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Peer to Peer Lending News Roundup – August 17, 2013

by Peter Renton on August 17, 2013

During the week I share the latest p2p lending news on Twitter as it happens. Then every Saturday I take the most interesting news items and blog posts from the past week and share them here.

Credit Variables Explained: Public Records from Orchard – An explanation of public records and their usefulness for investors.

The Fed, Lawrence Summers, and Money from the NY Times – Clearly these reporters dislike Larry Summers but they also make some very dubious claims about Lending Club.

Be Happy Larry Summers Sits on the Board of Lending Club from TIME Business – A rebuttal of sorts to the NY Times article above.

Fraud Charges Won’t Help Small Business Lending Pioneers from Businessweek – Times are not good for Candace Klein and small business lender SoMoLend – the embattled CEO resigned this week from the company she founded.

 Zopa on fast track to alternative success from The Guardian (UK) – The world’s first online lender is ramping up, expecting to double volume in 2014.

Caveat Emptor Banking: Peer-To-Peer Lending Challenges Too-Big-To-Fail Status Quo from Forbes – So far p2p lending has managed to fly under the radar somewhat with politicians in Washington. How long can we expect that to go on?

The Complete Guide to Investor Risks at Lending Club & Prosper from LendingMemo – A consideration of risk is the most important factor for investors in p2p lending.

Community banks partner with Lending Club as P2P continues to evolve from Bankless Times – As Renaud Laplanche announced at LendIt two community banks are now investors on the Lending Club platform.

Investing In Your Peers from Fox Business (video) – Interview with Prosper CEO Stephan Vermut about the basics of his company for investors.

Savers risk big losses at peer-to-peer start-ups from The Telegraph (UK) – A balanced look at the big three in the p2p lending market in the UK.

Peer to Peer Lending Is A Pretty Good Passive Investment from Retire by 40 – An update from a Prosper investor along with details of his selection criteria.

Emerald Asset Management enters peer-to-peer lending from Central Penn Business Journal – Howard Freedland’s Direct Lending Fund, which invests in Lending Club loans, was recently purchased by this $3 billion asset manager.

Somolend’s Investors To Regulators: ‘Where’s The Beef?‘ from Forbes – An investor in SoMoLend questions the claims made by the Ohio Securities Commission.

From the Lend Academy Forum

The Lend Academy forum is where investors go to discuss p2p lending. Below are some topics that were being discussed this week.

This Is What $11.15 Trillion Worth Of Household Debt Looks Like – The New York Federal Reserve recently released a breakdown of consumer debt.

P2P Front-running – There continues to be concern about how quick the loans are being fully funded at Prosper and especially Lending Club.

Rate of return when purchasing notes via interest radar through folio – An interesting discussion about investing via Folio and the calculation of returns.

{ 5 comments… read them below or add one }

Dan B August 18, 2013 at 6:07 pm

Multiple choice…………….So Somolend is in trouble & their CEO/Founder was essentially left no choice but to head for the exit, because:

a) The Ohio Securities Commission (much like the Ohio Highway Patrol does) came at her with an iron fist in order to make an example of her.

b) She helped them in that quest by her exhibits of irrational exuberance regarding future business, future company valuations, not to mention her “appeal to greed” speeches.

c) She consistently exhibited a disregard (or a liberal interpretation, if you prefer) for the concept of “accuracy” when it came to numbers. I guess accuracy does matter, imagine that. :)

d) Because she spoke at the Lendit Conference & Peter turned her in after the audience was offended by her stratospheric projections? (nah, I don’t buy that either, since those talks usually go over well with that group…………..just like they go over well with college sororities ) :)

e) all of the above
f) all of the above except d.

Reply

Peter Renton August 19, 2013 at 6:50 am

Dan, You may like to joke about this but I think the SoMoLend allegations are serious. Here is my understanding of the main issues. It is also important to point out that these are allegations and nothing has been decided.
1. Many entrepreneurs have an irrational exuberance in their projections of success, that is not committing fraud unless the Ohio Securities Commission can prove she didn’t believe the numbers – a tough bar to cross.
2. She violated the ban on General Solicitation in promoting her company to investors. This should be pretty clear cut, but I would be surprised if it is true given Klein’s intimate knowledge of the law here.
3. She lacked the proper licenses required to sell loans on her site. I have no idea of the law here or what happened so can provide no comment.

When it comes to online small business lending we are basically back in 2008 when compared with p2p lending. You may remember back then that both Lending Club and Prosper were deemed to be illegally selling securities without the proper licenses. Both companies survived intact.

We also know that Ohio is one of the most unfriendly places for investors in this industry – neither Lending Club or Prosper operate there. Klein probably couldn’t have chosen a less friendly state to launch SoMoLend.

I am not going to be passing judgment on these allegations until after the ruling in October. But I will remain hopeful that whatever happens it won’t set back p2p lending or online lending as a whole.

Reply

Dan B August 19, 2013 at 9:54 am

Oh, I don’t believe that they can prove she committed “fraud” either & I made no suggestions that they would. I’m not passing judgement on anything. But it is pretty much beyond contention that she did throw some wild numbers around that were far removed from fact & she did say some questionable things for whatever reason. I don’t believe the company is denying she committed those acts.

The only thing that is within contention is whether there was the intent to defraud. If there was no intent, then it must logically follow that she was either unaware that the incorrect numbers she kept spewing were incorrect………………….or that she was aware they were incorrect but didn’t think it important enough to stop spewing it. So it’s carelessness & incompetence or a highly objectionable disregard for accuracy.

Apparently, the state of Ohio must have little tolerance for people who take liberties with numbers. If p2p becomes a trillion dollar business some day & you achieve the success that I expect you will in that scenario,………….you might think about giving that state a wide berth. Don’t even do stopovers there man. Hey, better safe than sorry. I was once detained together with 2 family members under armed guard on a stopover in New Delhi for 2 hours inside a un-airconditioned plane. No, I was not suspected of terrorism or inflating numbers. :)

Reply

Zach August 22, 2013 at 12:21 pm

What should be news is the lack of high yield notes available on Lending Club. It is clear that there has been a large movement of cash into LC. Currently available notes fluctuate between 40-110. At one point, I calculated that if you had 600k, you could buy up every single note that was currently up for funding. When I started with LC a year ago there were usually about 500 notes available for funding. This problem seems to have started about a month ago. I am having to invest in B and C notes just to keep my money invested, hurting my ROI which is about 17% according to my calculations and 21% according to LC’s.

Reply

Peter Renton August 22, 2013 at 2:26 pm

Unfortunately, this news is not that new. This first really began to appear back in March when I wrote this article:
http://www.lendacademy.com/lending-club-loans-being-snapped-up-quickly/

Then in May I wrote this, hopefully some of the ideas there may help you:
http://www.lendacademy.com/new-p2p-lending-reality/

I do agree, though, that in the last month the competition for loans has become even more fierce.

Reply

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