The only option left for users is Virgin’s most basic social lending product, Handshake Basic, where for the low low price of $99 Virgin Money will pump out a templated promissory note for you and your kindly friend/lender (never mind that promissory note templates are readily available for free online). No longer available is the Handshake Plus product, where Virgin would at least collect payments on the lender’s behalf, avoiding those awkward “hey, could you, uh, pay me back?” moments.

This is the sad winding down of yet another of Richard Branson’s grand visions. From the acquisition of CircleLending in May 2007 and the opulent, history-bending (a British guy preaching revolution in Boston?) launch in Boston’s Copley Square in October 2007 (see video), it’s taken about two years for the Virgin Money empire to collapse in the United States.

The first clue that something was awry at Virgin Money was the awkward resignation of CircleLending’s founder Asheesh Advani. Our post on Advani’s resignation has drawn a lot of comments, including accusations of sexism, racism, and general incompetence. Either Advani’s ouster was an attempt to reinvigorate the company, or just another step towards the grave. In either case, later comments alleged a few more details about the demise of the company:

• The company was no longer offering retail mortgages or reselling its mortgage license. The general manager of the mortgage business had bought Virgin Money’s licenses and started ClearPoint Funding. (ClearPoint’s state licenses page lists Virgin Money’s same licenses in fewer states, but the same pithy headline: “Drivers, dogs, yes, even we need licenses too. Here they are.”)
• Virgin Money has eliminated loan servicing, and transferred loan servicing for previously-issued loans to a third party loan servicer.
• Virgin Money recently laid off 80% of their staff and removed the sign from their “posh” office space (although the view from Google Maps is very mid-80s office park).

All but the last point can be verified, but from the, uh, simplicity of the Virgin Money US site, it’s pretty clear that the friend-to-friend lending experiment that started back in  2001 is coming to a close.

Note to the webmaster at Lending Club: It’s probably time to take Virgin Money’s mortgage products off the Uncrunch America web site that’s languishing on your domain.

Photo credit: Richard Branson in Fortune Small Business

Related posts:

1. Asheesh Advani Steps Out of Virgin Money – Or Was He Pushed Out?
2. Virgin USA acquires CircleLending, enters US banking market
3. Prosper Won’t Stop ’til They Get Enough SEC Filings

The loan is described in more detail in an SEC Form 8-K filing made by Prosper today. The note accrues interest at a rate of 15% per year, and the full $1,000,000 is due in two years on Nov 11, 2010. If Prosper takes additional financing of $5 million or more before the loan is repaid, the loan amount will be converted to preferred shares at the financing price. If not, the loan will convert to preferred shares at the Series C financing (Jun 2007) price.

Yet more financing will be needed to keep Prosper afloat until profitability. After shutting down in the fall of 2008 for SEC registration, then coming back in July of 2009, Prosper has had a rough year. Since reopening in July, loan volume has grown to over $2 million in October, but Prosper continues fighting an uphill battle against Lending Club, who saw over $6 million in loans funded during the same month.

Related posts:

1. Prosper secures another $20M in financing
2. Lending Club Reveals $4.1 M in New Funding
3. Prosper Files Sixth S-1 Amendment With SEC, Corrects CEO’s Name

Although the companies are neck-and-neck in the race for regulators’ favor, Lending Club continues to dominate the P2P lending race, with almost 5 times Prosper’s loan volume in August 2009 at $4.3 million in loans issued vs. Prosper’s $905,000 in loans issued. Prosper has only been back in operation for a month since reopening with clearance from the SEC, but at the midpoint of September, loan volumes continue to look 5:1 in favor of Lending Club.

At 54% of the population, both Prosper and Lending Club still have a lot of work to do with state securities regulators; so far it is clear that the low-hanging fruit has been harvested. But Texas (8% of the population), Pennsylvania (4.1%), and Ohio (3.8%) are the next-biggest states to conquer, and just adding those three states would increase the addressable market for either company by nearly 30%.

Related posts:

1. Prosper Adding States at a Good Clip
2. Lending Club Adds Self-Directed IRAs
3. Lending Club vs. Prosper, One Week In

As Prosper Lending Review points out, Pertuity Direct has not issued a press release since March (when they announced that they had funded $500,000 in loans), and hasn’t made a blog post since May. P2P Lending News contacted Pertuity Direct requesting an interview in early July, and received no response.

This apparent shutdown comes with no forewarning to Pertuity Direct members. The web site is still active and seems functional, although no new borrower stories have been posted since May 12. Users can still register, but borrowers attempting to sign up from any state (including Pertuity’s home state of Pennsylvania) are told “We currently do not offer loans in your state”.

Investors hoping to sign up through the National Retail Fund’s web site are also roadblocked with the following message:

We’ve reached out to Pertuity Direct for comment on these reports, and will add an update when more information exists.

Related posts:

1. Pertuity Direct Launches Mutual Fund-like P2P Lending
2. Pertuity Direct Lends $500K in First Two Months
3. Lending Club and Pertuity Direct Seek Affiliates

Lending Club continues to grow at a solid pace, and is on track to fund about $4.1 million in loans during August 2009, which would be an increase of 6% over the previous month. This also puts Lending Club at about 4x the monthly loan volume of their nearest competitor Prosper, who relaunched in July and will be completing their first full calendar month with around $1 million in loans funded. To date, Prosper’s aggregate loan volume of $180 million still dwarfs Lending Club’s progress.

At $4.1 million, Lending Club’s August 2009 performance would not be their highest-grossing month ever. That high water mark was set back in March 2008, shortly before Lending Club closed down for SEC registration. Loans during that period likely included a high volume ofloans funded by Lending Club themselves, as disclosed in their S-1. Lending Club has since stopped the practice of bankrolling their own loans.

Unfortunately in the past, Lending Club has watered down their successes with claims like “Lending Club Hits $500 Million in Loan Demand“, boasting that they had turned away $500 million in loan requests. On one hand, it’s a lot like saying “our marketing is so lousy that we have to burn through nine customers before we find one worth approving”. But this aura of exclusiveness seems to be a cornerstone of the Lending Club brand, as it is cited frequently in interviews and during investor education calls. And having reached $50 million in loans funded, might just be working.

Graph credit: LendingClubStats.com

Related posts:

1. Lending Club Posts Strong 1H 2009, Loans Growing 7% Per Month
2. Lending Club to Announce $12 Million in New Venture Capital?
3. Peer to Peer Lending? Lending Club Funds 24% of Loans

Well, apparently, yes, the borrower really is an adult entertainment professional (later shortened to “porn star” in a followup post), and she really was requesting a second loan from Prosper. Her first loan for a candy vending business back in April 2008, can be found here.

So Prosper, newly relaunched under SEC oversight, and eager for a followup to their Twitter contest, jumped at the opportunity. We hooked a porn star! the all-porn star post seemed to shout. Authored under the pseudonym “Prosper Pink” (complete with Twitter account and Facebook page), Prosper tackled the feminine side of P2P lending, strutting across the wide line that separates financial services from pornography, and wondering aloud why they couldn’t get a little “financially sassy”.

Well, it turns out that attitude and sass can only get you so far in the world of social lending. Even though Prosper has already been compared to financial porn, and even though Prosper’s minimum bid of $25 gives you thirty six hot months of interest from Nina Jaymes (the same as a mere month of access to her web site), the 14-day listing only got to 52% funded. Not surprisingly, the cop and the desk worker both got fully funded within days.

So what’s the moral of the story? Just because you have double D’s doesn’t mean Prosper won’t give you an E rating. If your credit score is between 660 and 680, you have to offer more to lenders than a 9% estimated return (after 14% estimated loss and 1% fees). And if you’re hoping to attract serious investors to your peer-to-peer lending site, focus on borrowers with real assets, not big assets.

Photo credit: NinaJaymes.com

Related posts:

1. Prosper Hosts Twitter Gimmick To Draw New Customers
2. Prosper Relaunches with SEC Approval, Secondary Market
3. Loanio Files Amendment to S-1 with SEC; Cedes Code for Cash

Under the terms of the agreement, on April 26, 2009, Loanio licensed their source code to an unnamed corporation. Loanio sold the code under a perpetual term (i.e., forever), and in return received $375,000, of which $100,000 was paid upon signing. The balance will be paid over 18 months beginning in September 2009. It would be fascinating to know who licensed Loanio’s code, especially since, among P2P lenders, it is one of the least mature. The Loanio site was only active for a few months during Loanio’s original launch in October 2008.

The remainder of Loanio’s filing looks fairly straightforward, with not a lot of changes to their original marketplace model. It’s clear with this revision that the SEC asked Loanio to clarify and expand on a few subjects, notably the role of a future “national lending partner” that might help them escape state-by-state lending regulations. (Lending Club and Prosper use WebBank as their national lending partner, allowing them to accept loan applications from borrowers in almost every state.)

Among the 7 loans that Loanio issued during the few months it was active, Loanio has reported that as of June 30, 2009, one of the loans has become 30 days past due. The only other notable detail about the company is that the engineering team has shrunk since the last filing from 5 full-time to 3 part-time members, befitting a company that’s running out of cash while they wait on regulators to approve their registration.

Related posts:

1. Don’t Count Loanio Out; Files S-1 with SEC
2. Be Employee Number 3-6 at Loanio; They’re Hiring
3. Prosper Files Sixth S-1 Amendment With SEC, Corrects CEO’s Name

Here are five reasons a personal loan from a peer-to-peer lending company are better than a credit card loan…

1. P2P loans have a fixed interest rate.

One of the big changes that goes into effect today is that credit card companies now have to give at least 45 days notice before changing interest rates or fees on your credit card. That’s a good improvement over the previous 15-day warning, but why bother with variable-rate loans in the first place?

Loans from social lending companies (Prosper, Lending Club, Pertuity Direct) are fixed-rate loans. You got your loan for 12.50%? Congratulations. You’ll never need to remember another number again. No need to look up prime or LIBOR, and no need to check your mailbox for a notice of rate change, because your P2P loan’s rate is fixed until you pay it off.

2. P2P loans have a predictable, fixed payment schedule.

Another new reform taking effect today is that credit card companies must bill at least 21 days in advance of payment. Whether this law passed or not, chances are your credit card bill arrives at roughly the same time of month. But what does vary is the payment amount. Unless you monitor your spending like a hawk (using Mint, Wesabe, or Geezeo), your monthly bill is probably a surprise, and never the same from month to month.

With a loan from a P2P lender, your monthly payment is fixed. It’s due on the same day every month, and the amount due never changes. Unless you miss a payment or incur a fee (which P2P lenders still charge if you’re late), your payment never goes up. This makes budgeting your debt much easier, and improves the chances of paying off your debt once and for all.

3. P2P loans are fully amortized

I wish “amortized” weren’t such a scary-looking word. It just means “evenly divided over a period of time”. If you get a 3-year loan from Lending Club, payments are fully divided (or amortized) over three years. That means you pay down your loan evenly, with no surprise payments in-between, and at the end of three years, you’re done! Your debt is paid in full.

Credit cards, on the other hand, take your balance, evenly divide (or amortize) it over 40 years (yes, I said 40 years!), and ask you for that amount as your minimum monthly payment. That means that if you have a balance of $5,000 on your 15% interest Visa card, never charge anything on that card again, and only make the minimum payment of $62.66 each month, you won’t pay it off for 40 years. And you’ll pay $25,077 in interest alone!

4. You’ll never miss a payment

Not that they’re trying to make you miss a payment, but credit card companies don’t make it that easy to pay your balance online each month. For my Chase Visa, I can either pay the minimum payment or the full balance, but they don’t set that up as a default option. And I only get my bill in the mail – don’t they know that I manage my life with my inbox?

From a P2P lender, your monthly payments are fully automated, and you get an email in advance so you can make sure your account has enough cash. Welcome to the future.

5. You’re paying actual people, not a faceless corporation

If the lower rates, fixed interest rate, regular montly payment, or automated payments of a P2P loan didn’t do it for you, then do it for your neighbor. Sure, banks use your neighbor’s cash to make you a loan, but on the 15% interest you’re paying, your neighbor might get 2%. Through a P2P lender, you’ll have a lower interest rate (like 12%), and your neighbor will recover 10% of that.

A lot of P2P lending companies like to claim that they are “cutting out the middleman” (and let’s be honest, what business doesn’t like to say that?), but in reality, they’re just playing a more efficient middleman. Just like Netflix destroyed Blockbuster’s business by not opening brick-and-mortar video shops, P2P lenders are undercutting banks’ rates through slimmer operations and better technology.

So should you toss your credit cards?

No, for goodness sake, don’t get rid of your credit cards. You’ll still need them to buy things – you can’t step up to the checkout at the Piggly Wiggly and ask if they take Prosper. P2P lending isn’t there yet, but you still need to buy things, and cash is so 20th century. Take advantage of the credit card companies’ largesse in fronting you money on your purchases, and use the time before your bill is due to get a loan from your neighbors through a P2P lender.

You also don’t want to close your credit card accounts because doing so can lower your credit score. Closing an account lowers your available credit balance, which is one of the key metrics that credit companies use to calculate your score.

So keep your credit cards, just use them more wisely. If you can’t pay your bill in full each month, go over to Prosper, Lending Club, or Pertuity Direct, get yourself a fixed-rate, fully-amortizing loan, and use that to pay off your credit card bill. And once you’ve done that, pay off your loan, go on a credit card diet, and live happily ever after free of debt.

Related posts:

1. Lending Club Raises Rates, Prosper Pushes Auction Model
2. Lending Club Posts Strong 1H 2009, Loans Growing 7% Per Month
3. Lending Club Issues $50 Million in Loans

Prosper’s reach now encompasses about 45% of the US population. For comparison, Lending Club, which reopened ten months ago, currently allows lenders from 26 states, or 52% of the population. Prosper and Lending Club more or less mirror each other in states available, with the important exceptions of Florida (6%) and Virginia (2.5%). Population figures are based on 2008 estimates by the U.S. Census.

What is the reason for these state-by-state registrations? Although both P2P lending companies have received approval at the federal level from the SEC, they must also register with state regulators in each state for clearance to sell securities. These are the so-called Blue Sky Laws, which give states the power to regulate securities sold in their jurisdiction. Conceived in the early 20th century, these laws focused on preventing frauds and schemers from peddling anything under the “blue sky”. In the current environment, however, they seem to duplicate the role of the SEC, and are more of a hassle than a benefit to investors.

Although Prosper is making progress with state regulators post-SEC approval, there are plenty of states also claiming their take for Prosper’s $1M settlement with the NASAA last December. To date, Alabama ($5,073), Connecticut ($12,602), Maine ($1,517), Michigan ($20,461), Missouri ($9,228), Montana ($2,214), Washington ($36,025), and Oregon ($15,000) have all collected on their portion of the settlement, bringing Prosper’s bill to a total of $102,117, way short of the $1,000,000 settlement amount. Aside from Alabama and Michigan, all of the other states have authorized Prosper to operate post-SEC approval.

Graphic from The Prosper Blog.

Update: Added Maine and corrected settlement amount on Alabama. Many thanks to Investar for the corrections.

Related posts:

1. Prosper Adds Florida Lenders, Lending Club Adds Missouri
2. Prosper Settles with State SECs for $1 Million
3. Prosper Won’t Stop ’til They Get Enough SEC Filings

Now P2P lending service Prosper, fresh off their site relaunch in mid-July, is hosting a Twitter contest to grab more followers and, ostensibly, more attention (worked on me, anyway). Prosper is giving away $500 total, $25 to 20 different Twitter users who friend @prosperloans and tweet the following message:

$500 for 500 followers! Follow @prosperloans and RT to enter to win 1 of 20 $25 GCs http://bit.ly/GBUkR #prosper500

The contest runs from Monday, August 3rd to Friday, August 7th at midnight. You can check Prosper’s progress on the #prosper500 hashtag. Since the contest kicked off 17 hours ago, it has generated 15 tweets. Which on a per-tweet basis is costing Prosper about $6.67  (assuming we’re one day into the contest, or $100, divided by 15 tweets).

Do these contests work? And what are they worth? Prosper isn’t just selling shoes, or trying to attract blog readers. They’re making loans, and word of mouth can only get you so far… on Prosper, you need a credit score of 640 or higher to get a loan, and you need some serious cash to be a lender. Is the Twitter generation really the one to target here?

Some metrics from SmartyPig’s recent $100 giveaway might be helpful. SmartyPig is an online service that helps consumers save money for big events through a series of financial and social tools. On the day of their contest, SmartyPig grew by 51 followers (+1.2%). In the ensuing seven days, their follower count stayed flat, and a week later, actually dropped by 37 followers. Compare those results to the impact of a mention in a New York Times article on July 2nd, which yielded 79 followers (+2.0%) on the day of the article, and arguably netted 170 followers (+4.4%) over the three-day weekend. Further, follower growth continued on an upward trend after the article.

Prosper hasn’t had an article in the New York Times since their faux relaunch in April, so maybe the $500 would be better-spent on a plane ticket to New York and some climbing equipment. Now that’s publicity!

Related posts:

1. Prosper Can’t Even Cash In on Porn Star
2. Prosper Takes Debt Financing Bridge at 15% interest
3. Prosper Relaunches with SEC Approval, Secondary Market