Lending Club requires certain borrowers to submit documents such as paystubs, W-2 forms, or other tax records that verify the income stated in their loan request. We collect these documents after the posting of a loan request but before issuing a loan. If a borrower fails to provide satisfactory information in response to an income verification request, we may remove the loan listing or request additional information from the borrower.
Different Kinds of Income Verification That Lending Club Performs
Loans issued by Lending Club fall into three categories of verification: "income verified," "income source verified," and "not verified." These categories are available in our loan data files. To help you understand how verification is performed and what we do with the information, here are four hypothetical scenarios of verification that could occur with our prospective borrowers:
- Borrower A claims to earn $60,000 and we verify that his income is within 10% of $60,000. Borrower A is approved for his loan. Borrower A is "income verified."
- Borrower B claims to earn $75,000 and to work at Company 123. We call Company 123 and verify that Borrower B works there. Borrower B is approved for her loan. Borrower B is "income source verified."
- Borrower C claims to earn $300,000 and we cannot verify any income. Borrower C is declined for his loan.
- Borrower D claims to earn $80,000 and is not targeted for income verification. Borrower D is approved for her loan. However, her loan will not appear as "income verified."
When you filter for "Verified Income," only Notes associated with "income verified" loans will be included on the list. Notes for "income source verified" loans will not appear on the list.
Why a Borrower's Stated Income Doesn't Always Match the Verified Income
Lending Club considers a borrower to be "income verified" if we can verify that their income is within 10% of their stated income amount. There are many legitimate reasons for a borrower's verified income to vary slightly from their stated income. For example, a borrower's two most recent paychecks might not reflect:
- Year-end bonus payments;
- Overtime payments;
- Seasonal fluctuations in pay for freelance workers.
When We Verify Income and Income Source
We use a statistical model to identify borrowers for verification and we conduct some random verification. Combined, we conduct income verification and income source verification on approximately 75% of the loans listed on our platform1. Because some loans do not pass the verification screening, the portion of issued loans that are income verified or income source verified is closer to 70%2. We target loans for verification primarily in the following situations:
- Based on select information from the applicant's credit profile or application;
- We detect conflicting or unusual information in the loan request (for example, the stated income is high relative to the stated job title of the borrower);
- We suspect a fraudulent loan request.
Periodically, we also randomly select listings to verify information for the purpose of testing our policies and for statistical analysis.
Over time, Lending Club has substantially increased the portion of its loans that are income verified or income source verified.
Why You May See Very Few Verified Loans Listed on Our Platform
High investor demand has led to many loans receiving 100% investor funding before verification is complete. When a loan is 100% funded, we remove the listing from the platform but we still complete any planned income verification prior to issuing the loan. Therefore, investors will never see that loan listed as "income verified." If a borrower does not provide satisfactory information in response to an income verification request, Lending Club will not issue the loan and will return all funds to the investors who committed to fund the loan.
Why Lending Club Doesn't Verify Income for All Borrowers
We believe that verifying a borrower's income or income source may be useful in certain circumstances for screening against exaggerated income and for validating the borrower's ability to repay a loan. However, we believe it is not necessary to verify this information for all borrowers. As shown below, historical data indicate income verified loans perform similarly to loans that are not income verified. We also believe that verifying income on all loan requests could lead to adverse selection; many lenders offer credit without income verification and our more creditworthy borrowers might choose to apply elsewhere if our application requirements are more onerous. Furthermore, universal income verification would tie up investor capital for longer by lengthening the funding period of the average loan.
Lending Club's practice of verifying income for only a limited portion of borrowers is not unique. In fact, we verify income more often than many other lenders, such as credit card issuers. Credit card issuers are not required to verify income or employment and in practice, rarely do so3. The Bureau of Consumer Financial Protection writes that credit card issuers should have the flexibility to decide when they need to verify borrower information in part because verifying this information for all borrowers would increase approval times and inconvenience consumers4.
Verified Loan Performance Relative to Non-Verified Loans
Historically, Lending Club loans that have passed income verification perform similarly to loans that were not income verified; they have higher or very similar charge-off rates to non-income verified loans.
Data as of October 2013
By analyzing our historical Download Loan Data file you'll better understand how income verified loans perform compared to non-income verified loans, as well as gain more insight into what loan factors matter the most.
- 1. Source: Internal Lending Club data.
- 2. For loans issued in 2013.
3. Chase: "Customers supply a variety of information regarding income, occupation, and employment status that is used in the underwriting process. Chase USA generally does not verify this information, and this information may be inaccurate or intentionally false." Link
Capital One: "Most applications are scored based on the following: information received on the application, data obtained from an independent credit reporting agency and any prior or current history as a customer with the bank. In select cases, based on certain criteria, including likelihood of fraud, and in accordance with criteria established by the bank's management, further verification of information by telephone or in writing may be required." Link
- 4. Report Link