC changing the grading, it would be of no use to do backtesting, correct?  A C3 note 2 years ago, could be considered a C1 or D1 note now?
Looking at my own backtesting with my filters, just do not see enough difference to actually kick out out a certain sub grade.  Maybe if there were more notes available, I could possibly consider something of this nature, as my D3 beats my D4 by almost .7 and just over a half percent on defaults. 
I guess that since I am a small fish here, that with less filters, there may be bigger variances. 
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r
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Why Does Lending Club Set Interest Rates?
#5: April 27, 2016, 11:00:00 PM
Yes lenders are subject to various discrimination tests known as fair lending. And not sure if they are subject to CRA

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Why Does Lending Club Set Interest Rates?
#6: April 27, 2016, 11:00:00 PM
All lenders are bound by Equal Credit Opportunity Act (ECOA) and Consumer Credit Protection Act (CCPA) that prevents them from discriminating based on Age, Marital Status, Gender, Religion, Race ...

Consumer Credit Protection Act
https://en.wikipedia.org/wiki/Consumer_Credit_Protection_Act

Equal Credit Opportunity Act
https://en.wikipedia.org/wiki/Equal_Credit_Opportunity_Act

from: Shylock on April 28, 2016, 12:10:23 PM
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T
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Why Does Lending Club Set Interest Rates?
#7: April 27, 2016, 11:00:00 PM
Went back to 2013 and took a look at the relationship between LC assigned interest rates and probabilities of default versus those assigned today. Didn't look at any other intervening period. I was surprised by the magnitude of the difference. For example, a D1 loan today is assigned a higher probability of default than an E5 was 3 years ago. There appears to have been a very substantial shift in risk / reward, and not in the favor of the lender. Another possibility is that LC has moved towards a more pessimistic or "worst case" probability of default estimate to temper lender's expectations (2013 was pre-IPO). Whatever the reason things sure have changed.





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