June 16, 2011
Peer-to-Peer Lending: Who Is the Issuer?
Today's Wall Street Journal contains an article about the growth of peer-to-peer (P2P) lending. However, there are still a number of states that have concluded that the P2P business model does not satisfy their securities laws. Back in October, I was part of a panel discussing P2P lending at the Ohio Securities Conference, and Mark Heuerman, Registration Chief Council of the Ohio Securities Division, gave a great explanation for why Ohio is one of those state. At least one of the problems, as far as Ohio is concerned, is that while the trading platform (for example, Lending Club) is the one filing the prospectus, Ohio views the actual issuer of the notes as being the individual or entity seeking the loan. This creates a problem because under Ohio's merit review guidelines the Securities Division must conclude that "the business of the issuer is not fraudulently conducted," while the lending platform lacks the requisite information on the actual issuers to allow for such a finding. In fact, Prosper Marketplace apparently disclosed as part of its 2009 prospectus amendment that "[i]nformation supplied by borrowers may be inaccurate or intentionally false." You can view more details from Mark's presentation here. P2P lending should be in the news some more before the end of the summer because the Dodd-Frank Act calls for the Government Accountability Office to issue a report on the subject by July 21.