Turns Out P2P Lending Might Run Afoul Of Securities Law As Well
from the oops dept
The company won't provide any additional information on what's going on (even, I assume, to those of us across the hall), but the speculation is that its lending practices clearly fell on the wrong side of certain regulations, quite similar to the ones we discussed having to do with any attempt at a peer-to-peer venture offering. The Peer-Lend blog points to this analysis of the problem (though, that's for a competitor of Lending Club). Basically, the question is who owns the loan itself, and how is it transferred. Since the loan may be owned either by the company itself or by the lenders (the "peers") at some point the loan may be getting transferred around -- meaning that it's no longer a "loan" but a "security." And, as we know, securities are regulated. This could get even hairier as the government is suddenly quite concerned about "securtized" loans these days since (as you might have heard) some of the financial world's problems have something to do with such instruments. This certainly isn't a problem that just faces Lending Club. In fact, it's almost surprising that it happened to it first, rather than its larger competitors like Prosper and Zopa. In the meantime, though, it's a good reminder that while web 2.0 startups can enable a lot of neat things, the folks back in Washington DC still have plenty of power over what certain businesses can and cannot do.