P2P Forum

Lending Club Discussion => Investors - LC => Topic started by: hoggy1 on October 06, 2014, 11:00:00 PM

Title: Lending Club bankruptcy remote vehicle
Post by: hoggy1 on October 06, 2014, 11:00:00 PM
Pleas indicate your level of concern with the lack of a bankruptcy remote vehicle for LC retail investors.

For those of you who have not followed other threads on this subject or don't know what a BRV is (which included me until a few weeks ago) a BRV protects investors in the event of a LC bankruptcy wherein the notes are held by a third party trustee in escrow for lenders (or similar functional arrangement). At present, the borrowers owe LC the money, not the investors, therefore in a LC failure preferred investors and secured debt holders would be entitled to these cash flows before lenders would be.
Title: Lending Club bankruptcy remote vehicle
Post by: yojoakak on October 06, 2014, 11:00:00 PM
Who's got time to worry about that when ISIS is going to come over here and kill us all!

http://www.upi.com/Top_News/US/2014/09/16/Lindsey-Graham-fears-ISIS-will-come-kill-us-all-in-a-not-at-all-hysterical-way/5011410890658/
Title: Lending Club bankruptcy remote vehicle
Post by: brother7 on October 06, 2014, 11:00:00 PM
I wonder... is LC's lack of a BRV reason enough to sway investors away from LC towards Prosper?
I have accounts at both but am now wondering if I should halt reinvestment at LC and funnel the funds toward Prosper. Is anyone doing this? And if so, what are your underlying reasons?
Title: Lending Club bankruptcy remote vehicle
Post by: Rob L on October 06, 2014, 11:00:00 PM
I opened a Prosper account a few months ago; about half the size of my LC account now.
If a BRV were in place I would probably have invested the entire amount in LC. The other way to look at it is that LC would have 50% more money.
I don't know what others call it, but I use the term "risk of ruin". For my LC account it is quite conceivable might lose it all.
Prosper somewhat less,but still not zero.
Title: Lending Club bankruptcy remote vehicle
Post by: rawraw on October 06, 2014, 11:00:00 PM
I call it platform risk
Title: Lending Club bankruptcy remote vehicle
Post by: Fred on October 07, 2014, 11:00:00 PM
Not sure if anyone is aware of Portfolio Financial Servicing Company (“PFSC”) per http://kb.lendingclub.com/investor/articles/Investor/What-happens-if-Lending-Club-goes-out-of-business

Quote
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 07, 2014, 11:00:00 PM
Well we have 27 votes which break down roughly as I expected but there have been 160 views indicating 133 abstentions. I think we have to count those as very low concern or IQ.
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 07, 2014, 11:00:00 PM
from: rawraw on October 07, 2014, 07:06:40 PM
Title: Lending Club bankruptcy remote vehicle
Post by: DanB on October 07, 2014, 11:00:00 PM
from: Fred on October 08, 2014, 01:09:13 AM
Title: Lending Club bankruptcy remote vehicle
Post by: SeanG on October 07, 2014, 11:00:00 PM
First time posting on this blog. Great topic. I voted and am in the second rank; seriously considering not investing any more funds with LC until a satisfactory solution is presented by LC.
Title: Lending Club bankruptcy remote vehicle
Post by: Victor on October 07, 2014, 11:00:00 PM
The servicing agreement alone fails to protect us lenders since there is slim (no) chance that the loans (notes) will be considered separate from LC's bankruptcy estate in the event of a Chapter 7 or 11.  The loan service agreement may assure that borrower payments will be processed, but the money will be channeled by the bankruptcy court to other creditors and equity holders before it ever gets to us lenders.  Ergo, the institutional investors insist on a BRV.

I can fathom no reason why "small" or retail investors shouldn't be equally protected.  All of the retail money on this platform certainly should aggregate to the size of an institution.  What are we, 10% of the platform,?  More?  Less?
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 07, 2014, 11:00:00 PM
from: DanB on October 08, 2014, 09:13:22 AM
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 07, 2014, 11:00:00 PM
from: Victor on October 08, 2014, 10:34:27 AM
Title: Lending Club bankruptcy remote vehicle
Post by: Jon on October 07, 2014, 11:00:00 PM
I spent 12 years in IT for the US Courts, specifically serving the US Bankruptcy Court, 9th Circuit, Western District of Washington. 

The Department of Justice's US Trustee Program represents "The State" or "The Prosecution" in a Bankruptcy case.  It also oversees asset liquidation and distributes funds.  This is the arm of the government which will seize and liquidate assets.

What I saw in my service, the order of priority for payouts in practice - if not law - is:

1) The US Federal Government - debts to the Feds are never discharged in bankruptcy proceedings.  This means IRS debt, student loan debt etc.  Money owed Uncle Sam never goes away until paid in full.

2) Secured Creditors - debts secured by assets like an inventory of goods, real estate or something else that can be sold off to pay debtors' obligations

3) Unsecured Creditors - these are employees (maybe their paychecks bounced), the unfortunate suppliers of inventory of goods (the stuff the debtor sells for profit), the office's janitorial service, the power company, the water company, the phone company, the insurance companies, the food vendor for yesterday's company meeting  etc.  Basically, this is anyone that sent a bill and hasn't been paid.

4) Shareholders - those that own a percentage of the debtor's organization... they never get anything.

So from my experience, absent LC signing a "reaffirmation agreement," or some other legal shielding, it'd be up to the Court to decide our status. 

If I had to make a bet, I'd say LC's lawyers would zealously  argue we're unsecured creditors.  If there's an argument that we're a Secured Creditor, it's beyond my imagination, but not necessarily beyond possible.  Maybe some other department in the Executive Branch would submit a motion on our behalf.

-Jon

PS: A "reaffirmation agreement" is a written promise to pay a debt, keeping it out of bankruptcy proceedings.  There is one meeting that debtors must attend.  It's called the 351 meeting, or the meeting of creditors. 

Nordstrom, Bloomingdales and other unsecured debtors will send pretty people to lurk in the halls well before the 351 meeting, hoping to ambush the debtor, get the debtor to sign a reaffirmation agreement.  Lawyers warn debtors about this, but some people have trouble heeding warnings.  This tactic works better than I thought it would.

PPS: I see the 351 meeting is now called a 341 meeting.  That happened after I left service in 1999.
Title: Lending Club bankruptcy remote vehicle
Post by: bobeubanks on October 07, 2014, 11:00:00 PM
from: hoggy1 on October 08, 2014, 07:27:45 AM
Title: Lending Club bankruptcy remote vehicle
Post by: Lovinglifestyle on October 07, 2014, 11:00:00 PM
I viewed twice because I was thinking about the question before answering.  Don't views to read responses count too?
Title: Lending Club bankruptcy remote vehicle
Post by: DanB on October 07, 2014, 11:00:00 PM
Quote"> from: Fred on October 08, 2014, 10:38:03 AM
Title: Lending Club bankruptcy remote vehicle
Post by: Victor on October 07, 2014, 11:00:00 PM
@ Fred & John:

You are both absolutely correct regarding the lower status of shareholders vis a vis unsecured lenders in a bankruptcy proceeding.  My bad! It comes from talking before thinking.
Title: Lending Club bankruptcy remote vehicle
Post by: Rob L on October 07, 2014, 11:00:00 PM
I am one of the lonely 6 "extremely concerned" so far.
However, I'm not "extremely concerned" but I already have limited my investment in LC because of "platform risk" so that's the only box that fit.
I consider myself "prudent" on this matter rather than "extremely concerned".
The risk is probably pretty small, but so was "breaking the buck" in the money markets.
My cash equivalents were not in the money market at the time of the meltdown, but in the ETF "SHV", which I considered much saver.
There may be those of you that will look at SHV and say I was fooling myself; and that might be true. Not sure I want to know.
However, I did my best to plan for an unimaginable event that did occur.
Does anyone really think it's less likely that an LC catastrophe will occur than the "break the buck" event?
Does anyone think the Fed and all monetary authorities of the world will come to LC's rescue, as was the case when the whole world looked over the precipice?
So, with my real money, rather than my play money, you might call me uber-conservative , or flat out paranoid.
"Only the paranoid survive" (Andy Grove).
Title: Lending Club bankruptcy remote vehicle
Post by: AnilG on October 08, 2014, 11:00:00 PM
You are not alone. I am also in the extremely concerned category when it comes to BRV for LC. This segment has been wild-wild west and reminds me of combination of dot-com bubble in 1999 and housing bubble of 2007. Overall, I am very concerned with platform risks.

Premature IPO attempts by p2p platforms is also concerning. I am taking that as indication of founders, VCs and early employees want to cash out and exit while the market is hot. They may be seeing the growth reaching a plateau and increased competition. I believe we will see a lot of shake out when interest rate start to rise. Potentially stepped up government regulations of p2p platforms once investors lose money.

from: Rob L on October 08, 2014, 07:21:48 PM
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 08, 2014, 11:00:00 PM
Again,  I agree with you Anil though I wouldn't say I was extremely concerned with platform risk.  I push for the BRV because it's simply what we've got to protect our interests. If something else comes up tomorrow that protects us, I'll push for that too.

 Company narratives & spin aside, I see the retail investors influence on the fate of p2p to continue diminishing down the road especially if interest rates go up, which they have too at some point. Retail investors will walk in that scenario & we all know from experience what'll happen during the next economic downturn. Simply put, retail investors will see their mid one digit returns go to almost zero & then they'll wind down their accounts. 

I'm sure that LC & Prosper spin the IPO advantage on how that'll draw a massive number of new retail lenders who haven't been able to lend etc...........,but I see that as mostly wishful thinking.  In their heart of hearts I'd bet serious money that both SF companies are quite disappointed  that they've been unable to penetrate the retail lender market to a much much  greater extent than they have to date. I just don't see an IPO changing all that in some dramatic fashion. 

Hell, 3 weeks ago the average person on the street didn't know what Alibaba was.............& today after their gazillion dollar IPO most still don't know &/or care. At this point Lending Club should consider it a massive accomplishment if a post IPO awareness bump consists of nothing more than people no longer confusing them with Lending Tree!

Title: Lending Club bankruptcy remote vehicle
Post by: Jon on October 08, 2014, 11:00:00 PM
I understand the concerns. 

I voted for the option of least concern because I feel powerless to improve the situation. 

If I can't take an action to address my concerns, I let it go; just invest an amount commensurate with my perception of the risk.

Is my assumption that I'm unable to improve the situation flawed?

-Jon
Title: Lending Club bankruptcy remote vehicle
Post by: rawraw on October 08, 2014, 11:00:00 PM
from: Jon on October 09, 2014, 12:57:52 PM
Title: Lending Club bankruptcy remote vehicle
Post by: SeanG on October 19, 2014, 11:00:00 PM
So did this discussion lead to any concrete steps to get retail investors the same level of bankruptcy protection as institutional investors?

I am assuming some list members have contacted LC directly and have gotten a wishy washy "we'll look into it" type of response. Es verdad?

The time to push for retail investors to have BRV protection is now (pre-IPO when LC is very vulnerable to any negative press).

I just purchased the domain name for LendingClubBankrupt.com. I want to use this website to educate all new potential retail investors how they are not given the same type of bankruptcy protection as institutional investors. It cost me about $25 (one default) so there, I took one for the team.

I hope we can organize ourselves instead of just whining about being mistreated. But it's not FAIR!!!! (wringing of hands / gnashing of teeth)

Yeah we know it's not fair that's why we need to organize and push back. LC will brush off individual complaints but will stand up and take notice if we stand up and speak with one voice. Especially if that voice is raised loudly just as they are trying to convince the rest of the world what a great company they are.

Timing is everything.

Sean
Title: Lending Club bankruptcy remote vehicle
Post by: lascott on October 19, 2014, 11:00:00 PM
http://www.lendacademy.com/lending-club-files-to-go-public/

Title: Lending Club bankruptcy remote vehicle
Post by: toiletpaper55 on October 21, 2014, 11:00:00 PM
from: SeanG on October 20, 2014, 01:29:19 AM
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 21, 2014, 11:00:00 PM
from: toiletpaper55 on October 22, 2014, 02:27:05 PM
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 22, 2014, 11:00:00 PM
from: Jon on October 22, 2014, 03:30:00 PM
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 22, 2014, 11:00:00 PM
from: Jon on October 22, 2014, 03:30:00 PM
Title: Lending Club bankruptcy remote vehicle
Post by: core on October 22, 2014, 11:00:00 PM
Isn't it possible a BRV would jeopardize the fat cats' stakes in Lending Club?  I can almost guarantee the companies that sank millions into Lending Club didn't do so under an agreement that made their piece of the pie junior to outstanding notes.  In effect, they used our notes to guarantee that cigar smoking yacht party-goers would not lose money.  A BRV would take that away, because the buffer of several $billion would disappear.
Title: Lending Club bankruptcy remote vehicle
Post by: DanB on October 22, 2014, 11:00:00 PM
Quote"> from: core on October 23, 2014, 01:17:17 PM
Title: Lending Club bankruptcy remote vehicle
Post by: Jon on October 22, 2014, 11:00:00 PM
I'm not an owner.  I just figure that the population of borrows in 26 states is less than the population of 50 states and as such, there would be a larger pool of borrows if operations are permitted in 50 states.

I haven't been reading the writings of people who have vested interests in the success of the company. 

I have funded several hundred notes on the platform so I do have a vested interest in the success of the company.  I don't really care about the IPO.

I am wondering if I should take exception to your tone, but I'm not going to make a decision on that for now.

The other side of that is that I'm wondering if I have anything to contribute to this thread, or this forum; maybe I should just return to read-only mode as my questions might be received as suspect.

If this is about lender participation, then I did lose the plot and I'm righted.   If this is about borrower participation, than my question is answered.


-Jon
Title: Lending Club bankruptcy remote vehicle
Post by: core on October 22, 2014, 11:00:00 PM
from: Jon on October 23, 2014, 08:15:41 PM
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 22, 2014, 11:00:00 PM
Thanks, core.

-Jon
Title: Lending Club bankruptcy remote vehicle
Post by: Fred93 on October 22, 2014, 11:00:00 PM
Quote"> from: toiletpaper55 on October 23, 2014, 12:43:31 PM
Title: Lending Club bankruptcy remote vehicle
Post by: hoggy1 on October 23, 2014, 11:00:00 PM
from: Fred93 on October 23, 2014, 11:44:55 PM
Title: Lending Club bankruptcy remote vehicle
Post by: rawraw on October 23, 2014, 11:00:00 PM
from: Jon on October 23, 2014, 08:38:31 PM
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 23, 2014, 11:00:00 PM
from: rawraw on October 24, 2014, 10:09:58 AM
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 23, 2014, 11:00:00 PM
Interest rates can be indication, but I'm talking about stressed times which would involve increasing defaults and reduced demand by banks for additional credit as they tighten. Lending Club is really dependent on origination fee income, which can disappear if demand takes a dive due to the low in a credit cycle.
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 23, 2014, 11:00:00 PM
Thanks, rawraw!

-Jon
Title: Lending Club bankruptcy remote vehicle
Post by: TravelingPennies on October 23, 2014, 11:00:00 PM
from: hoggy1 on October 24, 2014, 07:59:29 AM
Title: Lending Club bankruptcy remote vehicle
Post by: toiletpaper55 on October 26, 2014, 11:00:00 PM
from: Fred93 on October 24, 2014, 02:13:51 PM
Title: Lending Club bankruptcy remote vehicle
Post by: Gatsby on April 04, 2016, 11:00:00 PM
So what happens if Prosper/LC files for bankruptcy? Who do we contact?
Title: Lending Club bankruptcy remote vehicle
Post by: dompazz on April 04, 2016, 11:00:00 PM
from: Gatsby on April 05, 2016, 11:42:19 AM
Title: Lending Club bankruptcy remote vehicle
Post by: fliphusker on April 04, 2016, 11:00:00 PM
from: dompazz on April 05, 2016, 02:45:41 PM
Title: Lending Club bankruptcy remote vehicle
Post by: dompazz on April 04, 2016, 11:00:00 PM
Quote"> from: fliphusker on April 05, 2016, 04:55:14 PM
Title: Lending Club bankruptcy remote vehicle
Post by: lender90530 on April 08, 2016, 11:00:00 PM
I invested high 5 figures in Lending club notes, and so far have been very satisfied with the returns. However, I have stopped re-investing cash from paid off notes, and plan on withdrawing cash as it accumulates. When I started investing a couple of years ago, I had hopes that Lending Club would eventually implement a BRV for retail investors, but have given up on that happening. In the event of Lending Club failing, I think I would just be another unsecured creditor waiting in line to pick at the bones of a dead corporation. While Lending Club may have a strong balance sheet now with little or no debt, I don't think there are any covenants protecting retail investors from Lending Club incurring debt in the future to do stock buybacks, or making acquisitions that may or may not succeed. Lending Club, I think, would like retail participation to grow because its funds are more stable than institutional hot money; from this perspective, I think it was a big mistake for Lending Club to go public before implementing a BRV like Prosper did for retail investors. After going public, every day I can see stock market investors' best opinion of the future prospects for the company, and it doesn't seem very encouraging with the stock down significantly from its IPO price; this makes me nervous. One of the reasons, I invested in Lending Club notes was to escape the gyrations and risks of the stock market; without a BRV, it has just followed me, which is why I am cashing out despite the excellent returns.
Title: Lending Club bankruptcy remote vehicle
Post by: Fred93 on April 08, 2016, 11:00:00 PM
from: lender90530 on April 09, 2016, 01:48:13 PM
Title: Lending Club bankruptcy remote vehicle
Post by: jz451 on April 08, 2016, 11:00:00 PM
When I've gone over this to me it leads in the direction that noteholders will not be. While not 100% for certain I am confident that a bankruptcy judge would separate the assets/liabilities of the noteholders and people issued loans with the assets/liabilities for the operations of Lending Club. Just imagine what would happen in this case if a judge lumped all assets/liabilities together. A class-action lawsuit would surely come about on our behalf to make sure all existing loans are paid out to noteholders with the fees paid to the creditors.
Title: Lending Club bankruptcy remote vehicle
Post by: rawraw on April 08, 2016, 11:00:00 PM
I've known of some stupid decisions from bankruptcy courts when it comes to financial matters that has cost investors lots of money unfairly.  Never know what that judge may come up with in terms of our legal status