WHAT IS A Member Payment Dependent Note
Member payment dependent note refers to a note issued by Lending Club, a peer-to-peer lending company located in San Francisco, California. The income from these notes is used to make loans to club members.
BREAKING DOWN Member Payment Dependent Note
Member payment dependent notes are highly speculative in nature and 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 percent to nearly 20 percent, depending upon various factors.
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. 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.
The Lending Club 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.
Details of Member Payment Dependent Notes
Member payment dependent notes have a fixed interest rate, and start to collect interest from the date of issuance. The notes are only offered in electronic form through the Lending Club’s website to its members, and are not transferable except through the Lending Club’s trading platform. The Lending Club'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.
Lending Club 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 Lending Club, borrowers can create unsecured personal loans between $1,000 and $40,000. Investors can search and browse the loan listings on the Lending Club 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 Lending Club makes money by charging borrowers an origination fee and investors a service fee.