Currently, a Lending Club borrower, if approved, can have a loan assigned a grade, based on a FICO score, and a corresponding interest rate. The loan is placed on the Web site for funding, and investors purchase fractions, which are SEC-registered securities. The average interest rate, he says, is 14% to 15%, and the average default rate running 3% to 4%. Investors net the return, less a 1% service fee.
But through a subsidiary, the Lending Club already offers private placement funds available only to accredited investors. As a limited partner, investors can buy into a pool of 10,000 or more loans, Sanborn says.
In five years, the Lending Club claims to have issued $700 million in loans. As of the end of June, $125 million was in those private placement funds, which were launched in March 2011.
Private placements, Sanborn says, is where the money is, and he envisions a 100% growth rate for the Lending Club under all the new rules.
Legal Warnings For Advisors
David Scileppi, an attorney with Gunster Inc. in Fort Lauderdale, Fla., warns financial advisors that they should consider having clients who ask about these complex investments sign a disclaimer, and the advisors should make it clear they are not doing the due diligence on these investments.
"If they're not making it clear, of course the client is going to assume they did the due diligence," he says. "When they lose the money, the claim they will assert will be against the financial advisor."