P2P lending service suspended
Lending Club, a P2P lending service that started off as a Facebook application, 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,” it is suspected that Lending Club is looking to obtain a broker-dealer license from the SEC that would legitimise 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. It may now be getting itself a licence to buy and sell securities.
These are likely to be moves that other P2P lending sites – such as Prosper, Virgin Money, and Zopa – will have to take if they haven’t already done so.
Lending Club, which started off as a Facebook application, launched in the US market in 2007. Borrowers can use the service apply for personal loans and can be funded by one or many individual lenders. However it is thought that these borrowing practices could be interpreted as a sale of securities, which requires a licence from the Securities and Exchange Commission (SEC).
The company says borrowers will still be able to apply for loans through its quiet period, although any new loans will be funded and held only by Lending Club.
Prosper has reportedly stated that it P2P marketplace already complies with state and federal laws. In a SEC filing last year, Prosper says it business is in “full compliance with all applicable federal, state and local laws, including without limitation federal and state laws governing business practices and debt collection practices”.
In March, IOU Central – which claims to be Canada’s first online person-to-person (P2P) lending network – was forced to halt operations less than a month after launching after regulators in Quebec ordered the unit to close down.