Today, Lending Club is available to investors in 26 states on their retail platform (they do allow investors in 17 more states to participate on their trading platform). Prosper is available in 30 states (plus Washington D.C.). This leaves a large section of the country out of luck when it comes to investing in p2p lending. What is going on?
The reason for this is that both Lending Club and Prosper have to register with each state separately. And securities regulators in some states are very conservative when it comes to consideration of p2p lending. This was summarized well by a quote from Chris Naylor, Indiana Securities Commissioner, when talking about p2p lending in last week’s article in the Wall Street Journal:
I understand there is a credit crunch and these platforms are providing an alternative. But there are limitations on the financial data that is available, and a chance of default, so we need to protect investors.
This line of thinking is common among many state securities regulators. Now, Naylor did not elaborate exactly what he meant by “limitations on the financial data”. My calls to Naylor’s office have not been returned so one can only guess as to what he means here.
In an interview on CNBC’s Squawk Box last Friday, Lending Club’s CEO Renaud Laplanche was asked about the above quote from Naylor. I completely agree with his response. Lending Club is very transparent, providing detailed information on every borrower and the entire loan history is available to download for analysis by investors. But I would have also added that well-diversified investors are not losing money.