Fees paid by consumers to obtain loans are proving a lucrative source of revenue for Lending Club and other online lenders.
Lending Club charges up to 6 percent in origination fees based on its "proprietary model ranking," according to the company's website. The most highly rated borrowers in the model ranking pay the lowest fees, and the borrowers with poor ratings pay the most. Lending Club also uses its ranking system to determine the interest rates applicable to loans; the borrowers who have the best rating pay as little as 1 percent, according to its website.
Most of Lending Club's fees skew toward the higher end of the scale, said Bob Ramsey, senior vice president of equity research with FBR Capital. Lending Club charges an average of 4.47 percent per origination, he said.
The fees are "the only way they make money," Ramsey said. "In 2015, it was $373 [million] or 87 percent of its total revenues."
A Lending Club representative declined to comment, citing the company's quiet period in advance of next week's earnings report.