This is a question I get regularly: what does this “Quiet Period” thing mean? When discussing the history of Lending Club and Prosper I have often mentioned this mysteriously named Quiet Period but I have never fully explained what this meant. So today we will take a look back and explain what happened as I understand it.
When both companies launched, their interpretations of the financial laws were that they were functioning in a similar way to a banking intermediary. Therefore they should be regulated in a similar way to a bank. But the government thought differently. They thought the investor notes should be treated as securities and therefore they should be regulated by the Securities and Exchange Commission (SEC).
The Lending Club Quiet Period
In early 2008 Lending Club saw the writing on the wall and decided to shut down voluntarily and go through the registration process with the SEC. They entered a quiet period by posting this message on their blog on April 7, 2008. Here is an excerpt:
Lending Club has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future. Until we complete the registration process, we will not accept new lender registrations or allow new commitments from existing lenders. We will continue to service all previously funded loans during this period, and lenders will be able to access their accounts, monitor their portfolios, and withdraw available funds without changes. [Read more…]