Turns Out P2P Lending Might Run Afoul Of Securities Law As Well
from the oops dept
First off, a quick disclaimer. Lending Club has offices in the same building as Techdirt, and we're actually right across the hall from them. I'm also pretty good friends with some folks who work there (since even before they worked there), but I have no additional insight into what's going on at the company, other than that everyone I know there is very smart and capable. A few months back, we got into a discussion about attempts to take the peer-to-peer "lending" model and move it into venture funding. At the time, we pointed out that this would raise serious regulatory problems, as the public markets (regulated by the SEC) were already, effectively, a peer-to-peer venture capital system. However, at the time we didn't think too much about the regulatory implications of peer-to-peer lending itself -- and, unfortunately, it appears that Lending Club may not have either. Apparently, Lending Club has put all new lending activity on hold, as it needs to deal with certain regulatory matters.
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.
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and what we peons can do
we lowly taxpayers have to use our money to bail out Bear Stearns so the big boys don't have to take a loss. P2P loans might make and save us commoners some money, that's when it becomes a no-no.
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up-to-the-minute English department
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Re: up-to-the-minute English department
As I hit the ** enter key. 'Securitized'? Indeed. So I suppose the Department of Homeland Security means we're... --Glenn
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I miss...
the days when anybody could start a business and not get screwed by laws and taxes fifty ways from Sunday.
What ever happened to "by the people for the people"? Was that an illusion the entire time?
Fucking administration. Somebody comes up with a good idea... so they say "Hey! We're not sucking blood out of your business fast enough! You can't do that!"
Fucking leeches.
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Nothing new
Things have been like this for a long time - at least since the 90's (probably longer). SEC regulations are the single biggest barrier keeping poor, or even middle-class, entrepreneurs from really making a go of their business. If you have an idea that can be brought to market for, say $100,000, you pretty much have to have the money already, or personally know someone who does.
The "little guy" is limited to things he can build for next to nothing, while "big business" can keep doing things as usual.
Somehow, I doubt it's going to change anytime soon.
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