Lending Club accredited investor verification

Question

I'm an undergraduate student with some money made from summer jobs, the few loans that I have are all subsidized so I'm not paying any interest. I'm looking to invest some of my savings into something better than .05% APR.

I just learned about Lending Club and thought it was a really cool way to make micro loans and make some money at the same time. My question is about the accreditation process that Lending Club goes through, if anyone knew more about it.

Lending Club (or some other legal authority really) requires 70,000 in income for lenders. I'm wondering how they follow this up, if I have the money to give them, it doesn't matter, right? Is there any legal implication for me if I check the box saying that I do have that much income? Or will I just get "caught" by them and not allowed to put money forward?

Answer 1

To what end would you want to break the law? Why would you think it is beneficial to you in any way?

The reason for these limitations is to protect people who have no financial reserves and are not sophisticated investors from making dangerous and risky investments with the little money they have to invest.

You need to remember that there's no guarantee of principal with these loans and the rate of default is pretty high. From my own personal experience with Lending Club (and I've only invested in A and some B-rated loans) - rate of default is about 10%.

This may be a nice exercise in microlending - but if you want to put all your savings into this, you're taking a huge risk. Risk which is completely unjustified since not only the returns are pretty low (again - from my aforementioned experience: <6% APR, you take higher rate loans - you get higher rate of defaults), but they're also taxed as ordinary gains.

Why would you not, instead, invest in a more conservative bond or bond/stock mix fund which will pay you dividends that will get preferential tax treatment and appreciation would be subject to capital gains tax? No reason. And the limitation on who can invest in Lending Club is there for exactly this purpose - to weed out people like you who have no idea of what they're doing.