Lending Club Using Social Networking Information to Determine Borrower Risk

One of the major challenges that the peer-to-peer lending industry has faced is properly identifying borrowers’ credit risks. Both Lending Club and Prosper Marketplace have been refining their requirements for borrowers over time as new information becomes available in hopes of lowering default rates and improving rates of return for lenders.

It now appears that Lending Club has refined their lending criterion even further, by including information from social networking sites as part of the risk identification process of a borrower.

CreditCards.com recently interviewed Rob Garcia, Lending Club’s Senior Director of Product Strategy, for an article entitled “Social Networking: Your Key to Easy Credit?” and Garcia said that Lending Club makes use of multiple sources of “social information collateral” for its decision-making processes.

Garcia went on to tell the interviewer that Lending Club makes use of social media and network information as part of its identity verification and fraud detection tools.

In the article, Garcia commented that “We use social chatter as a way to bring risk down. It’s a wealth of information about a person”.

Garcia gave an example of a Facebook user who might post their home address. Garcia told CreditCards.com that “If a person says he lives in a different area than the one on the application, it could be a flag. But if it matches, it greatly increases confidence.”

Garcia also said that having a large online social network may also speed up a borrower’s loan acceptance. “When people have large networks, they get funded two to three times faster than without,” says Garcia. Why? “We notice that good credit people invite good credit people; bad invite bad.”

We knew previously that Lending Club used a number of factors to determine a potential borrower’s credit risk, including their credit score, debt to income ratios, history of repayment and income verification on some loans, but using social networking information as part of the risk assessment process is certainly a new component of the peer-to-peer lending industry.