Apr 11, 2008

When procrastination pays (or, thank goodness I hadn't gotten around to creating a Lending Club account!)

Update: I was waiting for DebtKid to weigh in on this issue, since he writes for LendingClub's blog. He has a much more optimistic interpretation of LendingClub's actions.

I've mentioned previously that I'd like to get in on the P2P (person to person) lending scene. After reading posts from avid P2P lenders like Lazy Man and Money, The Dough Roller, and Moolanomy, and carefully reviewing both the Prosper and Lending Club sites, I decided to join Lending Club and make four $25 loans (using a $90 Sharebuilder bonus plus an extra $10).

Except that I never really sat down and signed up. I intended to review the fine print one more time, but I never made time to do it. In this case, it turns out, procrastination was a very good thing.

Earlier this week, The Dough Roller and Cash Money Life posted about this notice from Lending Club:
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.

The borrowing side of our site will remain generally unaffected by this registration process; borrowers can continue to apply for loans and new loans posted after April 7, 2008, will be funded and held only by Lending Club.

Until the registration process is completed, the company will undergo a quiet period and will not be able to respond to press and other inquiries about Lending Club or the registration process during that time.
It looks like if I'd already funded loans, they wouldn't be affected, but this event simply shakes my confidence in Lending Club. I don't know enough about lending laws to figure out what the problem is with Lending Club, but I do know that I'm happy I didn't create that account with them. (LazyMan thinks Lending Club is dead.)

I'm still interested in lending with Prosper, but I think I will wait a few weeks to make sure there's no reaction to Lending Club's actions first.


Anonymous said...

Personally, I don't like any of the p2p lending sites. But if you are just using speculative money and not investment money, it could be something to play around with and maybe make a couple of bucks.

I don't like how they try to sell these loans as investments or compare the interest rates to what you would earn in a savings account or CD- not an apples to apples comparison.

Frankly, I also find the promotion these businesses receive in the PF blog world to be rather concerning as well. But I learn toward the conservative side when it comes to investing so they may not all be as bad as I think. Good luck!

Anonymous said...

@Eden -- I agree comparing p2p to CD is not apple to apple because p2p is more risky than CD.

However, I wouldn't discount it as an investment vehicle. But I agree that it's too young and I wouldn't invest any money I can't lose.

@CFO -- It's ashame what LendingClub did, but I wouldn't count it out yet. I think they are doing this to make their network more robust. Beside, SEC involvement could be an indication that the network is gaining mainstream attention and we'll all be benefited by more regulations.

Anonymous said...

I'm very puzzled by LendingClub's decision to halt its lender registration program. Even if they are filing a registration statement with the SEC, I cannot imagine why that would prevent them from accepting new lenders; Prosper has continued its program even though it filed an S-1 registration statement back in October 2007. I'm hopeful will learn more from LC very soon.

Anonymous said...

I'm by no means an expert, but the words "quiet period" is most often used when a company is about to go public (i.e., you'll be able to purchase shares in the company on a stock exchange). I would assume that while the SEC is reviewing, the company must disclose its financial information. Should the company's finances change significantly during the review, they are required to refile certain documents and allow additional time to review the new circumstances. The SEC also requires that companies refrain from any promotion during the quiet period, as this may influence unfairly the initial price of the shares -- Google got into much trouble when the founders of the company talked generally about their plans.

Chief Family Officer said...

@Eden - I agree that it's misleading for the companies to compare their return to banks, since you're right, it's not an apples to apples comparison. And if you're not savvy enough to realize that, you probably shouldn't be risking your money in P2P lending! I think pf bloggers, as a breed, are just so interested in money that it's just one more topic to cover. We'll talk about it more than anyone you'll ever meet, but then again, we'll talk about money more than anyone else too :)

@Pinyo and DR - It's not so much that I'm concerned about what LC is doing as how they're doing it. I suppose this may be the only legal way of doing whatever it is that they're doing (though I doubt it), but the manner in which they've acted simply gives me the feeling that they do not care all that much about keeping their clients (or, as in my case, potential clients) informed and therefore happy.

@Anon - Very interesting theory ...

Anonymous said...

This is Prosper's reaction.

Anonymous said...

I agree with DR - there is no reason why they would stop any activity.

One person I talked to speculated that maybe LC was late filing for their broker-dealer paperwork (or never filed)? and the SEC is rapping their knuckles for it.

Pure speculation of course but a lot more plausible than the idea that they are shutting down part of their business to change their business model.


Chief Family Officer said...

It's really the openness thing that gets me. DebtKid responded in the comments with his blog to an SEC link that seemed to indicate that companies are restricted in what they can say. And that's fine. But there's just something about the abruptness of LC's actions and statement that leaves a bad taste in my mouth - not even a, "We understand that this may be frustrating and/or alarming, but we are legally prohibited from telling you, and we'll let you know as soon as we can."