I recently wrote a post about peer to peer lending with Lending Club. A reader astutely pointed out that Missouri is not one of the approved states for Lending Club. I live in Missouri. Lending Club, allowed me to sign up and funded my account. When I clicked invest, a box popped up asking that I check the box stating that I live in an approved state. The box stated:
The Notes are presently being offered and sold solely to residents of the states of California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Minnesota, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming, and are not presently being offered or sold to residents of any other state, the District of Columbia, any other territory or possession of the United States, or any foreign country.
This is easy enough to get around if you wanted to. They make it incredibly easy though. They just ask that you check the box. That’s the only checks and balances system.
Patrick, a reader, asked whether we could be subjected to any legal penalties or audits for investing. I don’t know the answer to this, and I don’t want to give anyone legal advice. My gut reaction is no. Since I don’t know the answer, I emailed my contact person at Lending Club. Her name was Meredith. She sent me this email 5 days ago:
Dear Todd,
I hope you are doing well. I wanted to touch base with you about your investing at LendingClub, and let you know that I am available to offer you personalized assistance. If you have any questions about your account or investing experience, I would be happy to answer them for you.
As you know, Lending Club notes are a high-performing alternative to traditional investments available in the market today, with investors averaging over 9% net annualized returns after fees.
In addition, I am delighted to share that The Harvard Business Review named Lending Club one of the top 20 Breakthrough Business Ideas of 2009: http://hbr.harvardbusiness.org/web/2009/hbr-list/forget-citibank-borrow-from-bob
We have a number of new developments underway. I’m very excited about some of the upcoming options for investors. Please feel free contact me to learn more.
Do not hesitate to reach me anytime directly at (408) 524-3069 with any questions, suggestions, and requests. I look forward to hearing from you.
Warm regards,
Meredith
Meredith Kramon
Investment Services
Lending Club
440 N Wolfe Road
Sunnyvale, CA 94085
www.lendingclub.com
(408) 524-3069Lending Club: One of the Top 20 Breakthrough ideas for 2009 –Harvard Business Review
Notes offered by prospectus filed with the SEC:
https://www.lendingclub.com/info/prospectus.action
I immediately responded with an email explaining that one of my readers had mentioned to me that he was concerned about Missouri not being an approved state. Of course, you can still buy notes through Lending Club’s Note Trading Platform. This means you can buy notes from other members that they don’t want anymore.
I also left a comment on the Lending Club blog on a post by Rob Garcia, asking him whether I could incur any legal penalty, and if so, what, if I invest anyway. I also asked him about this on twitter @robgarciasj. No response in any of the three cases. I’m trying to find the answer. I am pretty sure I could proceed and nothing would happen, but I would think they would have a standard response ready, telling me that I shouldn’t invest. I would, at a minimum, expect a response saying that they can’t give me legal advice, and that I should consult my attorney (who would of course probably discourage me from investing – if I wasn’t my attorney;)).
I really just want to know exactly what it means when they say they are only approved in certain states. Does that mean they can get in trouble for allowing me to invest? Or does that mean I can get in trouble for investing? I think it would be practically impossible to regulate this – I guess the state Attorney General could file an injunction against Lending Club to keep them from allowing Missourians to sign up – but they wouldn’t do this unless they decided Lending Club was dangerous to consumers in Missouri – they have enough to do already.
Anyway, how about a response Lending Club? I’ll let all of you know the scoop as soon as I do. I haven’t checked the box…yet. Thanks for reading.
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#1 by RobG on July 20th, 2009 - 2:27 pm
Hey Todd
Thanks for raising the issue up.
As your reader pointed out, our offering has not been cleared by the State of Missouri. If this is your state of residence, you should not buy notes from Lending Club.
The reason why you were able to register with Lending Club is that you can use the Note Trading Platform operated by Foliofn to buy/sell notes directly from other members.
You have my email if you’d like to discuss further.
Best,
Rob from Lendingclub
Reply
Todd Metheny Reply:
July 20th, 2009 at 4:05 pm
Rob – Thanks for responding. I think I will email you some questions. I’m curious about the process of becoming approved in a state and if I’m curious about it, my readers may be as well.
Reply
#2 by Daniel on July 31st, 2009 - 2:16 pm
Have you heard anything back from them? I live in St. Louis and recently transferred $500 to Lending Club and just noticed the state requirement. I feel duped that I’ve wasted a week transferring money and now cannot invest it and must wait another week to get it back.
I want to click the checkbox and invest, but I also don’t want to get legally screwed later. It’d be nice to know a timeline of when Missouri might become an acceptable state. Can find any other discussion of this online.
Thanks Lending Club.
Reply
Todd Metheny Reply:
July 31st, 2009 at 3:32 pm
@Daniel
I emailed them about the process and the time frame and Rob (above) emailed me back (but only after I wrote a post about Prosper and complained that he hadn’t. He said that he couldn’t answer my questions but had forwarded them on to his “legal department” (which is probably one guy with an office down the hall from Rob). That’s how small companies try to sound big – by breaking things into departments.
I’m in the same boat you are. I’ll let you know something as soon as I do. MO isn’t approved on Prosper yet, either, but they are evidently already up to 23 states. They seem to be moving quickly.
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