IOU Central LogoOn May 13, erstwhile Canadian P2P lender IOU Central filed an S-1 registration statement with the U.S. SEC to issue $225 million in “borrower payment dependent notes”. As their VP of Marketing stated in an interview back in March, IOU Central has decided to focus on the American P2P lending market, after being shut down by Canadian regulators.

IOU Central’s registration largely mimicks S-1 filings from Lending Club and Prosper, with the following differences:

 

  • IOU Central plans to use the Equifax Vantage Score for credit scoring, along with the Equifax Bankruptcy Navigator Index (BNI) for underwriting. This is the first time a peer lending outfit has publicly disclosed the use of BNI.
  • IOU Central outlines fairly detailed borrower credit requirements, with a minimum 670 Vantage score requirement. Although Vantage and other FICO-like scores can’t be compared directly, 670 is a high “D” grade (on the Vantage A-F scale), which seems to put IOU Central in the “lenient” category compared to LendingClub, whose minimum FICO is 660, more like a low “B” grade.
  • Borrowers will create listings, like they do on Prosper, but IOU Central will have the right to approve or decline listings depending on how likely the company thinks they are to be funded.
  • Lenders bid on listings, but IOU has taken a laissez faire approach to the loan auction. After a lender has bid, the borrower must accept the lender’s bid in order for it to be committed. As a result, lenders may place more money in bids than exists in their IOU Central account; as bids are accepted by borrowers, other bids are immediately lowered or withdrawn so that lenders will not be overcommitted.
  • The IOU Central auction is also mixed-price, in that lenders will participate at different note amounts and interest rates, as accepted by the borrower. There will be competitive bidding in the sense that the borrower will likely choose the lowest bid rates (and presumably higher bid rates that have already been accepted can be rejected and outbid), but IOU Central will not employ any kind of proxy or automatic rate reduction bidding.
  • Loans will be available in 1, 2, and 3 year terms.
  • IOU Central will charge borrowers a 2% loan origination fee, and lendes a 1% annual servicing fee. 
  • IOU Central mentions that they are working to establish a secondary market for notes, but it does not seem to be part of the filing.

 

In the corporate financial section of the filing, IOU Central notes that through the end of 2008, the company has incurred expenses of $2.2 million. In 2009 they have received around $300k in angel funding, and have engaged with an investment bank to begin fundraising.

Interestingly, in the “Business Strengths” section of the filing, IOU Central states “We believe that our loan marketplace provides an efficient method of setting interest rates for registered users.” Although through their proposed approve/decline process for listings, IOU Central will likely start with better-priced listings, the auction mechanism and borrower-based price setting is actually quite inefficient, at least for lenders. Because lenders’ bids are accepted based on their lowest offering price, auctions on IOU Central will always favor the borrower and by definition be inefficient with lender funds.

In our interview with IOU Central, they hoped to begin lending this summer. Having filed in May and assuming the best-case scenario of 6 months to launch (which Lending Club achieved), chances are that IOU Central won’t be operational until the end of 2009, or possibly early 2010. In the meantime, the company is in a quiet period, and cannot comment.

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