Frequently Asked Questions
- What is the Note Trading Platform?
- Who is FOLIOfn?
- Who can participate?
- What information is available on each Note?
- Should I rely on the Notes' grades?
- Who receives accrued interests?
- How much is a Note worth?
- How much does this cost?
- Who can I contact if I have specific questions about the Trading Platform or my account?
- Why would I want to sell my Notes?
- How do I know which Notes I should sell?
- What if my Notes don't sell?
- Do I pay taxes on my earnings from the Note Trading Platform operated by FOLIOfn?
- What is the difference between a long-term and short-term gain?
- Why are some of my Notes unavailable to Sell?
- How long may a Note stay listed on the platform if no one has purchased the Note?
General Questions1. What is the Note Trading Platform?
The Note Trading Platform is an electronic marketplace where individuals and organizations can buy and sell Notes that corresponds to consumer loans issued through the Lending Club website. The Notes were originally issued in an offering registered with the Securities and Exchange Commission (SEC). You can learn more about the Notes by reading the Prospectus filed with the SEC. The Note Trading Platform is operated by FOLIOfn.2. Who is FOLIOfn?
FOLIOfn Investments, Inc is a registered broker dealer member of FINRA and SIPC, based in Vienna, VA. FOLIOfn operates the Note Trading Platform. More information about FOLIOfn is available at www.foliofn.com.3. Who can participate?
Qualifying investors with regular taxable accounts are allowed to purchase notes on the Note Trading Platform. In order to trade Notes, you must first sign up as an investor with Lending Club (there is no obligation to lend money), then sign up as a trading member with FOLIOfn via your Lending Club account. Both memberships are free of charge.
At this time, Lending Club Notes purchased through an individual retirement account (IRA) cannot be traded on the Trading Platform.
In addition, applicants from District of Columbia, Kansas, Maryland, Ohio, and Oregon are not eligible to become trading members with FOLIOfn.4. What information is available on each Note?
The following information is available regarding the Notes:
- Up-to-date loan status and payment history
- Past collections activities (if any)
- Original loan request containing borrower's credit information at the time of application (such information, other than the borrower's credit score range, is not updated)
- Evolution of the borrower's credit score
No. The Notes are not "re-graded" over time, so you should not rely on grades assigned to Notes at the time they were issued to assess the current risk of a Note. Lending Club makes available additional information such as payment history, collections activities (if any) and evolution of the borrower's credit score.6. Who receives accrued interest?
Interest on the Notes traded through the Trading Platform is paid monthly and buyers receive all accrued interest when a payment is made after a trade. As Notes have different payment dates, we recommend both reviewing the loan's payment history and the next payment date and factoring accrued interest in your assessment of the value of a Note. Interest accrued since the last payment date is displayed prominently on the Browse Notes page as well as on the corresponding loan's performance page. Other factors relevant to assessing the value of a Note are described below in "How much is a Note worth?"7. How much is a Note worth?
You can buy and sell performing (Current) or non-performing (Late or in Default) Notes. One way to value performing Notes is at par value, which is the amount of outstanding principal plus interest accrued since the last payment date. Note that the latter increases daily until the next payment is received, at which point it drops by the amount of interest paid that day. Non-performing Notes would logically be valued at a discount to par value. In addition to the par value approach to valuing Notes, there are other conventional methods and the value could differ based on the methodology selected. For example, there is the (1) "discounted cash flow method," which is the sum of future cash flows with each period's cash flow discounted by a factor that accounts for interest rates and default risk; (2) "binomial pricing method," where interest rates change over time based on a randomization model and such interest rates are used to establish a price; and (3) "Monte Carlo simulation method," where cash flows are simulated based on the current term structure of interest rates and volatility assumptions. The seller may select any valuation methodology he or she chooses and, accordingly, ultimately, the price is determined solely by the seller.8. How much does this cost?
FOLIOfn charges to the seller a transaction fee equal to 1% of the purchase price. There is no fee charged to buyers for trades; however, buyers holding Notes are charged a service fee by Lending Club for collecting payments.9. Who can I contact if I have specific questions about the Trading Platform or my account?
Most commonly asked questions regarding selling or buying Notes are below with answers. If you need further assistance with your trading account, please contact Lending Club Investor Services at email@example.com or call (888) 596-3159.
Selling1. Why would I want to sell my Notes?
The most common reasons for selling Notes are need for liquidity and asset re-allocation. As an example of the latter, you may want to sell the most risky Notes (which typically bear higher interest rates) and buy less risky Notes (which typically bear lower interest rates) or vice versa. Note that the Notes are not "re-graded" over time, so you should not rely on grades assigned to Notes at the time they were issued to assess the current risk of a Note.2. How do I know which Notes I should sell?
Only you can decide which Notes are worth selling based on your own investment strategy and personal situation.3. What if my Notes don't sell?
If your Notes don't sell, you may need to consider decreasing the asking price to make them more attractive. Note that even if you do not lower the asking price, performing Notes may become more attractive over time (until the next payment date) because interest keeps accruing until the next payment date and the buyer will get to keep the next payment, including any accrued interest until the day the trade settles.4. Do I pay taxes on my earnings from the Note Trading Platform operated by FOLIOfn?
At the end of the year, FOLIOfn will post in your trading account a 1099 statement that shows the proceeds from sales in the applicable tax year. The official 1099 is comprised of Page 1 and the 1099-B (gross proceeds from sales); other sections are supplemental. 1099 information is furnished to the IRS and must be included in your tax return.5. What is the difference between a long-term and short-term gain?
If you sell a note that you have held for one year or less, your profits are taxed at the "short-term" rate, which is identical to your personal income tax rate.
If you sell a note held more than one year, your profits are taxed at the "long-term" capital gains rate.
The holding period begins the day after you buy a note. One year from the beginning of your holding period, long-term capital gains rates go into effect. For example, if you bought 100 notes on June 1, 2000, the holding period begins on June 2, 2000. Long-term rates go into effect on June 2, 2001.6. Why are some of my Notes unavailable to Sell?
There are certain circumstances when you may not list a Note for sale on the Trading Platform.
You may not list a Note on the Trading Platform if the Note:
- Is in Default or Charge Off status;
- Has an underlying borrower that has a pending bankruptcy filing;
- Has a payment that is processing;
- Is priced at a 70%+ premium over the total value of accrued interest and outstanding principal;
- Is priced at a negative yield to maturity; or
- Was issued before October 12, 2008.
All listings will expire after 7 calendar days. If no one has purchased the Note in that time, the listing will expire. You may list the Note again, but your original listing will expire.
Buying1. Why would I want to buy Notes on the Trading Platform rather than on the Lending Club website?
The Trading Platform provides an opportunity to buy Notes that have fewer payments left, therefore providing an investment opportunity with a shorter time period to maturity. Buyers on the Trading Platform also enjoy having information such as payment history, collections activities (if any) and evolution of the borrower's credit score range. Note, however, that the Notes are not "re-graded" over time, so you should not rely on grades assigned to Notes at the time they were issued to assess the current risk of a Note.2. How do I decide which Notes to buy?
Price is certainly an important indicator of which Notes to buy, but you should also consider available performance information to determine if the price is right. For instance, you may not want to pay par value for a Note whose status is late, very late or default. Conversely, you may be willing to pay a premium for Notes bearing high interest rates and exhibiting a perfect payment history for a prolonged period of time, especially if the borrower's credit score has gone up since the loan was issued. Ultimately, the decision of whether to buy a Note and which Note to buy, is determined by you based on your own investment strategy, and personal circumstances.3. How much does it cost to buy?
You only pay what the seller is asking for. There is no transaction fee or any cost for the buyer. The seller, however, pays a transaction fee equal to 1% of the purchase price. Buyers holding Notes are charged a service fee by Lending Club for collecting and distributing payments.4. How do I buy Notes?
First, make sure you have an investor membership with Lending Club, and have completed the trading member application with FOLIOfn. Next, browse Notes available for sale on the Trading Platform, pick the ones you like and click on "Buy Notes". You must have enough cash available in your Lending Club account to cover the asking price of the Note(s) selected.5. What happens after I buy Notes?
After submitting a buy order, it is queued up for trade settlement. Buy orders received before 1am Pacific time on a business day will generally settle same day, while buy orders received after 1am Pacific time or on a non-business day will settle the next business day. Once the order settles, the Notes are yours, and they will appear in your Lending Club investor account so you can track their performance.