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When and Why We Verify Income and Income Source

LendingClub uses a robust loan approval process. The statistical models we utilize consider hundreds of data points when evaluating a borrower's loan application, and occasionally identify applications that need additional confirmation. Two ways we do this are to seek income verification and income source verification. At times, we also conduct random income verification for testing and analysis

Since 2008, we have conducted either income verification or income source verification on 69.6% of issued loans.¹ For income verification, loan applicants may be required to submit documents such as paystubs, W-2 forms, or other tax records that verify the income stated in their loan request. We may also attempt to verify the income or income source of these applicants by electronically checking their income data through a third-party provider. If an applicant fails to provide satisfactory information in response to an income verification request, or if we cannot electronically verify the income of select applicants, we may deny the loan or request additional information from the applicant.

We primarily target loans for income verification or income source verification in the following situations:

Based on information from the applicant's credit profile or application;
We detect conflicting or unusual information in the loan request (for example, the stated income is high relative to the stated job title of the borrower);
We suspect a fraudulent loan request;
Random selection to test our policies and for statistical analysis.

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Different Kinds of Income Verification That LendingClub Performs

Loans facilitated by LendingClub fall into three categories of verification: "income verified," "income source verified," and "not verified." Investors can see loans broken out by these categories in our public loan data files, which can be found on this page. Below are four hypothetical scenarios of verification that could occur with our prospective borrowers:

Borrower A claims to earn $60,000 and we verify that their income is within an acceptable range of $60,000—the stated income on the application. Borrower A's loan is approved and is labeled "income verified."
Borrower B claims to earn $75,000 and to work at Company 123. We call Company 123 and verify that Borrower B works there. Borrower B’s loan is approved and is labeled "income source verified."
Borrower C claims to earn $300,000 and we cannot verify any income. Borrower C’s loan request is declined.
Borrower D claims to earn $80,000 and is not targeted for income verification. Borrower D’s loan is approved. Note, as this loan was approved without need for further verification, it will not appear as "income verified."

Why LendingClub Doesn't Always Verify Income

Checking a borrower's income or income source may reduce risk in certain circ*mstances, such as screening for exaggerated income on an application. On the other hand, when an initial loan application passes our robust screening models, we generally deem the applicant to be less risky and therefore don’t always need to verify their income. Additional reasons we may not perform income verification are:

Verifying income for just a portion of borrowers is a common practice among credit providers. For example, auto loan and credit card issuers frequently extend credit without verifying income or employment.
Borrowers with low risk profiles have numerous options when applying for a loan and know that many lenders will offer credit without requiring income verification. Instead of applying for a loan by LendingClub, high quality borrowers may look elsewhere if our application process is more onerous.

What Does This Mean for Loan Performance?

It may seem intuitive to assume that income verified loans have a lower chance of charging off. However, a loan application that triggers the need for income verification could mean that the applicant in question may have an elevated risk profile.

As shown below, loans facilitated by LendingClub without income verification have historically had lower charge-off rates than those that were income verified or income source verified.²

Source: LendingClub as of September 2020.²

If you would like more loan-level detail on income verification, you can find data on all loans facilitated through LendingClub’s platform to date in our historical Download Loan Data file.

¹ Income verification for loans facilitated by LendingClub began in 2008. This percentage represents the amount of issued loans that have been either income or income-source verified since LendingClub began using these verification methods. For loans issued through Q3 2020. Source: Internal Lending Club data
² “Charge-Off Rate” means the aggregate dollar amount of loan principal charged-off as a percentage of the aggregate dollar amount of loan principal for all loans issued in each stated year. Note that credit policies evolve over time, and each loan is subject to the credit policy in effect at the time of issuance. Past charge-off rates are not a guarantee of future charge-off rates or performance.