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Renaud Laplanche, founder and CEO of Lending Club in California recently spoke with Jackie Hyland from ABC News Money Matters about Lending Club, where borrowers with good credit can obtain personal loans from complete strangers. It was touted as providing a unique and creative way to get a loan that will offer lower interest rates than most credit card companies and banks can. (Note: Prosper is in a quiet period and has more or less shut down lender operations. Loanio (Loanio Blog) has just launched but lack the secondary market of Lending Club.

Here is my synopsis of the interview…

Lending club operates in the same way as a normal marketplace, however instead of having buyers and sellers, the website caters to borrowers and lenders. “Borrowers are there to get a loan, and lenders are there to make investments in these loans requested by the borrowers and fair interest rates as a result, and at the same time feel good about it because they’re helping other people.” Renaud Laplanche told Money Matters.

Peer to Peer lending or P2P lending allows borrowers and lenders to cut the middle man out, exchanging loans for an average interest rate of 10% to 12% instead of whatever high interest rates lending institutions are currently offering. With the recent credit crunch, not only is the demand for peer to peer lending alternatives going up, but Lending Club has also experienced a dramatic increase in the supply of lending options as lenders look for new ways to invest as returns on the stock market slow.

Since May of 2007 when Lending Club was founded, more than $20,000,000 dollars in loans have been offered through the website on a peer to peer basis. A new SEC-backed program was introduced to Lending Club only ten days ago, and has already facilitating the lending of more than $1 million dollars from lenders to borrowers on the website.

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Back in April of this year, the Lending Club announced that it would be going into a quiet period due to the beginning of a registration process involving the SEC, the United States Securities and Exchange Commission. Now the Lending Club is pleased to announce that the process has been completed, and now the Lending Club is available both to borrowers and to lenders as well. The Lending Club community is taking a major step forward with this SEC registration, which is also a grand step forward for social lending in general. Because of this SEC registration, the Lending Club is establishing itself as a viable investment alternative to the more traditional set of debt and credit instruments and products that only the larger financial institutions tend to offer.

What this SEC registration means for lenders and borrowers:

- It means that under the registered offer, lenders with the Lending Club will be able to invest in notes corresponding to portions of loans that are made to members who are borrowers. These notes will have stated interest rates that range from 6.69% to 18.63%, once a 1% service charge has been applied.

- It means that Lending club is going to become the first social lending network that gives lenders the option of a trading platform, because Lending Club partnered with FOLIO Investments Inc. On this trading platform, the lenders who become customers of the FOLIO Investments, Inc. Company will also be able to put up notes for sale in the event that liquidity is needed before a note’s term is completed.

- It is also believed that the SEC Registration will significantly accelerate the mainstream adoption of the social lending concept, which will allow more potential borrowers to get the funding they need more quickly.

As a result of the current financial crisis that our economy is experiencing, consumers are beginning to build a great distrust of larger financial institutions. For this reason, consumers are beginning to demand alternatives that allow them to have much more control over their investments and finances. Lending Club is leading the way to delivering this much needed alternative by crafting a network where lenders can fund loans that were posted by borrowers. The Lending Club community continues to show borrowing behavior that is exceptionally responsible, especially over the past 18 months. Since May of 2007, the default rate for these loans has remained below a mere 2 percent.

The prospectus that the Lending Club filed with the SEC is available in PDF format. In a time where the financial landscape is making the concept behind Lending Club even more useful both to borrowers and to lenders, the Lending Club is clearly thrilled that they are once again able to accept business from new lenders as this allows them to facilitate healthy lending relationships between responsible borrowers and responsible lenders, providing a much needed alternative form of borrowing and lending in times of economic crisis.

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I though Prosper had already done this: http://www.rateladder.com/2007/10/30/prosper-files-s1-with-sec/

From Prosper This morning:  http://blog.prosper.com/2008/10/15/prosper-filing-registration-statement-enters-quiet-period/

Prosper 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.The registration filing is a necessary step toward making the secondary lending market available to the community. This is something many of you have been asking for, and we believe the liquidity of a secondary market will make Prosper even more vibrant.

Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. If you’re an existing lender, your current lender agreements will be unaffected; your existing loans will continue to be serviced; you’ll be able to track and monitor your loans; and you’ll be able to withdraw funds from your Prosper account.

If you’re a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process. If you’re a borrower seeking a loan, you will still be able to create a new loan listing, which we will endeavor to fulfill through alternative sources.

A successful registration can take several months, but we assure you we will do our best to move forward as quickly as possible. Until this process is complete, we’re required to be in a quiet period and will be unable to respond to press, blogger or other inquiries about Prosper or the registration filing until it becomes effective.

We apologize for any inconvenience this may cause, and want to thank you in advance for your understanding and support.

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Zopa, the UK based peer to peer lending company, is shutting down their US branch due as a result of toughening conditions that are currently being experienced by the US economy. Zopa provides loan services in the UK, as well as in Italy and Japan through a pure P2P style marketplace. Borrowers would request loans, and then the individual lenders would contribute as much or as little as they wanted to, towards the request. Then when enough funding has been collected, the loan is finally put together and granted. As the borrower pays back the loan, interest earned goes back to the lenders. This micro lending model has made the system popular in the UK and the Italy, and Zopa is soon to open a branch in Japan following the same model.

With the opening of the United States branch, Zopa found that they could not launch the same kind of lending system due to regulatory issues. In order to provide their service, they have teamed up with credit unions in order to provide these lending services. Lenders would park money in CDs with the credit unions, and this would allow their money to sit before borrowers request the money. This would enable the borrowers and the lenders to enjoy the same sort of interest rate benefits as the European users. The regulatory restrictions that were placed upon Zopa would ironically cause the same conditions leading to the closing of Zopa’s United States branch, however.

The same regulations behind the restriction of Zopa’s services are a part of the US economic crisis that has cause interest rates to skyrocket and the economy to experience a great deal of turmoil in the process. With less and less benefit being offered to lenders and borrowers, Zopa was forced to close down the United States branch. US lenders and borrowers will not be completely put out, however. Zopa is directing its current and future US customers to deal directly with the credit unions that it had partnered with.

Despite rumors, the credit unions had not reduced the amount of loans created. Rather, the credit unions has increased the number of loans made as traditional US bank and lending institutes have reduced their volume. Credit unions are not susceptible to the financial woes of Wall Street, and as such are making as many loans as before, if not more for making up the reduction that is a result of the economic crisis. For this reason, Zopa is glad to be able to provide US customers with a viable option that can provide a great service.

Existing customers will be gradually migrated to the partnered credit unions. Individual borrowers and lenders will still enjoy the same interest rates, customer service and federal insurance for CDs made. Payment schedule will also be identical, only payments will transfer over to the credit unions. This transition is made easy since in the US, loans were setup already with the credit unions.

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Prosper just released it monthly survey and it included commentary from CEO Chris Larsen.  What do you think, is this the “greatest economic crises America has ever faced”?  (For my part there is no doubt it is in my lifetime, but I don’t see this getting to the level of the Great Depression…)

Here is what the CEO said:

In the midst of one of the greatest economic crises America has ever faced, and on the heels of last week’s Federal Reserve report indicating that for the first time in over a decade consumer borrowing significantly contracted, people are naturally asking what role Prosper will play and what trends we are seeing.

Although it’s a bit too soon to point to Prosper data that correlates directly with the financial meltdown that has only begun to unfold, there are some noteworthy trends that have accelerated since the credit crunch began 14 months ago that are relevant to the current environment.

The biggest trend that continues in the Prosper marketplace since the credit crunch began last summer is that the percentage of borrowers with sterling credit that are listing and getting funded on Prosper remains at record levels (See “Mix of Funded Borrowers” Table). We expect this trend to continue particularly as more lenders on Prosper have become more conservative in their bidding strategies; and as more people, even those with the very best credit, are having their credit card limits reduced and home equity lines cancelled, and are being turned down for auto loans and private education loans.

Another key trend we’re experiencing is that as consumer borrowing from traditional financing sources is shrinking, Prosper is experiencing solid growth. Year-to-date, the number of loans in terms of units is up 24% over the same time period last year, and up 37% in September 2008 compared to September 2007. At the same time, loan originations year-to-date in terms of dollars have increased 8% over the same period last year, and are up 7% in September 2008 compared to September 2007.

At a time when every sector in the economy seems to be under pressure and shrinking, the growth Prosper has experienced is very respectable. However, some may wonder why there is a disparity between unit growth and loan dollar volume growth. The answer lies in the average loan amount being funded on Prosper. Year-to-date the average loan amount is $6,047, down 13% or $925 compared to the same period last year. In September 2008 the average loan amount was $5,544, down 23% or $1,631 from September 2007. This indicates that lenders on Prosper are being more cautious by directing their bids toward listings with lower requested loan amounts.

All of these trends on Prosper are significant and interesting, but far more important in this time of economic upheaval is the opportunity for Americans to revitalize the spirit of It’s A Wonderful Life; to channel the essence of Bedford Falls and George Bailey; and to “do well by doing good.”
 

September 2008 Prosper People-to-People Lending Market Survey

Purpose of Personal Loan Listings and Fundings

Borrowers who post listings in the Prosper marketplace are asked how they intend to use their personal loan. The following reflects borrowers’ statements of intended use of loan proceeds with regard to both listings and loans. Prosper does not verify or confirm after funding how loan proceeds are used.

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http://www.pertuitydirect.com/

Just received the following email…

Welcome To Pertuity Direct

Welcome! Thanks for signing up to receive updates about the Pertuity Direct launch.

We have been hard at work for the last two years, building a social lending business that is targeted toward busy people that would like to enjoy the high investment returns and low loan rates of peer to peer lending, but don’t want to deal with figuring out all of the ins and outs of optimizing the process.

We make social lending hassle free:
For lenders, your investment dollars are deployed and start to earn returns immediately
You get the safety of automatic diversification
If you want to withdraw your money early - not a problem, just a few click to get your money back
Our borrowers are rewarded for working hard to maintain good credit by getting approved and funded quickly with great, low rates
Welcome to social lending without the bidding, gaming or guessing. We handle all the work for you. You get all the benefit.

We are just a few short weeks away from launch and are putting finishing touches on everything so that you will enjoy your experience at Pertuity Direct. So stay tuned, we will be coming to market in September and will keep you in the loop.

The Pertuity Direct Team

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Green Note

P2P student loans have exploded onto the scene this past year, due in a large part to a lack of availability of traditional loans. There has never been a better time for a p2p site to start offering student loan assistance, and Green Note is one of the newest entrants into the marketplace.

The concept here is pretty simple. A student signs up for the service and fills out a profile stating how much money they need for their education. They can either set up or join a community to try to get assistance. Emphasis is placed on inviting your own friends and family to your community, so it is not clear on whether or not you will be able to seek outside assistance for your loan as a borrower.

Once you have your network built up and you have people that are ready to fund your education, they go through the process at Green Note to fill out all of the paperwork. All loans carry a 6.8% fixed rate and will be due upon graduation. This could cause problems for those looking for an instant return on their investment, but the site is pretty clear about what lenders can expect.

We liked the fact that this site caters to students, regardless of their credit history. Basically, if your community feels you have merit, you’ll have a pretty good chance of getting funding for school. They also focus on having several people lend on one loan, which does spread the risk around quite a bit. It’s similar to going to a family reunion and hitting up all of your relatives for a few bucks, only a lot more organized.

There is a lot of protection here for lenders and we appreciated the fact that they are formalizing the P2P process to make it safer to lend. We would have liked to see a little more information on how collections are handled, but overall, it’s clear that Green Notes has everyone’s best interests at heart.

One very interesting point is that no co-signers are needed for a loan and that citizenship is not necessary. While this is terrific for foreign students that have decided to study in the US, it does raise some concern for lenders, especially if the student returns to their home country and it is impossible to reach them. There is a potential for abuse here, and this was probably our main concern. However, given that the site is still in formation, we’ll give them a chance to address this point.

Overall, Green Note is perfect for those that already have a good community of family and friends that are interested in lending towards their education. It’s not really meant to be a way to find new people to help with funding, but it does help bring these communities together and make the entire process of lending money a lot safer for everyone involved. It will be interesting to see how this site grows over the next few months and how well it is received.

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Virgin Money is another the brainchild of Richard Branson, the well known entrepreneur that is behind a multitude of businesses, record labels and projects throughout the world. His belief is that everyone should have access to the money they need when they are trying to get money for a business or even for personal reasons. This is one of the latest entries into the p2p lending sphere and we were interested to see what they had to offer.

Unlike many of the current p2p lending sites, this one does not just focus on personal loans. Real estate professionals, small business owners and regular people can all use the site to get the money that they need. They are also developing a section for students looking to fund their education and these loans will soon be made available as well.

The interesting concept behind this site is that it isn’t strictly a lending community. Rather, it is a resource for p2p lenders and borrowers to take care of formalities and hash out loan paperwork. For instance, let’s say that your Aunt Sally wants to lend you money for a new car. Typically, there may be a little confusion over what kind of interest you would pay, when payments were due, etc… Virgin Money was made to make it easier for Aunt Sally to manage the loan and for you to pay it back.

So, in essence, borrowers will need to do all the legwork to find someone willing to lend them money, and then send them to Virgin Money to complete the deal. This is an interesting concept, and while it may not be as popular as the sites that connect lenders and borrowers, there is still definitely a need for a service like this.

Virgin Money acts as a manager for the loans, to make sure that both parties adhere to loan agreements. This makes it easier for lenders to get payments on time and helps borrowers keep track of everything to do with the loan. Since loans between family and friends do have a tendency to get a little messy, this site should make a big difference.

Quite honestly, we see Virgin Money as being more suited to lenders than borrowers. There is a lot more protection for a friendly family loan when you’re doing it through Virgin Money and they can assist borrowers in learning the ropes. While there are some services for borrowers, the main intent does appear to be to assist lenders in managing a loan.

We did like the fact that they provide legal agreements and help everyone set terms for a loan that are acceptable. One thing that we did not see was information on collections, so this is not clear as to whether lenders are on their own, or if they will have some assistance from Virgin Money.

Bottom line, before you think about lending money out to family members or a friend, it’s probably a good idea to use a service like this to make sure that you are protected.

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This year, it has never been more difficult to get a student loan, thanks to new federal regulations. Hundreds of lenders announced that they would no longer be taking part in federal loan programs and schools are struggling to try to offer loans directly to students. This opened up a huge marketplace in the p2p sector for student loans, and business is definitely booming.

Fynanz.com is probably one of the best known p2p student lending marketplaces in the business and they have built up an impressive track record. The process is actually quite interesting and so far, they have been very successful with placing student loans with those that need the help. In brief, a student will need to join the Fynanz.com community, and then set up what amounts to an online auction.

This auction details the student’s loan request, and further information about why they need the money. Once the auction starts, lenders in the community bid on the loans. In order to place an auction, Fynanz.com first has to verify the identity of borrowers and lenders, and will underwrite the loan request. After the auction is complete, the lender supplies the money, which is then disbursed by Fynanz.com to the student and the school of their choice.

The process goes quite quickly and it’s very easy to get everything set up. Fynanz.com uses something called FACS to assist them in underwriting loans. What this means is that students are ranked according to risk, and assigned rates. Academic scores count heavily on this, as well as the student’s background. For those under the age of 21, a cosigner may be required to complete the loan.

We found it interesting that Fynanz.com decided to calculate risk on an academic model rather than the traditional credit scoring model. Rankings range from 500 to 820, much like FICO scores, and if a student’s FACS ranking is below 640 they will not be able to arrange for a loan through the service. Apparently, the company has found that grades are a very good indication on whether or not the loan will be paid, and they have had a lot of luck using this scoring method.

At the end of the day, this is a very fair way to determine whether or not a student should have a loan. This removes any economic barriers between students and focuses on their actual academic performance. It will be interesting to see if this model expands beyond p2p lending and into traditional banking.

The higher the FACS score, the lower the interest rate, which is also quite fair. For students that rank in the top tier, the margin range is 2.5% to 3.7%. This changes to 7.2% to 7.9% for scores that are in the 640 range. If there was ever a reason for students to focus on their grades, this is a pretty good one.

Fynanz also provides either partial or full guarantees on the original loan amount. The guarantee percentage is dependent on the FACS Grade of a loan listing.

While in enrolled in school at least half-time, a borrower may choose between different repayment options:

• Deferred Repayment Option or academic deferment - while in academic deferment the borrower is required to make monthly $25 Good Faith Payments. The Good Faith payments made while in academic deferment help the borrower establish a good relationship with lenders and demonstrate financial discipline. A six month grace period is given after separating from school.
• Interest Paid Option – full monthly interest payments are due on the loan while enrolled in school. Choosing the Interest Paid Repayment option can save thousands of dollars in interest expense over the life of the loan, because the $25 monthly Good Faith payments will likely not be enough to cover the interest accrued on the loan.

In either option mentioned above, monthly principal and interest payments will be due once loan repayment begins. We realize that some students may not yet have found employment even after six months; therefore, borrowers may request to pay just the interest expense on the loan for the first two years of repayment, “Initial Interest Only” option.

We liked Fynanz.com’s methods and have placed 2 bids on listings as of this morning… One is a platinum plus and the other a gold honors…

They also have a very attractive lending bonus as well. $25 bonus once you successfully lend to a borrower (you must sign up with a referral link to receive the bonus and in doing so the referrer would also receive $25). A 3% bonus when you lend $3,000 (that is a minimum bonus of $90 on $3000 lent.) If you lend $3K and refer 5 people the bonus is retroactively increased to 5% in addition to the $25 per referral. This is a very attractive bonus offer and one that I encourage all RateLadder readers to consider.

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A few weeks ago Rob Garcia at Lending Club announced updates to the lending account management features.  I apologize it has taken me this long to cover the update, but I have been busy at work and frankly without lenders having the ability to lend money I was lacking motivation.  Well I got to it this weekend and so I thought I would give a quick writeup…

Monthly Statements

This has been a long time coming.  On page 2 is exactly what I need in order to track Lending Club in Quicken the way I track Prosper in Quicken.  Here is the information on that page for Jan 08 (more interesting than then months since the quiet period began.)

Lending Club Statement

Account Activity

This information is also now available via the account activity tab… Here is my recent activity…

Lending Club Account Activity

Creating Your Own Portfolio Views

This seems like it might be a good way to group loans so that loan performance could be compared by loan groups. It is up to the account holder to define the “portfolios”. This seems like a good feature for the large lender interested in dissecting their performance; however, there is a major thin data problem for any loan group of less than 35 to 50 loans minimum.

Other

There are some other change when it comes to traversing your account. basically around retrieving and sorting loan while on the Lending Club website…

My Conclusions

Statements were sorely overdue and I am glad to have them. When is this quiet period going to end?

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