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> [... I am worried that there are borrowers who have figured out how to game the system] I thought this as well, but on LendingClub. Out of all of my notes t
by Unklejoe 10y ago
> [... I am worried that there are borrowers who have figured out how to game the system]
I thought this as well, but on LendingClub.
Out of all of my notes that have defaulted, they all seem to share the same pattern:
They make about 4 perfectly on-time payments then never make another payment again.
I believe the loans were taken out by real people, but I feel like they were people who knew that they were ultimately going to file for bankruptcy anyway, so they figured they might as well grab some quick cash before doing so. This is just my guess. It just seems too odd that all of my defaulted notes look pretty much the same. Maybe the 4 on-time payments were done to avoid any claims of fraudulent intent?
My fear was that there was some Reddit thread or something which was instructing people on how to do this.
They could have done the same thing with a credit card, but with LendingClub, you end up with actual cash, and I bet it's easier to get a loan funded on LendingClub than it is to apply for a credit card of the same amount.
[EDIT]: To add, apparently, if someone obtains a loan immediately before filing for bankruptcy, the creditor can move to basically have the loan un-wipable if they can prove that the loan was taken after the person already knew they were going to file for bankruptcy. However, I doubt LendingClub goes through this trouble for each note, which could make the platform more attractive for this type of fraud.
- sgwealti 10y agoI have seen the same pattern of defaulting on most of my Prosper notes that have defaulted.
- giarc 10y agoWhy pay back some of the money at all then? If you are knowingly scamming the system (and the lender) you don't take out a $2,000 loan, just to pay back $400 before declaring bankruptcy.
- Unklejoe 10y agoMy guess is to avoid the possibility of the creditor claiming that you took out the loan after already knowing that you were going to declare bankruptcy. The 4 on-time payments make it look like you tried to pay the loan back but just couldn't afford it. If no payments were made at all, it would be easier to prove that there was intentional fraud. If such is proven, it may be impossible to wipe the loan during bankruptcy.
- deleted 10y ago[deleted]
- edc117 10y agoAnd further, how do credit card or other lending companies avoid this (if at all)? Is there additional information or red flags they collect that LendingClub does not?
- kstenerud 10y agoHmm, I'm not seeing that on my account. Of the last 20 charge-offs, all but one of them had at least 12 months of payments. The one made 6 payments and then disappeared (unable to contact; loan sold to third party debt buyer).
- 11thEarlOfMar 10y agoIf someone were to decide they were going to file bankruptcy, they likely have already been missing mortgage, credit card, auto loan or other payments. Missing payments hammers your FICO (credit) score. Lending Club requires a minimum 660 FICO, which you're not going to be able to hold on to very long if you're missing payments. I am sure there are people who do this, but I doubt it is rampant.
- hkmurakami 10y agoI wonder if there is a "consultant" out there advising people in tough financial straits to use this strategy.