Loanio stops taking new loans as SEC outlines reasons for P2P lending freeze

Loanio stops taking new loans as SEC outlines reasons for P2P lending freeze

Loanio has become the latest US online person-to-person lending exchange to stop taking new loans whilst it registers promissory notes with securities authorities.

In a statement on its site, Loanio says: "Please be advised that effective immediately, Loanio will no longer be accepting registration from lenders or borrowers or accepting new loan requests until further notice. We appreciate your understanding and patience during this "quiet period" and hope to reopen for business as soon as possible."

Loanio says existing loans will continue to be serviced. The platform, which only launched in October, targets customers with poor credit records, such as sub-prime borrowers.

It has now been forced to follow in the footsteps of fellow P2P lending platforms Prosper and Lending Club which both suspended new loans whilst they registered under the Securities Act.

Prosper stopped taking new loans last month and earlier this week the Securities and Exchange Commission (SEC) issued a formal cease-and-desist letter explaining why it considers the firm a seller of securites which should be regulated.

The letter says "Prosper notes are securities under Reves because: (i) Prosper lenders are motivated by an expected return on their funds; (ii) the Prosper loans are offered to the general public; (iii) a reasonable investor would likely expect that the Prosper loans are investments; and (iv) there is no alternate regulatory scheme that reduces the risks to investors presented by the platform."

Therefore loan notes issued by the firm violate sections of the Securities Act prohibiting "the offer or sale of securities without an effective registration statement or a valid exemption from registration".

Registration for Prosper and Loanio is expected to take several months but Lending Club is now taking loans again after receiving the green light from authorities last month.

Last month the UK's Zopa shut down its operations in the US - just 10 months after launching in the country - due to tough market conditions.

Read the SEC document here.

Comments: (1)

Paul Penrose
Paul Penrose - Finextra - London 01 December, 2008, 10:49Be the first to give this comment the thumbs up 0 likes

There's a deep irony in the SEC cracking down on alternative sources of credit during a massive liquidity crunch. It's a shame the regulators didn't take such a hard-line a few years back with all those clever sub-prime loans.