Sunday, December 16, 2007

Lending Club eliminates state rate caps

A variety of different state by state rates and regulations for borrowers on Prosper and Lending Club have slowed the adoption of p2p lending throughout the United States. For example, if you check out Prosper’s state licenses and lending limits chart you can see that borrowing is not permitted for those that live in some states (like Nevada) and is restricted to businesses in some states (like North Carolina) and has very low rate caps in some states (like Pennsylvania). This can be very confusing for borrowers. In fact, we highlighted Pennsylvania in an article a couple months ago - Pennsylvania borrowers avoid Prosper.

Pennsylvania, for example, is the sixth most populous state with over 12 million people. Based on their state lending laws, Prosper only allows loans to borrowers residing in Pennsylvania at 6% and below. Rather than helping borrowers get a good interest rate the practical effect of this legislation has been to prevent borrowers from obtaining a loan. According to LendingStat's loan breakdown by state, only 21 loans have been made to Pennsylvania borrowers ranking them a distant #43 despite their large population. Almost all of these 21 loans are for the minimum loan amount - $1,000.

Some people have attempted desperate measures to obtain a p2p loan despite the rate caps. Eric, who runs deepmarket.com, tried to get a loan on Prosper despite an 11% cap on loans from Virginia. He even offered double interest on the side by immediately paying lenders through PayPal but his loan still did not fund.

Lending Club has finally eliminated all this confusion – they are available to borrowers in all states and are not bound by state interest rate limits any more. In the official announcement, Lending Club CEO Renaud Laplanche said, “We went National today, 6 months after the launch of our Facebook application and 3 months after the limited opening of our public website at http://www.lendingclub.com/.” He estimates that this will open up their platform to an additional 108 million borrowers.

From May 24 to December 14 Lending Club has issued 505 loans worth nearly $4 million. Prosper, which has been around longer, has issued over $100 million in loans. While Lending Club is now available to many more borrowers they still limit borrowing to users with a FICO score over 640. They have had over 4,000 loan applications worth $36 million which have been disapproved.

Read more here:
TechCrunch - P2P Loans GainingTraction. Lending Club Goes Nationwide
Mashable - Lending Club 6 Months Later: Does Peer-Lending Work?
CenterNetworks - Lending Club Now Offers Loans in All States; Releases Six-Month Loan Data
Technically Speaking - Lending Club is now live nationwide in all 50 states

Disclosure: I currently blog for Lending Club. Read my Lending Club posts here.

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