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.

How might an Obama/Biden administration change p2p lending?

With the historic election of Senator Obama and Biden this week, the focus is now on what changes they will bring to the country. There are many proposed changes that might have an impact on peer to peer lending. According to change.gov, a site set up by the Obama-Biden Transition Project, "In the Illinois State Senate, Obama called attention to predatory lending issues. Obama sponsored legislation to combat predatory payday loans, and he also was credited with lobbying the state to more closely regulate some of the most egregious predatory lending practices."

While I do not believe Obama has ever specifically mentioned p2p lending, there are several of his economic proposals that are likely to impact the industry. Some of these proposals may influence the demand for loans or have other second and third order effects. Other changes may have a regulatory influence on the industry. Here are some of the specific proposals from change.gov:

Address Predatory Credit Card Practices

Obama and Biden will establish a five-star rating system so that every consumer knows the risk involved in every credit card. They also will establish a Credit Card Bill of Rights to stop credit card companies from exploiting consumers with unfair practices.

• Create a Credit Card Rating System to Improve Disclosure: Obama and Biden will create a credit card rating system, modeled on five-star systems used for other consumer products, to provide consumers an easily identifiable ranking of credit cards, based on the card's features. Credit card companies will be required to display the rating on all application and contract materials, enabling consumers to quickly understand all of the major provisions of a credit card without having to rely exclusively on fine print in lengthy documents.
• Establish a Credit Card Bill of Rights to Protect Consumers: Obama and Biden will create a Credit Card Bill of Rights to protect consumers. The Obama-Biden plan will:
  • Ban Unilateral Changes
  • Apply Interest Rate Increases Only to Future Debt
  • Prohibit Interest on Fees
  • Prohibit "Universal Defaults"
  • Require Prompt and Fair Crediting of Cardholder Payments

Reform Bankruptcy Laws

Obama and Biden will reform our bankruptcy laws to protect working people, ban executive bonuses for bankrupt companies, and require disclosure of all pension investments.

• Cap Outlandish Interest Rates on Payday Loans and Improve Disclosure: Obama and Biden will extend a 36 percent interest cap to all Americans. They will require lenders to provide clear and simplified information about loan fees, payments and penalties, which is why they'll require lenders to provide this information during the application process.
• Encourage Responsible Lending Institutions to Make Small Consumer Loans: Obama and Biden will encourage banks, credit unions and Community Development Financial Institutions to provide affordable short-term and small-dollar loans and to drive unscrupulous lenders out of business.
• Reform Bankruptcy Laws to Protect Families Facing a Medical Crisis: Obama and Biden will create an exemption in bankruptcy law for individuals who can prove they filed for bankruptcy because of medical expenses. This exemption will create a process that forgives the debt and lets the individuals get back on their feet.

Higher Education

• Create the American Opportunity Tax Credit: Obama and Biden will make college affordable for all Americans by creating a new American Opportunity Tax Credit. This universal and fully refundable credit will ensure that the first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university and make community college tuition completely free for most students. Recipients of the credit will be required to conduct 100 hours of community service.
• Simplify the Application Process for Financial Aid: Obama and Biden will streamline the financial aid process by eliminating the current federal financial aid application and enabling families to apply simply by checking a box on their tax form, authorizing their tax information to be used, and eliminating the need for a separate application.

Will any of these proposals, if enacted, have an impact on the p2p lending marketplace? What do you think?