Member Payment Dependent Note

Key Takeaways

• Member payment dependent notes are issued by LendingClub, a peer-to-peer lending platform.
• These notes offer fixed interest rates from 7% to nearly 20%, depending on several factors.
• They are unsecured, meaning they lack collateral backing, and should be considered speculative investments.
• Investors' returns depend on the performance of corresponding loans originated through LendingClub.
• As of 2020, LendingClub retired its retail peer-to-peer platform, ceasing new note issuances.
• Get personalized, AI-powered answers built on 27+ years of trusted expertise.

What Is a Member Payment Dependent Note?

A member payment dependent note is a financial instrument issued by LendingClub, a peer-to-peer lending company located in San Francisco, California. These notes are speculative in nature and potentially offer high interest rates, making them suitable for aggressive investors.

LendingClub facilitates the issuance of these notes, connecting investors and borrowers. The income from these notes is used to make loans to club members.

Detailed Insights into Member Payment Dependent Notes

Member payment dependent notes are categorized as securities by the SEC and are highly speculative in nature. They should only be purchased by aggressive investors who can absorb the loss of their entire investment. However, these notes also pay a very high rate of interest, ranging from about 7% to nearly 20%, depending upon various factors.1

In 2008, member payment dependent notes had an initial maturity of just three years and four business days and accrued interest from the date of their issuance. Payments are made monthly, and the loans have no underwriters and therefore no discounts from underwriters.1 Because of the lack of market for these notes during 2009, many investors who purchased this type of note were expected to hold the note to maturity.

Important

As of Dec. 31, 2020, LendingClub will retire its retail peer-to-peer platform.2

The LendingClub issues notes in series and each series will correspond to a single consumer loan originated through the company's platform to one of its borrower members. The company's obligation to make payments on a note is limited to an amount equal to the investor's pro rata share of amounts with respect to the corresponding member loan for that note.1

Key Features of Member Payment Dependent Notes

There are no prerequisites to invest in member payment dependent notes, meaning they are open to retail investors. The notes have a fixed interest rate and begin to collect interest from the date of issuance. They are only offered in electronic form through the LendingClub's website to its members and are not transferable except through the LendingClub's trading platform. The LendingClub's online platform allows qualified borrower members to obtain unsecured loans with interest rates that they find attractive. The platform also provides investors with the opportunity to indirectly fund specific member loans with credit characteristics and interest rates they find attractive.1

LendingClub has established safeguards to reduce the risk associated with the notes. For example, borrowers on the platform need to have a minimum FICO score to be eligible for the loans. The platform has also assigned various grades to borrowers based on their annual default rates. The base rate for loans decreases as the default rate increases.1 As of 2017, only 19% of LendingClub's loans came from member payment dependent notes.

Exploring LendingClub’s Peer-to-Peer Lending Platform

LendingClub is an online financial community that offers loans and enables investors to purchase member payment dependent notes, the proceeds of which fund specific loans made to individual borrower members. With LendingClub, borrowers can create unsecured personal loans between $1,000 and $40,000.3 Investors can search and browse the loan listings on the LendingClub website and select loans they want to invest in based on the information supplied about the borrower, amount of loan, loan grade, and loan purpose. Investors make money from interest, and LendingClub makes money by charging borrowers an origination fee and investors a service fee.4 5