Are Kiva and MyC4 p2p lending services?

wiseclerk 3 Comments

In this post Netbanker questions, if MyC4 and Kiva are offering p2p lending. He argues they are “not really peer-to-peer”.

Let’s have a look, if these microfinance models can fit under the definition of peer to peer lending. One aspect of p2p lending is, that the lender can select individual borrowers, which he wants to lend money to. Kiva and MyC4 offer this choice. A p2p lending platform usually allows search parameters to narrow the search for matching borrowers (e.g. by credit grade). Both have this function allowing to search by country, gender, industry and more.

A possible argument against classifying MyC4 and Kiva as p2p lending companies is the fact that they use local microfinance institutions as intermediaries acting between lender and borrower and charging fees. That is true, but several other p2p lending services (e.g. Prosper, Lending Club and Smava) use banks as intermediaries (for legal reasons).

So where exactly is the divide seperating MyC4 and Kiva from other p2p lending services. They differ especially on the factor that:

  1. Borrowers can not sign up themselves (so one side is really offline); borrowers are selected and screened by the MFIs
  2. Business model
  3. Lenders receive no interest at Kiva
  4. Lenders and borrowers do not reside in the same country.

I still think that MyC4 and Kiva can be defined as p2p lending services. With Microplace the case is different, because no individual borrowers can be identified; therefore Microplace could be excluded form p2p lending (Microplace states that it is not a p2p lending site).

(Photo credit: Stig Nygaard)

Prosper files amended S1-registration statement with the SEC

wiseclerk

Prosper.com yesterday announced it’s new registration filing.

The SEC filing follows an earlier one from last year that apparently did not succeed. Some speculation on the reasons Prosper’s first filing was ill-fated are on Fred93’s blog.

According to the filing, the class action lawsuit against Prosper reported previously on this blog, is currently the only class action lawsuit by lenders stated in the filing.

The sections on ‘Government regulation’ (page 73) and ‘Risks Relating to Compliance and Regulation’ (page 32) state numerous other legal risks the Prosper business model might face in the future.

For the year 2007 the filing reports that Prosper marketplace incurred a net loss of 11.8 million US$ – but still had more than 20 million US$ in cash or cash equivalents on Dec. 31st, 2007.

The following quote shows that in many attempted listings Prosper was not able to verify the income of the borrowers:

For example between September 1, 2007 and August 31, 2008, we verified employment and income for only approximately 22.6% of borrowers. …

Of the borrowers undergoing income verification for the period from September 1, 2007 to August 31, 2008:

+ approximately 56.7% provided us with satisfactory responses and received a borrower loan;
+ approximately 37.7% did not provide satisfactory responses, or did not respond, and their listings were cancelled; and
+ approximately 5.9% either withdrew their listings, or failed to receive bids totaling the amount of their requested loan.

On a side note: The document also discloses that Prosper bought the Prosper.com domain in 2006 for a price of 603,659 US$ (page F-14), of which 320,000 was payed in cash.

Prosper faces class action lawsuit; pays 1M US$ in fines to states

wiseclerk 6 Comments

The SEC cease and desist order against Prosper offered the legal arguments on a plate, now the first class action lawsuit filed against Prosper Marketplace Inc. uses the SEC filing as exhibit A to state it’s case. Regarding numbers and affected lenders the lawsuit by The Rosen Law Firm, New York, states

“…As of October, 2008 approx. $21.7 million of loan notes purchased by Class Action members have become worthless because the borrowers did not pay the loans to Prosper. Additional loan notes will become worthless as more loans are charged off as uncollectible.
…
there are tens of thousands, and perhaps hundreds of thousands of, loan note purchasers that are class action members…”

Prosper is required to file a written response within 30 days. The first court date is set for May 1st, 2009.

On the same issue – selling unregistered securities – but in an otherwise unrelated case Prosper agreed to pay a 1 million US$ fine in a settlement to the states to avoid individual states suing against Prosper. More information on that in the press release of the North American Securities Administrators Association (NASAA).
This is somewhat surprising to me as Prosper did obtain licenses in over 25 states and conducted lending under those, before it switched to the model using the WebBank. (see ‘Prosper riding the state-by-state roller coaster‘ and ‘Prosper goes national with 36 percent max interest rate‘). The same states that granted the licenses now wanting to sue Prosper?

Last week Zopa’s CEO Giles Andrews commented that regulation issue were the reason why Zopa did not use it’s UK model when it entered the US market.

While Lending Club has completed SEC registration and therefore is in compliance with the rules of the SEC, it might still face some risks. An article of the Oregonian on the NASAA settlement states:

“Oregon regulators also are investigating 40billion.com, owned by Atlanta-based 3 Guys in a Garage, and is currently reviewing a registration request by Sunnyvale, Calif.-based Lending Club, Anselm said.”

Loanio suspends operations

wiseclerk 6 Comments

Asked to comment on the recent developments, Loanio CEO Michael Solomon told P2P-Banking.com:

In light of recent events beyond our control, Loanio, Inc. has suspended its business so that we may begin the process of registering our promissory notes with the appropriate securities authorities and agencies. As a direct result, please be advised that effective immediately Loanio will no longer be accepting registration from lenders or borrowers and/or any new bids on loans or loan requests until further notice.

This message will be posted on the Loanio platform today.

SEC orders Prosper to cease and desist

wiseclerk 12 Comments

In a SEC filing of yesterday, the SEC has ordered Prosper to cease and desist. On page two it states that

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, which prohibit the offer or sale of securities without an effective registration statement or a valid exemption from registration.

From page six:

In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Prosper’s Offer.
Accordingly, it is hereby ORDERED that:
Pursuant to Section 8A of the Securities Act, Respondent Prosper cease and desist from committing or causing any violations and any future violations of Sections 5(a) and (c) of the Securities Act.

So far Prosper has not commented on the situation.