IOU Central Files SEC Registration in Order to Open in the US

IOU Central, headquartered in Kennesaw, Georgia, Wednesday submitted an SEC S-1 Registration filing in order to launch in the US. IOU Central did launch a p2p lending service in Canada in Feb. 2008 for a brief period of time before it was closed due to regulation constraints.

Barry Coleman, VP Marketing at IOU Central, told earlier this year:

… 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 have taken a lot of the good from the original IOU Central platform and added features that make it much better for both borrowers and lenders.

The registration filing shows the minimum requirements IOU Central will apply to borrowers (Equifax Vantage score of at least 670 and others) and the validation process (most borrower income, employment and occupation information will be self-reported and not verified). The interest rate is set by the IOU Central loan marketplace based on several borrower related criteria. There will be auction bidding by lenders (like at Prosper) and an auto-fund option. Furthermore lenders can set auto-bidding parameters.

IOU Central will charge lenders a servicing fee of 1% of the remaining principal balance. Borrowers pay a 2% loan origination fee.

Terms of the loans will be 1, 2 or 3 years.

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Breaking News: Prosper Closes Again

Less than 2 weeks after reopening the p2p lending platform has closed down again, not accepting new lenders and borrowers.

The website currently displays the following message:

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.

What a mess.

Prosper Reopens for California Lenders, Nationwide Borrowers has restarted offering p2p lending to customers after an SEC imposed 6 months stop (quiet period).

Prosper chief executive Chris Larsen said the California Department of Corporations has authorized the company to resume raising money in California and then lending it out under a system that lets borrowers and lenders use bids to set the interest rates on loans. “I hope this leads to wider acceptance of peer-to-peer lending,” said Commissioner of Corporations Preston DuFauchard. He said the state’s experience with Prosper, prior to the SEC intervention, made it “comfortable” that its bidding system gives lenders the information they need to invest in loans wisely.

Prosper hopes to reopen for lenders from other states but it remains uncertain when Prosper will be allowed to do so.

Prosper raises the minimum credit score required to 640 (Grade C under the old rating). This applies only to new borrowers. Borrowers registered before the quiet period that have lower credit grades can still apply for second loans (example: loan listing of a HR borrower).

Besides “direct” p2p loan listings, Prosper offers “Open Market Listings“, which are described as following:

Open Market loans are existing loans that were underwritten by financial institutions that are credit experts in areas such as auto loans, small business loans or social impact loans. The loan seller describes the loan in an Open Market listing, and then sells and assigns the loan to Prosper.

Open Market loans may include existing consumer loans or retail installment sale contracts. They can be secured or unsecured loans, and may include small business loans, where the borrower is a business entity, not an individual.

Open Market listings describe the existing Open Market loan, owned by the loan seller, which is offered for sale on the Prosper marketplace. Each listing displays information to assist the lender in making an informed bidding decision. Lenders can review the sale price for the Open Market loan, the yield percentage that corresponds to the sales price, the remaining principal balance of the loan and the interest rate the borrower is obligated to pay on the loan.

In some instances on auto loans, you can even see the factory where the car was built. This is all part of the transparency Prosper brings to the marketplace so that you can make informed decisions on how to invest your money.

Prosper plans a secondary market which in future will allow lenders to trade notes.

(Sources: Prosper, San Francisco Chronicle)

Prosper Plans Open Market Loans, which is still in quiet period and not allowing new loans, made a new SEC filing yesterday. In this third amendment to the S-1 filing makes several amendments, most notably introducing securitization for initial offerings of loans.

Prosper plans “Open market loans”, which apparently are loans issued by traditional lenders which being securitized and resold to Prosper lenders. I am somewhat sceptical how many Prosper lenders will like the “open market loans” offer. To me this seems a far excursion from the peer to peer lending idea.

In the filing Prosper states that FolioFn will be the operator of the Prosper secondary market (named “Folio Investing Note Trader Platform”). FolioFn already operates the Note Trading Platform of Lending Club.

More changes in the new filing are in a review in this blog post at P2PLendingNews.

Lending Club invested 2.4 million US$ to fund loans

As has researched Lending Club has invested 2.4 million US$ of its own money to fund loans since the relaunch in last October. The total volume of funded loans is approx. 10 million US$, that means that Lending Club funded about 24% of all loans itself.

The data is from weekly sales reports that Lending Club files with the SEC. The sales reports look like this and give details on each loan funded.

More details and numbers in the article (recommended reading) by

While this may be contrary to the “pure” idea of peer to peer lending my take on this is:

  1. I see it as a positive development. By using own money to fund loans Lending Club demonstrates their belief in the business model and shares the same risk it expects lenders to take. By the way: There are ongoing discussions at MYC4 about changes that could lead to MyC4 and MYC4 providers to share more risk in funded loans.
  2. By co-funding loans Lending Club adds continuity. When supply of money by lenders is low, Lending Club co-funds more. That way the demand by borrowers can be served without interruptions.
  3. However since due to SEC filings very detailed information on the funded loans is publicly available, the explanation of Rob Garcia that the download data was removed due to privacy concerns (see previous post), seems stale.
  4. P2Plendingnews questions, if Lending Club can continue with co-funding for running out of funds. On the other hand, Lending Club earns interest from the funded loans and can sell the notes any time on the secondary market (that would explain why so many of the notes there are offered for sale immediately after the loan was funded).
  5. One further and important aspect: Only residents of 25 states can participate as lenders on Lending Club directly. However on the Note Trading platform residents of all but the states Kansas, Maryland, Ohio, Oregon, Texas and Vermontand the District of Columbia can buy notes.
    That means by co-funding loans and selling part of their investments on the Note Trading Platform Lending Club enables a larger target audience to use their service.

Please share your opinion by commenting here or in the Lending Club forum. Thank you.

Prosper files amended S1-registration statement with the SEC 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 domain in 2006 for a price of 603,659 US$ (page F-14), of which 320,000 was payed in cash.