Lending Club Puts Hold on Lending Activity While It Sorts Out Some Legal Issues
Mark Hendrickson
46 comments »
Lending Club, a P2P lending service that started off as a Facebook app, has temporarily stopped accepting new loans and lenders.
According to a brief “quiet period” note on its website:
Lending Club has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future. Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. We will continue to service all previously funded loans during this period, and lenders will be able to access their accounts, monitor their portfolios, and withdraw available funds without changes.
While the company will not talk to media “until the registration process is completed,” we suspect that Lending Club is looking to obtain a broker-dealer license from the SEC that would legitimize its operations.
Since Lending Club both loans and borrows money from users, instead of connecting them directly, it’s not a pure P2P service. While the legality of its lending practices is not in question, its borrowing practices could be interpreted as the sale of securities, which requires a license Lending Club doesn’t appear to have.
This suspicion has been reinforced by Veronica McGregor, an attorney with the law firm Perkins Coie. She says that “it looks like they are getting themselves a license to buy and sell securities.”
These are issues that other P2P lending sites - such as Prosper, Virgin Money, and Zopa - will have to face if they haven’t already.
Center Networks has more thoughts on the situation here and here.
I would never get loans online…lol
Obtaining a broker dealer license is not like going to the DMV to pay your registration fees.
This is a major blow to these firms as the will now have to get their Principals licensed with the NASD. This means passing securities licensing tests…….it would/may be easier/faster to acquire a small broker dealer otherwise this will take them MONTHS.
Hopefully they develop a better lending practice then the sub-prime guys out there… no matter how you cut it, this is high risk stuff for all involved!
They put $12 million of funding into this online business without doing due dilligence first??? The idea seems great but legal stumbling blocks like these that can put you out of business.
Looks like even they have done some “Sub Prime Lending”
I was going apply for a loan. I knew this will never work.
Wht the heck is happening with comments these days at TC… most of them seem to be a way like spamming except that a justice is done with a comment with 1 line (always a word) and url in name and signature!
This is getting worse everyday! Look at the six comments above…. everyone wants you to check his/her website and post comment just for the sake to keep it alive!
I really condemn this!!
@#7 (TechCrunch - right) - Yeah, that’s what the “website” box is for. Let us mouseover it to see your link if we want to.
I use Prosper quite a bit (ooh, so tempted to include an aff link!) and have been very pleased with the returns.
@#7, funny I was thinking the same thing. Maybe someone should build a wordpress filter to get rid of links on posts spam.
Personally, I like the http://kiva.org/ implementation.
This is an interesting turn. I hope the fact that they are so new, and the industry/technology implementation so new that they don’t put existing customers through the ringer as they work out these details and kinks.
it all seemed inevitable.
ah, nice good funny
If you at least linked in the articles to the people who tipped you to these stories, you’d probably have fewer comments with links in them to “condemn”.
http://www.peer-lend.com/2008/.....mporarily/
Unless the regulators are totally unreasonable, Lending Club should be able to get past this. I’ve met the founders and they are a savvy bunch with plenty of financial services experience. It’s just a difficult time to be rolling out new credit products.
You can still borrow from Lending Club while they are in this “quite” period. They just aren’t allowing people to lend.
Glad the authors spent a while clearing the comments with links to site which had no relevance with article. I do agree with @13… I have no worries people including links which has more details to an article we are presently discussing about.
Earlier days I used to spend a long time reading comments, as they spiced up the artilce these days.. people wait for an article to come up at TC and shoot with comments and reason behind this is.. to make users check ur home page or link below the comment (bad way of approach imo!!).
TC Authors please take this in priority and make sure the quality comments is not lost!
Cheers!
Getting a Broker-Dealer license makes Lending Club no different than your average investment house. If I was investing my money, especially in a tumultuous economic arena, it would be with an investment house that I know. Perhaps Lending Club should look to get acquired, and avoid the financial burden required to register with the SEC.
What can we expect in the near future for Lending Club? If what I hear is true about getting the proper registration with the SEC, does that mean the interest rates of borrowers will go up and the return of the investors/lenders will go down, to make them more competitive with banks? I think it’s a great idea and really thought I had found a great way to invest some money and get a good return on in this downed economy. The funny thing is that I was about 1 day away from verifying my account and adding funds to start borrowing. Just my $0.02 worth.
@Jim #14
Can’t comment on the US situation, but in Canada this is not a credit matter. Two things are clear in Canada:
- a loan is a security under Canadian securities law
- securities regulations do apply
We have been working closely with the applicable Canadian regulators, for over 9 months now. This was highlighted in this recent piece from the Toronto Star.
http://tinyurl.com/63ze4j
Zounds …
Issuing promissory notes and being overseen by securities regulators is a huge additional layer of effort…
It’s though an important step in legitimizing the business structure…
I’m still interested in the level of defaults that will come from their pool of borrowers…
If their pool is self-selected “responsible” borrowers this model could be a hit…
Interesting to see how it develops…
http://www.watchhandbag.com
I’ve been following peer-to-peer lending for a while now and think it is a great idea that has promise, and something that may help entrepreneurs in a crunch for cash, among other things. Question now though is, what’s the deal with Prosper? Prosper CEO Chris Larsen has been interviewed in the past stating that he believed their competitive advantage lied in the lead time it would take to comply with all regulatory issues, which Prosper said took them an extensive period of time to get through. Does that mean that Prosper covered all their legal bases but Lending Club didn’t?
Can someone point to any news coverage (or anyone knowledgeable) how prosper or lending club are setting up their legal structure? Does Prosper have a state lender license? do they have a broker-dealer license?
In Lending Club’s case, “issuing promissory note”, does it mean the P2P lender now actually make loans to Lending Club, and then lending club lends to the borrower?
What if the borrowers are not individuals but legal entities? (e.g. a corporation?)
@Vinny
http://www.wiseclerk.com/group.....r-coaster/
Lendingclub since Dec. 07 cooperates with a bank and uses their national license
@Vinny,
looked it up for you in my files:
Lendingclub partnered with WebBank, which is a FDIC-insured, state-chartered Industrial Bank under the laws of the State of Utah. Lending Club loans are regulated under WebBank’s Industrial Loan Charter
P2P-Banking, thanks for the info.
is it save to assume that Prosper has such a broker-dealer license state by state?
If Prosper also has to borrow from the users, then it’s not clear to me that they are any different from Lending Club. Which one is a “true” P2P model?
Vinny,
Prosper publishes the licenses it operates under on this page:
http://www.prosper.com/legal/s.....enses.aspx
My guess is that this will allow Lending Club to operate a secondary market as well as make sure all is kosher with the SEC. If they can get it done, all good things for the peer to peer lending industry.
http://www.debtkid.com/my-take.....gistration
I think many people are getting the story wrong.
@Vinny
Forget about my last comment. Prosper eliminated state rate caps today - national limit (with 2 exceptions) is now 36% interest