Lending Club’s Secondary Market, FolioFN


In August of 2008, Lending Club filed an amended prospectus with the Securities and Exchange Commission containing details for a “resale trading system” for the notes issued by the company.  This resale trading system eventually evolved into the Foliofn trading platform, Lending Club’s secondary market for peer-to-peer loans.  Only notes issued after October 14, 2008, the date that Lending Club’s SEC registration was completed, are allowed to be brought or sold on the Foliofn platform.  Lending Club is the first peer-to-peer lending company to offer a secondary market for peer-to-peer loans.

The Foliofn trading platform allows lenders to sell the notes that they hold before the loans have reach maturity.  The seller of the note chooses the price that they are willing to accept for the note that they are looking to sell and lists that price along with specific details about the loan in a listing that contains all of the notes available for sale.  Details listed about the loan will include the repayment history for the loan and the evolution of the borrower’s credit score.

Lending Club's Secondary Market, FolioFN

Investors that are interested in purchasing the notes can peruse the note listings at their leisure and choose to accept any note offers that seem attractive to them.  There is no price negotiation allowed on the price of the notes to be sold, so sellers must be careful to price their notes appropriately and buyers must pay the price set out in the listing to own the note.  Any notes that remain unsold for a significant period of time may have its price changed by the seller to make the note more attractive to potential buyers.

Foliofn profits by charging sellers a flat 1% fee on any note sales.  Buyers are not charged a fee to buy notes, but buyers holding notes are charged a service fee by the company for the collection and distribution of payments on the notes.  Orders to buy that are received before 2pm Eastern Standard Time on a normal business day are typically traded on the same day while buy orders that are issued after this time or initiated on a non-business day are settled on the next business day.

There are a number of benefits to buying and selling notes on Lending Club’s Foliofn platform.  Many Lending Club members like Foliofn because the trading platform allows them to sell their high risk or non-performing loans without incurring a substantial loss on the deal.  Buyers can review the payment history and credit score changes since the loan’s inception, choose notes that have a shorter maturity period, and take advantage of notes that are considered to be priced below their fair value.

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