Straight rollers: cash payout to default?

[Anonymous]

I am a lending club investor. Overall, it has been a good experience. I have 307 loans in good standing and 12 that are currently delinquent. Some of those will catch up, but some won't.

One phenomena I observed is the "straight roller", people with apparently good credit who take out a large loa, say $30k, and then NEVER make even a single payment, or at most make only the first payment. They are never heard from again, and eventually the loan is just charged off.

As lenders we can't see personally identifying information but we see the credit profile and we see the collections log and payment history.

These people make me curious. I doubt anybody is pursuing them for fraud, but they look superficially like fraud. Obviously this trashed their credit score, but on the flip side, they walked away with $30+k. Potentially more if they stiffed multiple lenders.

I find it hard to believe that they simply couldn't keep up with the payments after receiving the loan. Who plans so poorly they don't even make the first payment? So it looks like they took the money knowing they would not pay it back.

In a way the consequences seem pretty minor. Their credit history gets trashed, but then, they have the cash in hand. And seven years later they can do it again. Annualized, that is a $5000/year payoff over the time it will take their credit to recover.

Seems like they are just getting away with it to me.

Makes me mad but then the overall return on LC is still good because they represent only about 2% of the loans. Still.

[RobertEG]

The FCRA does provide some form of protection for creditors when lending a substantial chunk of change.

The credit report exclusion periods of FCRA 605(a), such as exclusion of collections and charge-offs no later than 7 years plus 180 days from DOFD, are not absolute.

FCRA 605(b) exempts all of the credit report exclusion periods if a creditor requests a credit report related to a consumer-initiated request for credit in an amount of $150K or more.  The creditor can see the entire prior payment history by request to the CRA along with a statement that the inquiry is rekated to a request for credti of $150K or more.

That wont apply if the loan is for less than $150K, so wont help with loans at the level you are referencing.

However, even though prior sins may have become hidden due to credit report exclusion, the creditor can always request an itemized disclosure of any prior debt that remains delinquent.  Sure, a consumer can choose to fail to disclose, but that subjects them to additional legal perils should the creditor later choose to bring civil action.

Do you routinely request a listing that discloses all delnquent debt as part of your loan application process?

What are your criterion for pursuing civil litiatation?

[Anonymous]

Note that this is through lending club. I have an IRA there worth around $7k. It is split up into hundreds of loans, I only chip in $25 to each loan. Many others on the platform chip in to get to a $30k loan, many likely putting in more than $25.

So lending club does all the doc checks and recovery operations. After a loan is charged off they sell it to a collector.

I can't tell what those collectors do but my assumption is the impact is pretty much limited to standard collections operations. Their credit report no doubt gets thoroughly trashed.

As for checks, I believe LC relies primarily on credit record and does not validate income, etc.