This is a follow-up from
my earlier post about losing out on accrued interest when a note became paid off. I felt that this warrants a new thread because it is useful information.
Long story short, according to LendingClub policy, a borrower is typically NOT held liable for accrued interest if they pay off their loan. The only exception is that the loan must have been brought current first (including past-due accrued interest). After it becomes current, the only payoff amount is the current principal, but not the current interest.
For example, take a "current" note with a 24% rate, a due date of March 1st, and a Feb 1st principal balance of $100. In theory, the note should accrue about $2 in interest between 2/1 and 3/1. However, if the borrower pays off the note on 2/28 with a $100 payment, LendingClub will NOT go after the borrower for the accrued interest, nor will they credit investors for that amount. Even if the note showed as having ~$2 in accrued interest on 2/27, investors still will not receive it.
The silver lining is that if the borrower pays AFTER the next due date (or on 3/2, according to the example), borrowers ARE held liable for that full month of accrued interest.
Here are some other places I've seen LendingClub drop interest. Can you think of any more?
- Loan goes into Default: accrued interest resets to 0 and interest stops accruing.
- Borrower requests a different payment date: 2 or 3 weeks worth of interest just disappears.
- "Completed - xx days late" but it's just regular interest and not even a late fee. Even when there's no borrower contact, no payment plan, no extenuating circumstances, no nothing.
I could probably run a query to find more cases, but that would rely upon the accrued interest at least being updated properly when such changes are made. No luck there.
You know what, I've been thinking. Our notes are between Lending Club and us. If LC wants to forgive interest charged to the borrower out of kindness, that is their business. It does not, however, change their obligations to note holders.
One of these days, Lending Club is going to get their butts sued. When that day comes I will be there with my popcorn to watch them fry. I believe it's class action time soon.
Okay, this is a little over my head but it seems clear from this and many other things that LC's simply making this stuff up as they go; no?
No. Those two loans were paid-off last year. I went back to check on them when I read your post. I also sent LC an email about these two loans. They told me that I bought them at slight markup, so I lost money on them. I know I didn't. I usually dont buy marked-up notes. But it seems that I dont have a way to check.