Lending Club ‘Alters’ Origination Model

Lending Club’s partner bank, WebBank, will now maintain “an ongoing economic interest in all loans after they are sold,” according to a report from Moody’s Investors Service last week.

Under the marketplace lender’s prior origination model, WebBank funded the loans arranged by Lending Club and then sold them two days later. The change was made in response to concern stemming from the Madden v. Midland Funding LLC decision in the Second Circuit U.S. Court of Appeals.

Marketplace lenders that use partner banks such as WebBank to originate loans have benefited from federal “rate exportation” laws, under which banks can extend loans with interest rates that exceed the maximum otherwise allowed by state law. The Madden v. Midland case called that model into question, and determined that a bank’s federal preemption benefit does not continue once the bank has sold the loan to a non-bank and no longer retained an interest in the loan. Under the new model, however, the revenue that WebBank receives will be tied to the terms and performance of the loans, and “will retain ongoing relationships with borrowers,” according to Moody’s.

Lending Club Chief Executive Renaud Laplanche announced in February that the company plans to eventually “cover the entire range of credit products,” including auto and student loans. In 2015, the marketplace lender reached 1.4 million customers and funded $8.4 billion in loans. The average loan size, primarily for unsecured personal loans, was $6,000; investors earned a net return of 7.8%.