Lending Club vs. Prosper

[LadyFin]

As a lender, are there any discernible differences between putting your money on Lending Club's platform versus Prosper's? Or are they both virtually the same thing with different names? I have done some basic background on both but am wondering if there is anything big that I am missing.

[platformlending]

Broadly they are the same. Prosper has a little bit higher risk tolerance but also has a Bankruptcy Remote Vehicle in place for retail investors. If Lending Club and Prosper both went bankrupt, you'd be safer with Prosper. It's certainly something to consider given that loans made on the platform are really made to the marketplaces themselves and not the borrowers.

[sean bash]

As a lender, are there any discernible differences between putting your money on Lending Club's platform versus Prosper's? Or are they both virtually the same thing with different names? I have done some basic background on both but am wondering if there is anything big that I am missing.

I'm actually waiting for my first deposit on Prosper's platform to clear. I can't wait to compare it against the Lending Club experience. I don't think there will be much difference personally.

[stktrader]

I'm actually waiting for my first deposit on Prosper's platform to clear. I can't wait to compare it against the Lending Club experience. I don't think there will be much difference personally.

you just doin this to compare the two? Any thing else new with lending club positive or negative?

[LadyFin]

Broadly they are the same. Prosper has a little bit higher risk tolerance but also has a Bankruptcy Remote Vehicle in place for retail investors. If Lending Club and Prosper both went bankrupt, you'd be safer with Prosper. It's certainly something to consider given that loans made on the platform are really made to the marketplaces themselves and not the borrowers.

What is preventing Lending Club from instituting this protection? Is it a matter of cost? Or does their corporate structure make this difficult to implement? Thanks again!!

[platformlending]

What is preventing Lending Club from instituting this protection? Is it a matter of cost? Or does their corporate structure make this difficult to implement? Thanks again!!

As I understood it, at least pre-IPO, is that a BRV could jeopardize their ability to lend in many states. At present, WebBank is the true issuer of the loans. Those loans are sold to Lending Club. The BRV entity would need to buy the loans either from WebBank or Lending Club and then issue securities to the investors. There was some kind of rub there with blue sky laws and the issuance of notes.

There is a BRV for Lending Club's institutional note buyers, whom are clearly sophisticated investors. This is just conjecture but under blue sky laws, the BRV could be perceived as a zombie entity that is backed by nothing and does nothing other than issue securities. Thus that may make it more susceptible to allegations of fraud by Lending Club's average retail lenders. Remember their retail lenders are not accredited or assumed to be sophisticated. So buying speculative notes from a company that has no actual operation other than selling securities leaves Lending Club potentially exposed to liability. I am not a lawyer and this is not my area of expertise but people talk. Might explain why it's not just something they could just pop in like a cassette tape.

[grayafund]

As I understood it, at least pre-IPO, is that a BRV could jeopardize their ability to lend in many states. At present, WebBank is the true issuer of the loans. Those loans are sold to Lending Club. The BRV entity would need to buy the loans either from WebBank or Lending Club and then issue securities to the investors. There was some kind of rub there with blue sky laws and the issuance of notes.

There is a BRV for Lending Club's institutional note buyers, whom are clearly sophisticated investors. This is just conjecture but under blue sky laws, the BRV could be perceived as a zombie entity that is backed by nothing and does nothing other than issue securities. Thus that may make it more susceptible to allegations of fraud by Lending Club's average retail lenders. Remember their retail lenders are not accredited or assumed to be sophisticated. So buying speculative notes from a company that has no actual operation other than selling securities leaves Lending Club potentially exposed to liability. I am not a lawyer and this is not my area of expertise but people talk. Might explain why it's not just something they could just pop in like a cassette tape.

I know anything about this end of the rules but if anyone is confused by the language. A BRV is also known as Special Purpose Vehicle or Single Purpose Entity. The Law Firm of Pepper Hamilton is pretty well known in the space and has published this regarding SPVs/SPEs/BRVs

Over many years it has become common practice for parties in securitizations and other structured financings to employ organizational structures designed to be “bankruptcy remote.” A common feature of these structures is a requirement in the organizational documents of the special (or single) purpose entity (or vehicle) (SPE) intended to be bankruptcy remote that the SPE have one or more “independent managers” whose consent is required for the SPE to file a voluntary bankruptcy petition. The objective of these independent manager requirements is to reduce the possibility that creditors or investors who have extended credit to the SPE will be caught up in a bankruptcy, which would preclude the enforcement of their remedies against the SPE or its assets, and to insulate the SPE from the risk of having its assets “substantively consolidated” with those of an insolvent affiliate.

http://www.pepperlaw.com/pdfs/BankUpdate0809.pdf