Is Lending Club Legitimate or Scam? Lending Club Better Business Bureau Complaints. Are Lending Club Loans Safe and Insured?

What is Lending Club?

Before investors can determine if Lending Club is a safe and legitimate company, we need to know exactly what Lending Club's business is.

According to Lending Club's website: "Lending Club is the world’s largest online marketplace connecting borrowers and investors. We’re transforming the banking system to make credit more affordable and investing more rewarding. We operate at a lower cost than traditional bank lending programs and pass the savings on to borrowers in the form of lower rates and to investors in the form of solid returns."

What's different about Lending Club is they're based online and use technology to operate a credit market at a lower cost than traditional bank loan programs. This way, the borrowers get lower rates and the investors (savers) earn higher fixed-rate returns on their investments than are offered by traditional banks.

Lending Club also charges a fee on interest payments made to investors, which is nominally different from how banks operate. In fact, banks charge investors a fee that is hidden in the form of lower rates of return than would be paid on a comparable loan made by Lending Club. The 1% service fee Lending Club collects on each payment received by the investor comparable to the trading commission an investor might pay on a corporate bond.

What Lending Club is not

Lending Club is NOT a member of FDIC - it's not a bank. However, cash not invested in Lending Club Notes is held at Wells Fargo Bank in trust for all Lending Club investors, so uninvested money is fully protected by the FDIC.

All Lending Club loans are unsecured, fully amortized personal loans. This means investors are taking risks with the safety of their principal. For example, if Lending Club goes bankrupt, there is no government guarantee that all investors will be paid the principal amount in their Lending Club accounts. There is no guarantee that any Lending Club borrowers will pay back any principal or interest on their loans. Theoretically, investors in Lending Club could lose their entire investment. This is where the fear, doubt, and questions whether Lending Club is a scam arise. Investors in the company are required to choose their own loans for a personal portfolio and may select as many or as few individual loans as they wish. Like any investment, diversification is necessary to minimize risk to principal.

Is Lending Club Safe

What does Lending Club "sell"?

Lending Club sells Notes offered in accordance to a Prospectus filed with the Securities and Exchange Commission (SEC). These notes consist of individual loans made to qualified borrowers who have met stringent credit criteria. Most individual borrowers obtain Lending Club loans with the intention of paying off high-interest-rate loans, most often credit card balances. As of beginning of 2019, the average Lending Club borrower shows the following characteristics:

- 699 FICO score
- 18.12% debt-to-income ratio (excluding mortgage)
- 16.3 years of credit history
- $75,055 personal income (top 10% of U.S. population)
- Average loan size: $14,741
- Lending Club borrowers are well-qualified and present much less risk of default than the average borrower in the U.S.

Is Lending Club safe?

The primary risk with investing in Notes through Lending Club is principal risk. The Notes are not guaranteed or insured by any governmental agency or instrumentality or any third party. Diversification will negate principal risk, but investors also risk Lending Club failing to collect payments from borrowers, raising fees that reduce an investor's rate of return, or going out of business. In addition, changes in interest rates will affect investment returns, as might changes in the general economy such as a recession or periods of high inflation.

Is Lending Club a scam?

Lending Club is a legitimate business that offers investors a chance to make loans to borrowers and earn higher interest rates than those offered by banks, savings and loans, and credit unions. Lending Club is regulated by the SEC, and does business with FDIC insured banks.

Is Lending Club Scam

Lending Club Better Business Bureau rating

Additionally, the Better Business Bureau (BBB) has given Lending Club an A+ rating. In the past 3 years, 138 Lending Club complaints have been closed with the BBB. Here's the breakdown:

- Advertising/Sales Issues - 54
- Billing/Collection Issues - 19
- Delivery Issues - 1
- Problems with Product/Service - 64
- Guarantee/Warranty issues - 0

Finally, according to the BBB, Lending Club has received an average customer review rating of 4.34 stars out of 5 stars based on 23 customer reviews, which is a very high rating. To see Lending Club Better Business Bureau rating on the BBB website click here.

Personal experience

Considering that the best liquid rate we could get on our cash is 1.85% APY, it's not a surprise that we also opened an account at Lending Club to get higher rates. Since 2014 our account have been earning around 7.50% APY which not only beats inflation (currently at about 2.40%) but also growth the principal. We do, however, plan to switch to the lowest risk borrowers and maybe even pull some money out if economy goes into recession.


Lending Club's main competitor is a company called Prosper. It managed to generate better rates for both investors and borrowers. More details in Prosper Review.

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Is Lending Club legitimate conclusion

Lending Club is a legitimate business that utilizes computer-based loan- and credit-evaluation technology to facilitate borrowing by individuals from other individuals in an organized, monitored online platform. The benefits are lower interest rates for borrowers and higher returns for investors.

With so many customers on both investing and lending sides of business, keeping Lending Club's Better Business Bureau rating at A- speaks a lot about the company.

Because of its innovative business model, some individuals may perceive Lending Club to be a potentially fraudulent business, but Lending Club plays by the rules and offers an honest product to individual seeking competitive returns on their investments. According to Lending Club, the returns generated on its loans for investors range between 5.26% and 8.69% depending on the Grade of the loan (A, B, or C). These returns are substantially higher than recent bank CD rates, much higher than government backed bonds, and are comparable to returns on investment-grade corporate bonds.

Lending Club review

Read full Lending Club Review.

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