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The Price Of LendingClub's Blunder And What It Means For Peer-To-Peer Lending

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The Price Of LendingClub's Blunder And What It Means For Peer-To-Peer Lending
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Quite recently, LendingClub Corp (NYSE: LC)’s CEO was forced to resign over allegations that he had misplaced the sale of loans. However, malaise is not over for the online lender. Last Wednesday, the company issued a downward revision of a previously released weekly loan sales figure, revealing that LendingClub had been buying some of its own loans.

The new figures show that loans sold to investors did not surge to $65 million in the last week of May, but actually fell to $21 million from $22 million in the previous week. This suggests not only that the company has not recuperated from the departure of CEO Renaud Laplanche yet, but also that the transparency of the company is still in question. However, it should be noted that, in Wednesday’s report, the company assured it had “inadvertently included member loans sold as whole loans,” omitting the amount funded by LendingClub for certain member loans.

Related Link: Is The Marketplace Loan ABS Market Just Like The MBS Market A Decade Ago?

Following LendingClub’s blunder, Washington decided to step up its control over fintech companies, including peer-to-peer lenders. In addition, specialist Peter Renton recently told NPR, fintech companies are now starting to recognize that they need an oversight similar to the one banks have.

Several analysts have also argued that, what the LendingClub scandal evidenced is the fact that peer-to-peer lenders only work as middleman between investors and borrowers, meaning they putting their own money down into loans. This has led them to act carelessly, Al Goldstein, CEO of Avant, explained. "If the online lending companies actually have skin in the game, and were holding loans, they would have substantially more at stake to make sure that their processes were sound," he added.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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