July 26, 2009

Most of us can't loan money on Prosper or Lending Club

I've heard of Prosper and Lending club for a while. Both are peer to peer lending institutions. If you're a lender you invest your money and it is loaned to individuals for various reasons. The benefit of these systems is the lender gets a relatively high return and the borrower gets a relatively low rate. I've thought it would be interested in joining to try it out. I can't lend money on Prosper or Lending Club and you probably can't either.

Prosper and Lending Club are both limited to certain states and they have income and net worth restrictions.

Looking at Prosper:

Prosper is only available in 16 states. From their website : "Prosper is currently available to lenders in the following states: California, Colorado, Delaware, Georgia, Hawaii, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Washington, Wisconsin and Wyoming. Also, Prosper is always working to make lending on Prosper available in more states, so please check back. "

The graphic on the right shows the states that Prosper lenders can live in.

Those states represent about 115 million people or under 40% of the total population. That means that over 60% of Americans aren't in states that are allowed to be lenders on Prosper.

Plus for some states there are extra rules for Prosper:
If you live in Alaska, Idaho, Kansas or Pennsylvania then you have to have 1) income of $70,000 and net worth of $70,000 or 2) at least a net worth of $250,000 and you can't put more than 10% of your assets into Prosper.
For California you can't put more than 10% of your net worth into it and if you invest over $2500 then you need 1) income of $85,000 and assets of $85,000 or 2) net worth of $200,000.

Those rules apply to about 54 million people and exclude about 27 million people. I'm making a rough estimate that about half the people have incomes and net worth below those minimums.

In total 115 million people live in states that are allowed to lend on Prosper. The state specific income and net worth minimums exclude around 27 million of those people. That leaves about 88 million Americans who can actually lend money on Prosper. In total only about 30% of Americans are allowed to lend money on Prosper. So chances are you can't.


Lending Club is a similar situation:

From their website, you have to be in the following states:
California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maine, Minnesota, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.

Those states are home to about 154 million Americans.

Lending Club also has income requirements but theirs appear to apply to all states. They require 1) $70,000 income and $70,000 net work or 2) $250,000 net worth. If you're in California they require 1) $100,000 income and $100,000 net work or 2) $250,000 net worth.

The income restrictions would likely exclude half of the population. That leaves about 77 million Americans, or about 25% of the population, who can participate in Lending Club as lenders. About 75% of Americans are not able to be lenders on Lending Club due to state of residence or income limitations.

5 comments:

  1. You can still invest on Lending Club regardless of what state you are in via their FolioFN trading platform. That's what I do.

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  2. I don't think there is any state requirement on Lending Club's secondary market. It's a hassle, but it works. You just can't invest in a loan directly, you have to wait for it to issue and then purchase it in the secondary market.

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  3. Jake & TradingTiger,

    Thanks for the heads up on that. I wasn't aware that anyone could buy the loans on the secondary market. It seems odd to me that it would be allowed for states you can't be a direct lendor from. But it sounds like a good way for people to get into the peer-to-peer market as a lender if they are in one of the states that Lending Club doesn't allow lending from.

    Jim

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  4. Sorry that you guys can't get in on it yet but maybe it will open up in a few more months.

    I was able to lend on both sites when they were more open about a year ago so my loans are still being repaid from that time but I have not invested in new loans since the reorganization period.

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  5. I recommend not lending more than you want to lose. I "lent" on Prosper and had way negative returns. Some of the borrowers didn't even make one payment and Prosper did nothing to collect. They just sold it to a debt collector that paid pennies on the dollar. I think it's better to avoid this kind of "investment" altogether, unless you enjoy the thrill of gambling.

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