SAN FRANCISCO–Lending Club has been forced to increase its loan rates and tighten up its underwriting criteria as the result of more borrowers with poor credit and a rising rate of default.
Reuters reported the company’s stock has been declining as investors are getting worried over the affect those trends will have on its margins.
Lending Club is one of a number of peer-to-peer lenders that have emerged in recent years and quickly gained market share, much to the consternation of many in credit unions. The company claims to be the world’s largest online marketplace connecting borrowers and investors.
“We have continued to observe higher delinquencies in populations characterized by high indebtedness, an increased propensity to accumulate debt, and lower credit scores,” wrote CIO Siddhartha Jajodia, according to Reuters. “Although the trend can now be observed across grades, it is less notable in lower risk grades and more notable in higher risk grades, particularly grades E, F and G, which account for approximately 12% of platform volume.”
The company said it has recently moved to tighten its thresholds on borrower leverage, and that it will flag and deny loans to prospective borrowers who are “high risk” due to their existing high revolving debt, multiple new installment loans and risk scores.
Lending Club said those changes, however, will only affect about 1% of its borrowers.
Effective October 14, 2016, interest rates were increased by a weighted average of 26 bps.