LendingClub Files Amended S-1 and Discloses Changes to How it Sets Interest Rates

LendingClub, the social peer-to-peer lending site originally launched on FaceBook, today filed an Amended S-1 Registration Statement with the SEC. Now one step closer to completing its securities offering and reinstating its lender program, LendingClub also disclosed some significant changes to how it sets interest rates for borrowers and future lenders. Let’s take a look at what the Amended S-1 means in terms of LendingClub’s lender program, and then we’ll cover how it plans to change its interest rate formula.

LendingClub Files an Amended S-1

In June, LendingClub filed a Form S-1 to register $600,000,000 in debt securities. As is typical for such a filing, the SEC’s Division of Corporation Finance (“Corp Fin” for short) reviewed the filing and likely issued a comment letter back to LendingClub. Corp Fin’s comment letters are not made available to the public until after the comment process is complete.

In response, LendingClub has filed an Amended S-1, likely responding in part to a Corp Fin comment letter. For those anxiously awaiting the resumption of LendingClub’s lender program, this filing is good news as it brings the social lending site one step closer to going “effective,” the term used when a registration statement clears all the SEC hurdles. In fact, depending on the scope of Corp Fin’s comments and how well LendingClub has done in responding to them, the company’s S-1 could go effective very soon.

In sharp contrast, Prosper filed an S-1 registration statement with the SEC back in October 2007. The registration statement has neither been amended nor gone effective, raising significant questions about Prosper’s future plans with its public debt offering. Regardless, it appears that LendingClub may be the first peer-to-peer lending site to offer a resale platform.

LendingClub Discloses a New Interest Rate Formula

The big news, at least for borrowers and lenders, is LendingClub’s disclosure of a new way to calculate interest rates. Recall that Prosper and LendingClub set rates differently. Prosper’s rates are based entirely on an auction style bidding process similar to EBay. In contrast, LendingClub sets interest rates itself based on certain credit criteria of the borrower.

Until its recent disclosure, LendingClub calculated interest rates based on a borrower’s FICO score, debt-to-income (DTI) ratio, and amount borrowed. While the method of calculating the interest rate can appear daunting, you can read my detailed description of how LendingClub sets interest rates.

In its Amended S-1, LendingClub disclosed that under a new formula, it will also use several other credit markers in calculating interest rates. Specifically, LendingClub will factor in a borrower’s number of open accounts, the number of credit inquiries in the last six months, how much of a borrower’s available credit is used up, and length of credit history.

Under the new formula, for example, a borrower with less than three open credit accounts will be declined for a loan. With the exception of borrowers with exactly five open credit accounts, all other borrowers will have their interest rate increased by varying amounts depending on the number of open accounts. Likewise, a borrower with 11 or more credit inquires in the last six months will be declined for a loan. Fewer inquiries generally will not disqualify a borrower, but will increase the interest rate unless the number of inquiries is zero to three.

It will be interesting in weeks to come to understand why LendingClub has made this change, particularly given that many of the new criteria are already considered in arriving at a borrower’s FICO score.

If you would like to read all the details for yourself, you can check out LendingClub’s Amended S-1.

Published or Updated: March 22, 2012
About Rob Berger

Rob founded the Dough Roller in 2007. A litigation attorney in the securities industry, he lives in Northern Virginia with his wife, their two teenagers, and the family mascot, a shih tzu named Sophie.


  1. Four Pillars says:

    I don’t get it – they want the borrowers to have more credit cards? If I was a lender I would think the less the better!


    • DR says:

      Mike, I think they want to see borrowers with some credit history, which requires a certain number of credit accounts. As the number of accounts gets too high, the result is higher interest rates with LendingClub.

  2. Jenna says:

    >>With the exception of borrowers with exactly five open credit accounts, all other borrowers will have their interest rate increased by varying amounts depending on the number of open accounts.

    Why exactly five? How did they arrive at that number? Anybody know?

    • DR says:

      Jenna, I don’t know, but after their S-1 goes effective and the quiet period is over, I’ll be talking with my contacts at LC and will find out.

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