To open an account, go to Lending Club’s retirement accounts page and start the process. There is a minimum account balance of $5,000, and a $250 annual maintenance fee (although the fee is waived for 2009).

This is a big step for P2P lending, and will allow Lending Club to capture the huge pool of self-directed retirement investors in the US.

Doing the math, though, the $250 annual fee seems to kill the returns, especially in the beginning. Ignoring the current promotion, investors will pay a $250 fee on an account balance of $5,000. That’s a 5% fee. Netting the 5% fee out of the average returns touted in the Javelin study of 9.05%  gets you a return of 4% per annum. If you choose a tax-free IRA, that’s equivalent to a taxable return of 5.5%. With 2-year CDs hovering around 2.5%, maybe this is okay. But as interest rates rise in the long term, this will be harder to swallow.

I give Lending Club a lot of credit for pulling this off, despite the unfortunate pricing structure. As time goes on, and you invest more in your self-directed IRA, the annual return should continue to rise. It just seems like a percentage pricing structure based on volume would have been better for investors (and in the long run, better for Lending Club and EntrustCAMA).

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First, LendingClub will start mapping borrower and lender activity on a map by user zip code. For borrowers, loan amounts and interest rates will be displayed. For lenders, portfolio amounts (capped at $10k) will be displayed. LendingClub competitor Prosper once displayed borrower city and state on all listings, but removed the city name (unless the borrower opted to display it) after getting privacy complaints from borrowers. This also caused a huge uproar from lenders, who felt like critical information was being removed from listings. Hopefully LendingClub has plans for allowing borrowers and lenders to opt out of this potential exposure of address information.

Second, LendingClub will start displaying the top 3 lender portfolios at any given time. This will be a nice feature that gives new or existing lenders the ability to see what’s working well on LendingClub and what’s not. It’s curious that they aren’t planning to display more than 3 lender portfolios, though.

Here’s the full text of the email:

Dear Lender,

We are writing to let you know about two upcoming Lending Club features that will be of particular interest to lenders.

First, we plan to display a map on the website that will show member (i) zip codes, (ii) loan amounts and interest rates in the case of borrowers and (iii) total portfolio amounts (capped at $10,000) in the case of lenders.

Second, we are adding a portfolio ranking section that shows the returns and amounts of the top 3 performing portfolios at any given time.

In both cases, we will be displaying members’ screen names.

As part of our commitment to your privacy, we therefore want to make sure that all of our lenders are as anonymous as they would like to be. There are a few lenders who chose screen names that match or closely match their real names (e.g., “JohnQSmith”). If this is the case for you, we would like to give you the opportunity to change your screen name now, so that your privacy will be protected once we go live with these features.

If you would like to change your screen name, please respond to this email with your desired new screen name by Monday, September 10th. Please feel free to contact me if you have any questions regarding the new lender features, or if you need more information.

Thank you for your attention.

Sincerely,

Patrick Gannon

Senior Vice President

Lending Club

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Frustrated lenders (and non-reward-collecting group leaders) have complained for months on Prosper’s discussion forums that group leader rewards were causing unscrupulous leaders to collect additional (and exorbitant) fees from unsuspecting borrowers.

Following the announcement, in a forum post, most lenders lauded the decision. “This is fantastic news. Their wording is almost identical to the wording we have been using in our requests/justification to have this happen,” said lender Urbi_et_Orbi.

The full text of Prosper’s announcement email is here:

Dear (Name),

At Prosper, we have been listening to your feedback regarding groups and group leader rewards.

The original philosophy behind Prosper Groups was to enable borrowers in close-knit communities to leverage the reputation and peer pressure of their group to attract more bids from lenders, resulting in potentially lower interest rates for borrowers, and lower default rates for lenders. We have found, after nearly two years of experience, that the strongest groups are comprised of close networks of friends and associates, where compensation is not the dominant motivation for the group leader’s services.

As a result, we are making changes to Prosper Groups. In the next month, Prosper will discontinue payment rewards on new loans for group leaders. Group leaders will continue to earn payment rewards on all eligible loans originating before the change. Group leaders can also receive referral rewards for referring borrowers or lenders to Prosper under our Referral Program.

We hope this change will encourage group leaders to grow their groups by inviting new members from their pre-existing social networks, turning Prosper Groups into a more powerful community development tool and making Prosper simpler for both borrowers and lenders.

For more details on these changes, please visit our Group Changes Frequently Asked Questions (FAQ).

Thank you for helping us become the Internet’s leading community lending site.

Sincerely,
Prosper

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