Financial Start-ups Form ‘Coalition for New Credit Models’

Washington, D.C. – October 20, 2009 – Amid historic regulatory reforms being considered by the new administration and lawmakers on Capitol Hill, the Coalition for New Credit Models announced its formal launch today as its representatives descended upon Washington. The Coalition is made up of non-profit, for-profit, and social enterprises using new technologies, products and business models to provide credit and information to millions of consumers and small and midsized businesses. These models serve as innovative alternatives to existing banking and financial institutions and are backed by venture and social capital to stimulate the economy, shore up financial markets, and enhance local communities. They have a special focus on bringing transparency, fairness, durability, and accountability to consumers and to our credit markets.

Chris Larsen, Chief Executive Officer and Co-founder of Prosper, America’s largest peer-to-peer lending marketplace, said, “This country has been in an energy crisis for years and we are now in a financial crisis. America’s economic future depends on new and alternative credit models being embraced in the same way green technologies are being nurtured by policy leaders to help solve the energy crisis. We are at risk of being suffocated by rigid regulations that threaten rather than embrace new technologies and models.”

The current regulatory environment has stifled many entrepreneurs in this nascent industry, and it is clearly time for new policies and fresh thinking from lawmakers and regulators. At a time when the credit crisis and recession have adversely affected consumers, families, small and mid-market businesses, Coalition members have created alternatives and innovations that will make the country less dependent on any single point of failure, or institutions that are too big or too interconnected to fail.

James Gutierrez, Chief Executive Officer of Progreso Financiero, said, "Without new innovators providing better options, millions of Americans will be left out, far away from the American Dream and stuck with predatory choices, simply because they lack established credit history. We believe government can do more to provide greater access and financial inclusion to all consumers, especially the underbanked, and help cultivate new models that do so on responsible terms."

Nicolas Perkin, President of The Receivables Exchange, said, “Now more than ever, America’s businesses should have unfettered access to alternative and reliable sources of capital to meet their business financing needs. As the economy regains momentum and technology continues to accelerate the pace at which business is conducted around the world, only innovation and an uncompromised focus on transparency and responsible financing models will drive sustainable growth and prevent businesses from being reliant on a single source of funding, and thereby exposed to unnecessary risk.”

The Coalition for New Credit Models recommends that Congress and the administration:

1. Adopt legislation classifying person-to-person lending as a consumer banking service, not a securities offering.

2. Create a liquidity fund to provide capital for companies making small consumer loans to underbanked individuals.

3. Establish a federal backstop for small and mid-sized businesses to provide access to working capital through electronic marketplaces.

4. Enable the emergence of a robust U.S.-based private company stock market to provide the exit path necessary to attract investment capital back to this country, bolstering domestic small businesses, innovation and job growth.

5. Create a Start Up Liaison at Treasury Department or within banking regulators to guide and fast-track the development of new financial products by start-up companies and organizations seeking to innovate the way consumers and businesses raise and access capital.

Background on Coalition Members:

• Credit Karma (San Francisco, CA) is the consumer’s advocate for demystifying credit, is the only Web site that provides consumers free access to their credit score, and has a range of tools and information resources to help them monitor and manage the credit aspect of their financial health. Credit Karma’s goal is to help consumers easily digest the contents of their credit report and understand what makes up their credit score. Credit Karma works with a range of partners, including mortgage lenders, credit card providers, banks, and wireless providers.
  

• Loanio, Inc. (Nanuet, NY) is an Internet-based peer-to-peer lending platform where individuals can request personal loans that are funded by other individual (or corporate) investors. Interest rates on loans are set by auction, where lenders/investors bid on loan requests that they find attractive. Through patent pending features such as Platinum Verification and Co-borrowing, Loanio’s goal is to provide access to a significantly underserved borrower market and stronger security for its lenders/investors. Loanio, Inc. suspended its business activities in November 2008 and is currently registering its securities with the SEC.
• ProFounder (Palo Alto, CA) is a platform where entrepreneurs raise seed funding from their social network and affiliates through a legally compliant and dynamic process; and individuals invest small amounts of money in companies in exchange for ownership. ProFounder is co-founded by Jessica Jackley, Evan Reas, and Dana Mauriello. Jackley is Co-Founder and former Chief Marketing Officer of Kiva.org, the world's first peer-to-peer microloan website which has made almost $100M in loans since its inception at the end of 2005.
• Progreso Financiero (Mountain View, CA) is the leading provider of consumer friendly loans to underbanked Hispanic families in America. Progreso has developed a proprietary credit score based on over 25,000 initial loans, and in turn, can lend money at fair rates and lower losses to families who lack FICO scores and traditional banking relationships. Progreso's mission is to help its customers build a credit history and fully realize the American Dream, and to provide ground floor innovation that helps move the underbanked up the financial services ladder. With over 100 employees and $26 million in venture capital, Progreso is rapidly expanding throughout the Southwest, and aims to serve over 1 million underbanked families with credit, debit, savings and other mainstream products by 2012.
  

• Prosper (San Francisco, CA) is America’s largest peer-to-peer lending marketplace. Since its launch in February 2006, over 850,000 Americans have joined the community and $180 million in loans have been facilitated. Prosper is an auction-based platform, where borrowers set the maximum rate they’re willing to pay, and individual and institution investors bid at or below the rate set by the borrower. In October 2008, Prosper halted its marketplace and entered a quiet period as part of the process of registering with the SEC. Nine months later, in July 2009, Prosper’s registration statement with the SEC was declared effective. Notes offered by Prospectus.
  

• The Receivables Exchange (New Orleans, LA) is a real-time, online competitive marketplace for accounts receivable that gives small and medium-sized businesses the ability to generate cash flow quickly and as competitively as possible. The Receivables Exchange allows businesses to sell their receivables to a global network of institutional investors and access working capital in as little as 24 hours. When you consider the typical remittance term of 48 days, or as much as 180 days, The Receivables Exchange is a welcome financial tool for small and mid-sized businesses.
  
• SecondMarket (New York, NY) is the largest centralized marketplace for illiquid assets, including auction-rate securities, bankruptcy claims, collateralized debt obligations, limited partnership interests, private company stock, residential and commercial mortgage-backed securities, warrants/restricted securities in public companies, and whole loans. SecondMarket’s online trading platform has more than 4,000 participants, including global financial institutions, hedge funds, private equity firms, mutual funds, corporations and other institutional and accredited investors that collectively manage over $1 trillion in assets available for investment.

A Note on Note Trading

Peer to Peer lending has been around via Prosper.com and LendingClub.com for a while now, but another option that is less prominent is after-market note trading on these sites.

There are many advantages to after-market note trading. For sellers, this means having some liquidity in your investment—being able to cash out before the loan fully matures—shortening a three year loan into one or two years or even less time.

For buyers, the advantage is being able to see some repayment history on the loan. If you’re unsure about jumping into peer to peer loans, this might be a good way to go.

Also, for prospective buyers on Prosper, a note is a loan that has already funded, so you don’t have to wait for an auction or funding period. Your note will be earning interest and expecting payment much faster.

Prosper.com uses Folio Investing as their note trading partner, and charges sellers a 1% transaction fee. LendingClub.com uses Foliofn and also charges a 1% seller fee.

Prospective note buyers should remember that they’re not circumnavigating the investor account maintenance fees at 1% at both Prosper and Lending Club—regardless of if you bought the loan at issuance or the note later in the after-market, if the money is owed to you, the maintenance fees are charged to you.

Also, at Prosper the note trading platform only applies to notes issued after July 13th of 2009. At Lending Club your notes can be a little older if you want to re-sell them. The Lending Club platform extends to notes issued back to October 12, 2008.

Overall, the note trading process is fairly smooth. You usually have to digitally “sign” an agreement with the trading platform but otherwise the sites are smoothly integrated. You don’t have to open another account or fund another account—your funds will move fairly seamlessly between your Prosper or Lending Club and the designated note trading platform account whether you’re buying or selling the notes.

If you've done any note trading, I'd love to hear your feedback and comments. I haven't tried this system myself yet, but may consider it in the future.

Jessica Ward is a freelance writer based in Seattle. She writes on family, business and money.

Lending Club Raises Rates, Prosper Responds by Hearlding Auction

Beginning July 30th, Lending Club has raised average rates charged to borrowers by 0.5% in response to increased interest rates charged by mainstream lenders.

Investors will be seeing increased rates, and already the current net annualized return of all Lending Club investors was over 9.5%.

Lending Club has continued to see increasing number of loan requests from prime borrowers and believes that the higher rate remains competitive. The very best, grade A loans, according to a company press release have actually been lowered by 0.46% to further attract the best borrowers.

Prosper.com has responded by further emphasizing its’ auction model, driving interest rates as low as its investors are willing to fund based on risk.

Jessica Ward is a freelance writer from Seattle. You can also read her work at www.debtkid.com and www.pennywisefamily.blogspot.com.

Where You Can Borrow and Lend With Prosper.com

Prosper.com is back in business with the blessing of the SEC. Not all of the states are on board, however, and Prosper is working to gain approval in the rest of the states. Here's a quick and easy list of where Prosper has gained licensees so far (updated late July, 2009).

Borrowers

Lenders

Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware District of Columbia Florida Georgia Hawaii Idaho Illinois Indiana Kentucky Louisiana maryland Massaschusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington West Virginia Wisconsin Wyoming

California Colorado Delaware Georgia Hawaii Illinois Minnesota Montana Nevada New York South Carolina South Dakota Utah Washington Wisconsin Wyoming

Source: Prosper.com/help

Jessica Ward is a freelance writer based in the Seattle area. She writes on finances, business and family.

Zensah fuels growth with Lending Club loan

PLR has decided to profile Peer to Peer users on a regular basis. Our first such profile is the athletic-wear company Zensah, which was founded in January 2004 in Tel-Aviv, Israel.

Zensah is a privately held company which develops high-end performance clothing for runners, cyclists, tri-athletes and other serious athletes. They count among their customers MLB and NBA professionals. Their designs feature seamless technology. The name itself comes from the Italian word sensa meaning “without seams” to symbolize athletes without limits.

Zensah took out a loan for $12,250 at 10.59% with Lending Club to fund some growth. They were able to repay the money within six months, despite having been turned down for a conventional business loan by banks.

Ryan Oliver from Zensah says they learned about P2P lending from reading an article about the process, and found Lending Club very easy, and even says his loan was funded within a week. At the time of their Lending Club loan, they had also considered using Prosper.com, but he described the process as “too bureaucratic” and did not proceed with Prosper. He also says he would definitely recommend P2P borrowing for other companies looking to grow—he even says he wishes larger business loans were available—in the $100-$250,000 range.

I asked Ryan if P2P borrowing was part of a larger social media plan, and he replied that it isn’t now, but if they had a dedicated social media plan, it could be a component.

Jessica Ward is a freelance writer based in the Seattle area. Her work can also be seen at www.jessicaward.me

Prosper.com, The Only P2P Player on the Beltway?

If anyone has dealt with the brunt of regulation on the P2P lending space, it’s Prosper. They’ve been through all kinds of regulatory hurdles, and as mentioned earlier, are once again in a quiet period after a brief re-launch last month.

I was surprised to come across a lobbying report filed by their firm, Podesta Group, a major player in the Beltway scene showing a $60,000 expenditure on lobbying for first quarter of 2009.

What surprised me most is the figure--$60,000 over three months—not an outrageous figure, but remarkable, as they appear to be the only P2P lender that has any lobbyist presence in DC. Why so much when nobody else in the business seems to think it's a worthwhile expense?

As a former lobbyist myself (on the state and local level), I would have actually expected all of these firms to be lobbying, but when I checked in with Lending Club and Pertuity Direct, I was told, respectively “no comment” and “We are currently not supporting any active lobbying on behalf of the P2P space. Not sure what Prosper is doing.”

Most companies seeking changes to improve their business’ regulatory environment have a presence in DC somehow. Often this is through a trade association or contracted firm such as Podesta. The lobbyists for the agency would be working with the agencies and officials that would be regulating their business space, in this case, the Commerce Department, SEC, and any Congressional committees that deal with banking and finance.

However, as I read through the Podesta Group’s report (publicly available at http://www.opensecrets.org/), I see that Prosper hasn’t been lobbying the expected committees and agencies alone, but also lobbying the Exec. Director to the Congressional Black Caucus, and the DOL Employment Standards Administration , the Secretary of Labor’s office, and in the House of Representatives, the Budget, Appropriations and Oversight committees. An interesting combination for sure.

Why Appropriations, Budget and Labor? I can’t help but wonder if Prosper is working on a new initiative? As Prosper is still in a quiet period, so they aren’t answering questions yet, but once they’ve re-launched, I for one will be excited to hear what they’ve got in the works.

Jessica Ward is a freelance writer and blogger based in Seattle. She writes about finance, business and family. You can follow her on Twitter as @jessc098 or visit her Web sites at www.jessicaward.me or www.pennywisefamily.blogspot.com.

IOU Central Launching in USA

Note: IOU Central was not available for comment, due to the SEC’s “quiet period” though they have been contacted for comment.

Look out Lending Club, Pertuity Direct and Prosper, Canada’s IOU Central is on its way to America.

IOU Central filed a registration statement with the SEC on May 13th in which they seek to “register the offer and sale of up to $225,000,000 in aggregate principal amount of Borrower Payment Dependent Notes.” The notes are to be offered on a continuous basis following the effective date of the registration statement.

According to the company’s press release notes “will be issued in series and the proceeds from the sale of each series of notes will be designated by the registered lenders who purchased the series of notes to fund an unsecured consumer loan originated through the IOU Central loan marketplace to a registered borrower.”

IOU Central first made news by becoming the first p2p lending company in Canada in February 2008. They were only open a couple of weeks before they halted operations to 'resolve a regulatory matter'. We are still waiting for the first p2p lending company to open in Canada. Right now the most likely contender is CommunityLend.

IOU Central purchased a P2P lending startup from Denmark called Fairrates. Fairrates was built in 10 months by Arkadiusz Hajduk and opened in April 2007. They had lenders willing to invest but had a problem finding and vetting good borrowers. In Denmark there is no access to credit history and Fairrates was hit with a couple fraud cases.

After little success in Canada, IOU Central will try its luck in the United States. Prospective borrowers and lenders registering on the site receive the following email:

Thank you for your interest in IOU Central!

We are getting ready to release an online marketplace that will revolutionize peer-to-peer lending. Our platform will give borrowers the benefit of a true marketplace that allows for better interest rates. The platform will also give lenders freedom in lending with our real-time bidding system. We will keep you notified of our progress as we register with the Securities and Exchange Commission (SEC).

Thanks for being a part of the IOU Central revolution!

See you soon!
The entire IOU Central team

We love hearing from you, so if you ever have any comments,
questions, feedback, ideas, etc. please don't hesitate to email us at
feedback@ioucentral.com. We have a lot in the works, so visit ioucentral.com
often..

From company news and press releases it appears that IOU Central will have a slightly higher credit score requirement than Pertuity Direct and Lending Club—according to an article on wiseclerk.com, a Equifax score of 670 will be required. Lenders will pay a 1% servicing fee (the same as Lending Club). Borrowers will pay a 2% loan origination fee, and borrowers can request loans of up to $25,000 in two separate loans.

IOU Central is a peer-to-peer lending company. The company’s internet-based loan marketplace enables borrowers to post loan requests and purchase notes from lenders. IOU Central launched in Canada’s Peer to Peer lending space in February 2008, but stopped shortly thereafter due to regulatory conditions. IOU Central is headquartered in Kennesaw, Georgia in the United States.


Jessica Ward is a freelance writer and editor, based in Seattle, WA and writes in the personal finance and microfinance space. You can check out her other work at www.jessicaward.me.

Prosper closes again - open less than two weeks

Last week Prosper re-opened to borrowers in all 50 states and lenders in California after a six-month quiet period. Prosper did not facilitate any loan activity or communicate with members while they registered their platform with the SEC. Now, after being open for less than two weeks, Prosper is closed again. Here's the announcement on the website:

Prosper is Currently in a Quiet Period

We have been overwhelmed by the outcry from potential investors around the country who want to participate in peer-to-peer lending. Thank you for your support and your letters to us.

After much consideration we have decided to voluntarily shut down our operation in order to complete our SEC approval for a nationwide peer-to-peer lending platform. As a result, due to regulatory concerns, and in the interest of working toward getting our registration statement effective as soon as possible, we are discontinuing our California intrastate offering at this time.

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 are a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process.

We want to assure you that Prosper is looking forward to being able to offer a transparent, durable and participatory lending institution very soon.

As a result of this decision, we will not be accepting new lender or borrower registrations or loans, or new commitments from existing lenders effective immediately. Until this process is complete, we are required to be in a quiet period and will be unable to respond to press, blogger or other inquiries related to our SEC registration process, even though we would like to.

We sincerely apologize to the Prosper community members for this inconvenience or disappointment our decision may have caused. We want to thank those of you who demonstrated your support through your active participation whether by investing with us again or referring friends to our site.

Thank you in advance for your understanding, support and patience once more. We look forward to serving the needs of the community in the hopefully not too distant future.

While Prosper is closed, Lending Club has the full blessing of the SEC and has facilitated nearly $40 million in loans.

Prosper among best of show at FinovateStartup09

Netbanker just announced the winners of the best of show awards at FinovateStartup09 and they are Prosper, BillShrink (our review), Silver Tail Systems and SimpliFi. The winners were selected by ballots from conference attendees.

After a six-month quiet period to register their platform with the SEC, Prosper re-opened yesterday at Finovate. They are currently serving borrowers in all 50 states and lenders in California.

Just in Time for FINOVATE: Many Companies Launching New Features

Just in time for FINOVATE many new features are being launched by participant companies, some of which we've profiled here before.

I'm following the conference online today via webcast, though wishing I could be in beautiful San Fransisco, which is lovely this time of year.

I'm starting this list with items I've already made notes of, but may update later during the day as I follow along the FINOVATE presentations today.

• Mint (see previous my review) has added CD and Brokerage shopping options. I wish they had this when I choose my brokerage two months ago, but I'm glad they have it now, and I'm glad to see I chose well. They've also added the ability to change dates on transactions which is great for those checks that clear late and things like that, so you can keep your budget on track.

• Lending Club is offering new lender features which Tom posted about earlier today.

• Prosper is live now!

• Wesabe has a tagging system now, which will be a great asset to users.

• Debtgoal (my review) has a brand-new interface which is far more useful and intuitive.

• SmartHippo (my review) has a new questions and answers page at www.smarthippo.com/answers.

• UPDATE: It's 3:00 and I just got an email from GreenSherpa that their beta system is now available.

• UPDATE: it's 4:30 and Rudder just launched an iPhone app. You can get it in the app store. Now word about what's out there for blackberry users.

• SmartyPig continues to respond to customers in real-time, and has added a "lower this" to reduce your monthly savings if friends and family members' contributions to your savings goal has enabled you to choose between meeting your goal sooner, or reducing your monthly contribution. It suggests the difference for you too, so you don't have to do the math.

Jessica Ward is a professional writer and blogger based in Seattle, WA. She also blogs at www.pennywisefamily.blogspot.com, to learn more about her visit www.jessicaward.me

Prosper launches to borrowers in 50 states; lenders in California

After a six-month quiet period to register their platform with the SEC, Prosper has re-opened to borrowers in all 50 states and lenders in California. They have simultaneously launched FixTheCreditCrisis.org which is a campaign to reach out to elected officials to allow peer lending in all 50 states.

Currently, Lending Club and Pertuity Direct are the only two p2p lending platforms available to most investors throughout the United States. Prosper's model is different because, among other things, loan rates are determined by an auction among lenders.


Here is an open letter from Prosper's CEO Chris Larsen about the new launch and an appeal to regulators to allow lenders to lend from all fifty states:

We are pleased to announce that Prosper is now open for business once again after a six month hiatus. At this time we are launching to borrowers nationwide and to individual and institutional lenders in California. We hope to be fully national soon.

First we would like to thank the Prosper community for your incredible patience and support. We’re especially thankful to the overwhelming number of lenders who have kept their funds in their Prosper trust accounts, eagerly awaiting our re-launch.

We also want to thank Governor Schwarzenegger’s team, particularly Preston DuFauchard of the Department of Corporations, for embracing peer-to-peer lending as a promising new technology and alternative credit system for getting credit flowing to consumers and small businesses at the very time they need it most. California regulators have always been known as innovation leaders and they just proved it again.

We remain hopeful that the SEC, which until now has effectively hamstrung the growth of the peer-to-peer and micro-lending industries in the U.S. will start applying the same common sense approach as California’s regulators. California has recognized that Internet auctions, just like the Google IPO, are the most efficient means of price discovery; that loan level transparency is better than the opaque loan pooling that brought the financial system to its knees; and that requiring regulatory filings every other day of web site transactions that are already visible in real time, is redundant and cost prohibitive.

We want our users to know that while we have been in a quiet period, we have been innovating. Most significantly, we are launching our Open Market initiative, which for the first time will allow other financial institutions, such as auto lenders, small business lenders and community development lenders, to place their already funded loans on our site for auction. This is both exciting news for lenders on Prosper as well as a much needed solution to the credit crisis.

As we all know, America is in the midst of the greatest financial meltdown since the Great Depression. Creditworthy consumers and small businesses can’t get loans. The government is scrambling to get money on the street by pumping hundreds of billions into our banking system. Yet, the banks are still pulling back and consumer loan securitizations, which make up nearly half of the lending market, are still frozen. We all know the causes of the crisis - lack of transparency, over-complexity and reliance on single points of failure.

The crisis is painful but is also a once in a lifetime opportunity to rewire finance in a way that is fundamentally more transparent, more participatory and more durable.

Prosper and our Open Market initiatives were built on these fundamental values.

Prosper’s Open market model could be the securitization market of the future. Rather than pooling loans, using rating agencies, and creating artificial tranches that are too complex, and opaque, Prosper now allows each loan to be sold separately, priced by the originator and auctioned in a fair and transparent Dutch auction. It uniquely provides a direct line of sight from the money invested to the loan itself.

In addition, Open Market brings the same social lending possibilities to securitization that we have always seen in the Prosper Loans Marketplace. For example, auto loans listed on the Open Market will show in which auto plant and city the car was made. That way fellow Americans who put a value on American jobs might make loans to cars made in Ohio, for example, at a better rate than loans to cars made in Germany. This could never be done with traditional securitizations because investors never had that level of transparency.

Obviously some areas of our financial system need more regulation and more limitations on what can be done. Understandably many in Washington now equate innovation with the toxic Wall Street concoctions like the Credit Default Swaps or CDO-squared monsters that nearly wrecked our economy. While these exotic instruments need to be reigned in, a sweeping ban on all innovation would be a grave error with lasting negative consequences. What we need is a common sense approach to innovation that is judged on its merits. For instance, shouldn’t innovations that result in more transparency, fairness and accessibility be embraced?

We can draw a parallel to how America is dealing with the on-going energy crisis. We know that we can’t depend solely on an oil based economy. The solution is not to just “drill baby, drill”, but to concurrently develop new energy systems that are cleaner, more sustainable, and fundamentally more diverse and durable. The same idea should apply to fixing our financial meltdown. If all we do is clean up the toxic mess while propping up the too-big-to-fail institutions, we will be engaging in a “drill baby, drill” mentality and will have missed a tremendous opportunity to rewire our financial system. As in the energy crisis, we need to encourage new alternative sources of credit by embracing innovation and entrepreneurs. This is at the heart of what makes the American economy continue to thrive.

But we need the help of our political and regulatory leaders. That’s why we are so grateful for California’s leadership in embracing peer-to-peer lending. And it’s why we’re asking for your help in encouraging other regulators and leaders across the country to take a similar view.

You can help us get this message to Washington and other leaders. We invite you to call or email your State’s elected officials using the tools we’ve provided for you at FixTheCreditCrisis.org. By reaching out directly to your state’s elected officials, we’ll ensure that our collective voices are heard.

Best regards,
Chris

Update: Prosper closes again after less than two weeks

Speculating on a possible Prosper Re-Launch

I’ve been spinning through the list of FINOVATE participant companies watching for changes and upgrades that are coming out just in time for FINOVATE and I’m excited to see some really cool things coming up. However, this one certainly took me by surprise.

After months of “quiet period” the Prosper.com web site is down for maintenance.

Now, I’m gonna go out on a limb here and project that prosper.com will launch Monday or Tuesday, in time for Finovate. It makes sense. When you compare the Lending Club S-1 documents to the Prosper documents, the timeliness match nicely.

I’m not the only one speculating about the possibility of a Prosper re-launch. Investar on the “Prosper Quiet Diary” forum notes the difference between the normal notice and the current notice and that Prosper’s normal blackouts are just a few hours, not two days. They also normally include the term “routine maintenance” which this notice certainly does not.

Another post from “Investar” says that one of his “notes” has been charged off, when usually the language says “loans.” Semantics or quiet hints?

I guess, in a few days, we shall know. Most of us expected Prosper to resurface after their April 14th filing, but if the SEC required further communication (and note that the SEC recommended “accelerated” communication) another 10-15 days would be a great window.

Also, they’re a registered FINOVATE company. Why bother promoting themselves when there’s nothing to promote? Re-launching for FINOVATE just makes sense.

Jessica Ward is a freelance writer and blogger based in Seattle, Wash. She also blogs about frugal family living at www.pennywisefamily.blogspot.com

Nuwire's Cost-Cutting Tips for Businesses: #1 Peer to peer lending

NuWire Investor just published an article titled Ten Cost-Cutters for Businesses. Here is their first tip:

Capital: Free money almost always comes with strings attached. But if you really need capital, here are some ways to get cash, for a limited time or a small fee:

• Peer-to-peer (P2P) lending is a way to find private lenders who will lend money in exchange for equity or some other security. Prosper.com is one source.
• Microlending groups offer business loans at very low rates. These are not exactly free, but they come close.

I agree that peer to peer lending is an attractive source of capital for some small businesses. I am not, however, aware of any peer to peer platform which requires an exchange of equity or some other security. Prosper, Pertuity Direct, and Lending Club only provide unsecured loans.

Although the article does not mention it, Prosper is actually closed right now while they register with the SEC.

Microlending typically refers to very small loans. With Grameen America, for example, the average loan size is $2,000. These are generally targeted to poor entrepreneurs, typically women, who do not have access to traditional credit markets. The upper limit on loans through most peer to peer lending site like Lending Club is $25,000.

While I'm pleased to see NuWire mention peer to peer lending, the information presented is a little inaccurate.

P2P lending: 2008 in review

The P2P lending marketplace changed significantly in 2008. Of course, we said the same thing in our 2007 P2P lending review. There are also likely to be even more significant changes in 2009.

In 2006 the only real P2P lending story was Prosper. In 2007, Lending Club launched and Zopa expanded to the U.S. In 2008 the story is dominated by regulation - Lending Club obtained a green light by the SEC and most other companies shut their doors as they work towards SEC approval.

Here's a look at each individual company:

Lending Club

• First a quick review of 2007: launched inside of Facebook in May 2007 and loaned $100,000 during their first month, expanded to users outside Facebook and became the first p2p lending platform to loan to borrowers nationwide without state-by-state lending caps, hosted a popular YouTube video contest, and received $10 million in venture capital
• In April 2008 Lending Club halts lending in order to register their secondary market and lending operations with the SEC
• In October Lending Club re-opens for investors and announces a secondary market

Prosper

• First a quick review of 2007: named one of the 50 best websites of 2007 by Time, passed $100 million in loans (now at $108 million), received $20 million in venture capital for a total of $40 million raised
• April - Follows Lending Club's lead and eliminates state rate caps
• October - Immediately after Lending Club reopens, Prosper enters a quiet period and halts operations
• December -Prosper is fined $1 million. They then file a S-1 registration statement with the SEC.
  

Zopa

• First a quick review of 2007: Zopa expanded from the U.K. to the U.S.
• Named 'most threatening non-bank' in April by the 2008 Retail Banker International Forum.
• In October I had a bad experience trying to obtain a loan from Zopa. A couple days later Zopa closes operations in the US

Loanio

• Loanio launches in October with a focus on platinum verification and co-borrowers
• Follows Prosper's lead and halts operations in November in order to register promissory notes with the appropriate securities authorities.
  

Other companies to capture our attention in 2008:

• Swap-A-Debt seeks regulatory approval
• Pertuity Direct announces they will launch 'immediately after the New Year' And they do.
• Fynanz becomes the first P2P student loan marketplace. They halt p2p lending and rebrand themselves (Jan 2009) as a loan platform for credit unions.
• In Canada, IOU Central beats CommunityLend to Canada's market for a couple of weeks in February before they halt operations to 'resolve a regulatory matter'. We are still waiting for the first p2p lending company to open in Canada.
• In January 2008 Globefunder opens their doors to borrowers. Since they are only open to institutional investors we have not discussed them on the blog much since.
• Microfinance grows in the U.S. and around the world. We will cover these companies more in 2009 than we have in the past.
  

We started Prosper Lending Review in 2007. It has been fun and we have learned a lot. Our traffic has grown significantly. According to unique visitors, these are our most popular articles in 2008.

15 Most Popular Articles of 2008

A Prosper scam: The story of Jessica Wolcott - This also happens to be the most read story of 2007 as well.
PayPal competitor Revolution Money Exchange offers $25 sign-up bonus
How does Prosper compare to other investments?
Why does Revolution Money require my social security number?
Borrowing money to lend on Prosper: Wise or Foolish?
P2P lending review: Best of 2007
Prosper: A hands-on education in risk management
Eleven perspectives on P2P lending - this is my favorite article of the year
Fynanz to tackle peer to peer student loan niche
When to bid on Prosper loans
Why would a borrower use Prosper instead of a traditional bank?
P2P Lending Carnival #4
What effect would a recession have on the Prosper marketplace?
Revolution Money Exchange improves referral program
Peer to peer lending in Canada - CommunityLend

We look forward to 2009 and the many positive changes it will bring to the p2p lending marketplace. Happy New Year!

Prosper works through regulatory process; nears re-launch

Prosper updated their S1 with the SEC on Friday. In October Lending Club updated their S1 less than a week before they reopened. It is possible Prosper will open in days.

All the documents can be read here:

• January 16, 2009
• December 5, 2008
• October 30, 2007

Swap-A-Debt, a new p2p lending company we discovered in December, also updated their paperwork - on the same day as Prosper. Their filings are here:

• January 16, 2009
• December 22, 2008
• December 9, 2008

Prosper files S-1 registration with the SEC

Prosper filed a S-1 Registration Statement with the Securities and Exchange Commission (SEC) today. The document can be read here.

Recent related history
This week: Prosper fined $1 million; class action lawsuit prepared
Last week: SEC files cease and desist against Prosper; Loanio halts operations
Oct 15: Prosper halts operations; enters quiet period
Oct 14: Lending Club emerges from quiet period
Oct 9: Zopa closes
Oct 1: Loanio opens
April 2008: Lending Club enters quiet period

Prosper fined $1 million; faces class action lawsuit from lenders

Prosper has agreed to pay state regulators $1 million for selling unregistered securities. In October Prosper stopped making loans and last week the SEC filed cease and desist proceedings against the company. According to a press release from North American Securities Administrators Association (NASAA):

"Under terms of the settlement, San Francisco-based Prosper agreed not to offer or sell any securities in any jurisdiction until it is in compliance with that jurisdiction’s securities registration laws. Prosper also agreed to pay a fine totaling $1 million to the states. In consideration of the settlement, the states will terminate their investigation of Prosper’s activities related to the sale of securities before November 24, 2008."

Although Prosper has settled with state regulators, they still face potential legal trouble from lenders. Phillip Kim, an attorney with The Rosen Law Firm posted the following message on Prospers.org:

"We are investigating a potential civil securities class action against Prosper on behalf of any person or entity that has lost money in offering loans using the Prosper platform since Prosper's inception in January 2006. Such persons and entities may be able to recover their losses from their loans because the loans may have resulted from unregistered securities."

Based on the legal quandary of p2p lending, Zopa and Loanio have both closed their doors. Lending Club, on the other hand, has registered with the SEC and has seen increased business due to the failure of other platforms and the current economic difficulties.

Prosper in violation of SEC; Loanio to halt operations

In case you haven't been paying attention, over the past few months several events have reshaped the P2P lending marketplace.

• Loanio opened
• Zopa closed
• Lending Club emerged from their quiet period
  
• Prosper halted lending.

If you thought things would quiet down, you were wrong. Here's the latest...

The SEC has filed cease and desist proceedings against Prosper. According to the filing, "The loan notes issued by Prosper pursuant to this platform are securities and Prosper, from approximately January 2006 through October 14, 2008, violated Sections 5(a) and (c) of the Securities Act..." Fred93 wrote some very insightful commentary about the dilemma last week. There is also an ongoing discussion on Prospers.org.

Now, to top things off, it appears Loanio will also halt operations. Wiseclerk has a statement from Loanio's CEO, "effective immediately Loanio will no longer be accepting registration from lenders or borrowers." There is no announcement on Loanio's website yet.

Despite the troubles of Prosper and Loanio (and perhaps partly because of it), Lending Club is doing very well. They are open for borrowers from all states and continue to add lending on a state-by-state basis. Here is the latest map, from Lending Club's blog, showing the states who are eligible to lend on Lending Club. The most recent addition is California.

P2P Lending on VOA News

Michael Sullivan from VOA News discusses P2P Lending on his radio program.

Much of the program is about Lending Club which, right now, is the leading P2P lending site. There is a discussion about how the current financial crisis is actually good for Lending Club. Prosper, Virgin Money, Zopa and Kiva are also all mentioned.

According to the radio program, Zopa closed due to "difficult lending conditions." Although it is easy to blame the credit crunch in this environment, the much more likely culprit is SEC regulations. Loanio and Prosper are also in a sticky situation right now due to SEC regs.

Lending Club opens referral program while Prosper shuts their program down

For a little more than a year, Prosper managed a referral program which rewarded new lenders with a $25 bonus and the referring party with bonuses as high as $50. Over time the program experienced many changes but remained a valuable means to drive new business to Prosper. Last week Prosper entered a quiet period and yesterday they sent the following message to members of their affiliate program:

We are writing to inform you that the Prosper Referral Program has been shut down and is no longer in effect. Our lender activity is limited. Click here to learn more.

As a result we request you take down any reference to Prosper immediately.

Thank you for your immediate attention in this matter.

It is uncertain what "any reference to Propser" includes. Presumable it only refers to advertisements. While we have typically used referral links when linking to Prosper we have not served Prosper ads for quite some time.

Websites which rely on referral income can now turn to Lending Club. Lending Club started a referral program with Commission Junction earlier this month. Here are the details of the program:

Description: Lending Club is a social lending network where members lend and borrow money from each other at better rates, bypassing the banks.

We have already issued more than $20,000,000 in loans at better rates than banks' and we are looking to spread the word of this great alternative.

We will reward publishers for every user they refer that fill out the loan application form, independent of the loan issuing or not.

Lending Club accepts only US-based credit worthy borrowers with 640+ FICO score and no current delinquencies.

Here are some answers you may be looking for before you advertise for us:

What will you pay for?
We will reward publishers for sending us qualified traffic:
$35 for first 10 applications/month
$40 for each additional loan application

What is your conversion rate?
Our current conversion rates are very high (upwards of 60%) if the user is looking for a loan and has good credit.

Do you have a dedicated affiliate manager?
Yes. We have asked CJ to manage the program initially, and in addition, we have a dedicated SEM resource on board.

What is your average order amount?
Typical order amount is between $80-$150(fees charged once a loan is issued). We don't charge a fee for application, and about 80% of the applications actually become loans.

Is your website attractive and easy to navigate?
Very much. We won the Webby award 2008 as best banking and payments site as well as a 2008 WebAward for Outstanding financial services site.

How does your commission structure compare with other advertisers in your category?
We feel we are very competitive and in most cases, we pay higher than other advertisers.

If a publisher consistently performs, will you increase their commission?
YES. We are willing to discuss better pay-offs based on performance, quality of borrowers and volume.

Based on my own experience with various referral programs I'm optimistic towards Lending Club's new referral program. With Prosper, hundreds of new members have joined Prosper after clicking on links from this site but very few have become borrowers or lenders. Prosper did not pay a referral bonus until the borrower made their first payment so, even if the borrower converted, it was still several months until a payment occurred.

Lending Club pays immediately after a person fills out a loan application, so their referral program is much more likely to result in referral bonuses and much more likely to result in payments. Hopefully Lending Club will expand their program to lenders as well as borrowers in the near future.

Here is an example of one of Lending Club's new ads available through Commission Junction. Click through for the improved landing page.