I have already commented on Lending Club’s quiet period and referral program suspension. I decided to check other blogs to see what they have to say on the email notice that went out today. Since I was reading everything anyway, I decided to post links and a few quotes to everything that I could find using Google’s Blog Search for Lending Club.
Peer-Lend commented on the uncertainty of the meaning of the communication:
There has been a large amount of speculation recently in many corners that the P2P Lending models might be subject to some legal uncertainty regarding whether the loans should be classified as securities… The speculation has primarily been concerned with who, in fact, owns the loans (notes), and how exactly that ownership [is transferred]….
It is unclear whether LendingClub has ceased operations as a result of an SEC action or whether LendingClub has chosen to bite the bullet and submit to regulation voluntarily. This event could have major repercussions…
The g-spot posted:
My guess is their legal team is burning the midnight oil. Anyone thinking of starting their own P2P lending marketplace may want to review this telling video from 2006 where Chris Larsen of Prosper talks about the effort they spent working with regulators…
What’s new in? blogged about Lending Club sorting out some legal issues:
While the company will not talk to media “until the registration process is completed,†we suspect that Lending Club is looking to obtain a broker-dealer license from the SEC that would legitimize its operations.
Rate Ladder mentions that he does not have much choice but to withdraw funds as they become available. He also lamented the closing of the referral program which I can understand if you see his screen shot showing how much was earning from referrals.
NetBanker posted some screen shots and a few links. Additionally, it seems he got a statement from Prosper.com about the Lending Club quiet period:
Person-to-person lending is an increasingly popular way for individuals to borrow and lend money at attractive interest rates. Understandably it must be done in a secure and trusted way. While we’re not in position to comment on another company’s regulatory stance, Prosper believes that…
– See the rest of the quote at NetBanker’s post on the topic.
I think this blog is jumping the gun in his assessment of the situation:
…it is no longer peer-to-peer lending… The whole idea behind P2P Lending is to keep the banks out of it… Now at Lending Club “lenders” will ensure the funding is provided, then the loans will be sold off to some institution… while the lender most certainly will not receive the full amount…
It destroys the whole “community” aspect of P2P lending…
CenterNetworks posted on the email:
Could the company be working towards an IPO? My guess is not and that this is a standard process to protect Lending Club as they grow. The term “quiet period” is being used and we hear this period could last as long as three months. I have an email into Lending Club to try to get more details.
Good luck on getting more information — it is called a quiet period for a reason. Update: I ran across a second post from CenterNetworks confirming that they received a “no comment” response from Lending Club.
The Bootstrap Economist commented at CenterNetworks that possibly banking regulators were not pleased with the Lending Club business model.
TechCrunch’s post mentions: “…we suspect that Lending Club is looking to obtain a broker-dealer license from the SEC that would legitimize its operations.”
Dividend Growth Investor wondered about the credibility of P2P lending companies overall in the comments at Brip Blap.
Jason at the Amatureist Financial Journey wishes that he would have received more notice and may not want to return to Lending Club when they come back.
I think of all the posts on the topic, Jason commented best — it seems like very poor communication to announce this so abruptly. Maybe due to regulation they had no choice about how quickly this was announced, but I wish they would have mentioned that in the email. It might have stopped some of this speculation. And now of course, Lending Club will not be able to correct this communication for three, four, or more months due to the quiet period.
Anyway, I am still hoping for the secondary loan market which would bring liquidity to the P2P lending market. We’ll find out sooner or possibly later, but in the mean time, I’ll be making my next transfer of funds to Prosper.com.
The Lending Club quiet period email was also blogged by Prosper Lending Review, by the Lending Club CEO (unfortunately comments were closed), and Saving for Home.
UPDATE: I added more blog links related to the Lending Club quiet period in a second blog post.
Technorati Tags: roundup, lending club, quiet period, p2p lending, banking, speculation, rumors
Nice round-up. Thanks for putting this together.
You overlooked my (probably one of the earliest) post regarding this matter.
Thanks Tom. And thanks Hollow Oak for adding your post — I did miss it. I’ll check it out tonight and add a quote from you too.
My guess is they got a nasty visit from the SEC, which was probably concerned that lenders could not make an accurate risk assessment of the investments they were making. This is a difficult thing to do for individual borrowers even when you have access to their credit report — and LendingClub was only providing a few metrics and a general credit score range.
Reading between the lines, it sounds like the new model will be to allow lenders to purchase shares in a general class of loans (e.g., “buy 36 shares of the D3 class”), with interest payments being paid as dividends. If a borrower defaults, the result will be reflected in the dividend.
At least, that’s my speculation on the situation. This assumes LendingClub officials are not intentionally trying to spook lenders and knew this announcement would cause concern but had little choice in the matter. I’m not affiliated with LendingClub (except for the $100 I put in as a lender but missed the deadline), nor am I an investment professional.
Thanks Dave for commenting.
I would say that Prosper.com also fits the description you posted: “lenders could not make an accurate risk assessment of the investments they were making. This is a difficult thing to do for individual borrowers even when you have access to their credit report — and LendingClub was only providing a few metrics and a general credit score range.”
So I must assume that there is some other difficulty. I am not sure exactly what it is, but you are certainly right that it must have been one nasty visit. I hope LC is back soon.
Nice round up on the LC issue. Thanks for mentioning my comments on the Brip Blap forum..
I feel as though I am late to the party, but this blog has a ton of good information, and isn’t afraid to reference other blogs to get a more well rounded data point.s