CommunityLend is most like its American cousin Prosper in that borrowers create loan listings for $1,000 to $25,000 Canadian, set a starting interest rate (which must be above a minimum rate for their credit rating), and add some information about why they need the loan. Lenders bid in a competitive auction to determine the final interest rate at which a loan will be issued. CommunityLend provides the borrower’s credit rating (AA, A, B, or C), along with an “affordability rating”  and a “stability rating” (both 1-5), which indicate the borrower’s ability to afford the loan, and the relative stability of the borrower, in terms of employment, residence, and marital status. With these three simple ratings, CommunityLend has provided useful and easily understood metrics that should help lenders make decisions commensurate with their appetite for risk.

Interestingly, CommunityLend has chosen to mirror Prosper by offering their own take on Prosper’s “Groups” concept, which they appropriately call “Communities“. The idea is that communities of like-minded borrowers (quilting circles, book clubs, hockey teams) will exhibit higher responsibility in loan repayment than unaffiliated borrowers. Prosper’s implementation of this structure (which differed in that cash incentives were offered to group leaders) was eventually cut drastically and all but removed from the web site.

On the lending side, CommunityLend is open to both individual and institutional accredited investors living in the province of Ontario. The minimum bid amount is C$100, and bids must be made in C$100-increments. Individuals are also prevented from bidding more than 10% of the loan amount, which seems like a ham-handed way of encouraging diversification.

Borrowers pay a loan closing fee of 1% to 2.5%, depending on their credit grade, with a minimum fee of $75. Lenders pay an annual administration fee of 1% of the outstanding principal balance of all loans held; this fee is extracted on a monthly basis.

Congratulations to the CommunityLend team for receiving regulatory approval, launching their site, and being the first properly regulated peer-to-peer lending site in Canada.

Related posts:

1. Pertuity Direct Launches Mutual Fund-like P2P Lending
2. IOU Central Suspends Lending Activity in Canada
3. LendingClub launches social P2P lending site on Facebook

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

In an update on their blog today, Italian P2P lender Zopa Italia has announced that the site will not relaunch until October or later. Zopa has been working on the establishment of sub-accounts for lenders as part of an agreement with the Bank of Italy, and is pushing the relaunch date out now that they have more details on the technical integration issues involved.

In today’s announcement, Zopa named banking partner IMEL.EU (European Institute of Electronic Money), specialists in electronic funds transfers, who will hold a separate account for each lender before loans are disbursed to borrowers. The regulatory and technical integration of the parties has turned out to be much more involved than what Zopa initially expected, and the relaunch date is uncertain. Zopa has promised to provide an update by mid-October at the latest.

Zopa Italy borrowers and lenders are understandably upset, wondering whether the cost of the Bank of Italy’s request will require new fees or tariffs. The most biting criticism comes from Mario, still angry at the Bank of Italy’s initial intervention, who wonders how Italian regulators can focus on the straw in Zopa’s eye while the beam of the credit crisis is lodged in their own.

Zopa Italy’s main social lending competitor, Boober Italia, has also suspended new user registrations and has posted a message on their web site stating that they are investigating actions by the Bank of Italy. Boober claims these actions “have nothing to do with P2P lending at Boober.it”, but that is a dubious claim given Boober’s aggressive actions to curtail site activity.

Related posts:

1. Zopa Italy Reaches Agreement with Bank of Italy; Service to Resume in September
2. Zopa Italy’s License Cancelled by the Bank of Italy (Updated)
3. Prestiamoci: P2P Lending The Italian Way, Coming in September

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

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

Zopa’s proposed solution to the “transit lender account” issue is to create an electronic sub-account for each lender individually, in which loan funds would sit until they are actually paid out to borrowers. Apparently the Bank of Italy has accepted this proposal, and Zopa will spend the next month or so doing the technical development required to enable it. This puts a Zopa Italy relaunch sometime in mid-September. In the meantime (and since the shutdown), existing loans will continue being serviced.

A funny cultural detail from Zopa’s email is how often they mention the month. As anyone who’s ever summer backpacked through Europe knows, Italy shuts down in August. And although most countries (even the industrious US) have slow Augusts, taking some time off (or all your time off) in August is sacrosanct in Italy. So Zopa opens the email by patting themselves on the back for working through the holiday: “Even though we are halfway through August, we are working with maximum effort to bring Zopa back.” Now that they have reached agreement with regulators, though, Managing Director Maurizio Sella adds a note that the Zopa offices will be closed for a well-deserved break from 17-23. At least there wasn’t a strike…

All in all, a 2-month shutdown is much better than the 6- and 9-month shutdowns suffered by LendingClub and Prosper, respectively. But it would be nice if regulators would take the time to understand what they are approving before they give the green light. Nothing interrupts the momentum of a startup in a new market segment like a full suspension of their business.

Related posts:

1. Zopa Italy’s License Cancelled by the Bank of Italy (Updated)
2. Corrected: Zopa Italy Relaunch Delayed
3. Prestiamoci: P2P Lending The Italian Way, Coming in September

Prosper took their site offline Sunday, with a maintenance message that the site would be down all day Sunday and Monday. This may spoil Lending Club CEO Renaud Laplanche’s Bastille Day on Tuesday.

The Prosper site probably won’t change much when it re-launches, except that Lenders will only be able to participate from certain states, and borrower credit requirements will be much stiffer. Lenders who can participate will have the ability to sell their promissory notes a the secondary market, operated by Folio Investing.

Expect the Prosper PR machine to come out guns blazing — if there’s one thing Prosper does well, it’s get ink from major publications. They probably had to hold back on PR after the pseudo-relaunch in March because only lenders from California were allowed to participate. But now with a nationwide launch, and an up and coming competitor in Lending Club, the press will likely pounce.

Related posts:

1. Prosper Relaunches with SEC Approval, Secondary Market
2. Prosper Slapped with SEC Cease and Desist
3. Prosper Files Amended S-1 with SEC

Zopa entra in standby

In data 10 luglio 2009 è stato notificato a Zopa il decreto del Ministero dell’Economia e delle Finanze che, su indicazione di Banca d’Italia, ha cancellato dall’elenco degli intermediari finanziari ex art. 106 la nostra società. Come conseguenza immediata ci vediamo costretti a sospendere la trattazione di nuovi prestiti e l’ingresso di nuovi Prestatori.

La società sta valutando tutte le iniziative, anche di natura giurisdizionale, per tutelare la propria posizione e la community. Vi terremo informati su tutte le attività che metteremo in atto per salvaguardare un’iniziativa innovativa, etica, sociale e vantaggiosa per tutti i partecipanti.

Which the Zopa UK blog has translated into:

On 10 July 2009 Zopa Italy was notified of the cancellation of its licence to operate as a financial intermediary (106) by the Ministry of Economics and Finance, by indication of the Bank of Italy. As a consequence Zopa Italy has stopped issuing new loans and accepting registration of new lenders. The company is evaluating all initiatives, even at judicial level, in order to protect its position and its community. Zopa Italy will keep you informed on all activities put in place to safeguard an innovative, ethical and social initiative that bring benefits to all participants.

Zopa is not giving any further detail on why their license was revoked (perhaps even they do not know see “Update” below), but the Zopa UK blog post mentions a recent inspection by the Bank of Italy. Apparently the outcome of that inspection was some issues that Zopa should address, but the notice of cancellation arrived “without further discussion”.

Zopa Italy will continue servicing loans during this suspension period. Zopa, who has funded over 7.1 million Euro ($9.9 million USD) in loans since their launch in November 2007, is the leader in “prestiti personali” (P2P lending) in Italy, with about 10x the loan volume of competitor Boober Italia. Boober, which is a subsidiary of Italian financial services provider Centax, and is also regulated under the Bank of Italy, has no indication on its site that there are any issues.

As we have seen in recent years in the US, a lack of government regulation can put an economy in great peril. But misguided and overbearing regulation can be equally damaging of progressive and innovative business models. In the world of P2P lending, we have seen Lending Club, Prosper, Boober (NL), Loanio, and IOU Central all close their businesses (or suspend them, at least) due to the action of government regulators. We hope that Zopa Italy’s suspension doesn’t last long.

Update: A spokesman for Zopa Italy has given us more information about the shutdown order. The Bank of Italy has accused Zopa of operating as a bank without a license. Zopa maintains that they are just intermediating payments between private parties, but the issue hinges on Zopa’s “transit lender account”, where lender money is held before it goes out in loans, and which would qualify Zopa as a banking institution. According to Zopa, the transit lender account does not earn interest, and is not counted among the assets of the corporation. Zopa has proposed an alternate solution to the issue, but apparently the Bank of Italy has decided to shut everything down before proceeding.

This points out yet another problem with government regulators, which is that, in general, they don’t take the time to understand new concepts before greenlighting them in the first place. Zopa had authorization from the Bank of Italy before launching Zopa Italy in the first place, and most likely that “transit lender account” was in place from the beginning. Because regulators failed to fully understand the system before approving it, now they are handicapping Zopa unfairly.

Related posts:

1. Zopa Italy Reaches Agreement with Bank of Italy; Service to Resume in September
2. Corrected: Zopa Italy Relaunch Delayed
3. Prestiamoci: P2P Lending The Italian Way, Coming in September

The changes are minor enough that approval seems imminent. One of the changes is that Prosper added back 61 repurchased loans to the loan volume and performance data in the S-1. Prosper repurchases loans according to their 100% Identity Theft Guarantee, although the S-1 mentions not only identity theft but also “operational issues” contributing to repurchases. No further detail is given on what those operational issues were.

The other change that looks SEC-mandated is that Prosper adds more detail about the SEC’s cease and desist judgment against the company. In previous filings, the C&D is mentioned, but not in as much detail. This looks like an attempt by the SEC to provide investors (who are superhuman if they can get through this 101-page prospectus in one sitting) full warning about Prosper’s checkered past with securities regulators.

Other changes from the previous amendment:

• Prosper’s borrower loan closing fee was changed from 3% of the loan amount to a range of 1-3%. The minimum fee was also lowered from $75 to $50.
• New Hampshire was added to the list of six states which require lenders/investors to satisfy financial suitability requirements before lending. The states are AK, CA, ID, KS, NH, and PA.
• Some added details about the damages sought by plaintiffs in a class action suit against Prosper.
• Corrected the spelling on CEO Chris Larson Larsen’s last name (ouch!)

Wow, that last one is embarrassing. It’s been in there since Amendment 2, filed back in January. Is Larsen reading his own company’s filings? The misspelling was on the signature line — is he signing them?

Related posts:

1. Prosper Won’t Stop ’til They Get Enough SEC Filings
2. Loanio Files Amendment to S-1 with SEC; Cedes Code for Cash
3. Prosper Files Amended S-1 with SEC

With apologies to Michael Jackson on the day following his memorial service, it’s hard not to compare the embattled and quirky king of pop to the erstwhile king of P2P lending, Prosper, who continues working day and night to amend its regulatory filings with the SEC. On June 26, Prosper filed yet another amendment (this one makes it five) to their S-1 in the hopes of reopening the US’s first social lending marketplace with the SEC’s blessing.

This S-1 comes less than a month from Prosper’s fourth S-1 amendment on June 1. Does the proximity of this amendment indicate that we’ll see Prosper re-launch with SEC approval any time soon? No idea. Prosper is approaching boy who cried wolf status with their SEC filings.

This filing seems to have been made to publicize the indenture that Prosper arranged with Wells Fargo Bank on June 15 to act as a sort of proxy regulator for lenders. In the filing, mentions of the indenture have been updated to add “indenture, which would include Prosper becoming subject to a bankruptcy or similar proceeding”. Prosper’s filing package with the SEC also includes a securities opinion from lawyers at Morrison Foerster stating that the indenture is legitimate and that securities issued under it will be “valid and binding obligations of the company”.

So what else is new? It’s no thriller. Here’s a rough list of changes from the last filing:

• Prosper will lower the minimum bid amount from $50 to $25, matching Lending Club’s $25 minimum, and getting closer to Loanio’s planned $20 bid minimum.
• Borrower loan listings will be extended from 7 days to 14 days.
• Borrower income and employment verification seems to be a sticking point, as Prosper has revised its statements on this topic multiple times in multiple filings. To paraphrase: Prosper does not verify income or employment, so don’t rely on it when bidding.
• To their loan repurchase policy, which covers lender losses in the case of identity theft, Prosper has added coverage in case a borrower’s Prosper score (their proprietary credit underwriting mechanism) is incorrect or mis-reported.
• Prosper has revised the number of state lending licenses or authorizations that it holds from 23 down to 14. Either Prosper has let these licenses lapse during the quiet period, those states have revoked Prosper’s licenses since the SEC crackdown, or Prosper no longer meets the states’ requirements. Nonetheless, Prosper’s legal compliance page continues to show the 26 states in which Prosper is or was licensed.
• Kirk Inglis, Prosper’s CFO, was also named Chief Operating Officer in June 2009.

What do you think? Is Prosper still a pretty young thing, or should they just beat it?

Related posts:

1. Prosper Files Sixth S-1 Amendment With SEC, Corrects CEO’s Name
2. Prosper Files Amended S-1 with SEC
3. Loanio Files Amendment to S-1 with SEC; Cedes Code for Cash