As I noted in my March update of my Lending Club performance, I haven’t been adding new notes to my portfolio. My NAR is still a respectable 8.98%, but I’ve been too busy to keep up with note picking, so instead I’ve been withdrawing any accumulated cash to my savings account.
With that as a backdrop, I wanted to share some news about Lending Club… According to a recent post on their blog:
Starting tomorrow [April 15th], investors will only be able to ask questions from a predefined set that was created based on the most frequently asked questions logs over the last 2 years and reviewed and edited by our compliance team. As an investor, feel free to submit additional questions that you would like to see added to list to [email protected]om. As always, your comments are welcome as we continue to make improvements to our platform.
Okay, here’s my comment: This is a stupid idea that cripples the investing process. As things stand, investors are the ones taking all of the risk, so why reduce their ability to investigate their investment opportunities? It just doesn’t make any sense.
In case you didn’t know, investors had previously been allowed to ask borrowers free form questions. This has always been an imperfect system, in that the questions don’t appear until the borrower answers them. Thus, a borrower can easily ignore questions and only the investor(s) that asked would know. But still, at least you had the option of asking questions about troubling aspects of a borrower’s profile.
For example, I’ve frequently seen someone asking to borrow (say) $15k to pay off credit card debt when their credit profile only showed $8k in outstanding balances. There are sometimes good reasons for this – for example, a spouse’s credit balances may or may not have been included – and it’s helpful to see how the borrower handles the question. Unfortunately, that particular question doesn’t appear to be available from the list of approved questions.
A logical question might be why is Lending Club doing this? Once again, according to their blog:
At Lending Club we embrace new technologies and open communication, but also provide a financial service that calls for a higher level of privacy and identity protection.
Lending Club investors have the ability to ask questions of potential borrowers before committing investments into their loans. This ability has raised concerns in terms of protecting the privacy and identity of both borrowers and investors. These concerns led us to adjust our Q&A mechanism for the benefit of both borrowers and investors.
I’m sorry, but this explanation just doesn’t cut the mustard with me… Nobody is compelling investors or borrowers to breach privacy here. If you don’t get asked a question that you’re not comfortable with, don’t answer it. Or give as much information as you can without going overboard. For example, if asked about your job, be vague and then say that you’re not comfortable giving more specific information.
To me, this is a classic case of throwing out the proverbial baby with the bath water. I’ve heard rumors that this Propser (another P2P lending platform) has implemented something similar, so perhaps they’re being compelled to do this by an outside entity, but still… This makes their product significantly less attractive to investors.