Prosper and Lending Club – Scam or Real Thing?

In the last couple of years, there has been a new wave of financial services companies have been born that allow individuals to borrow money from individual investors without involving a bank. Companies such as Lending Club and Prosper have pioneered this industry. Is it safe to borrow or invest money through these companies, or is it all a lending club scam?

When these companies first went into business, they were operating without oversight from the SEC. In 2008, the SEC stepped in and filed an injunction preventing Prosper.com from doing business because the Securities and Exchange Commission contended that Prosper.com was illegally selling unregulated securities. Eventually, Prosper.com and the SEC settled and came to an arrangement where Prosper would securitize their offerings with the SEC and become legitimate. Lending Club has always operated within the realm of SEC oversight.

There are a lot of companies online which purport that they have the next big money making secret offering unreal rates of return, but prosper and lending club scam operations? They definitely are not. Both companies are registered corporations that work within the bounds of the United States investing regulatory environment. Many individuals have borrowed money through these companies (at great interest rates) without issue and lenders that have made smart loans have made very good rates of return.

From a borrowing perspective, it’s just like you are borrowing from a bank. You pay the payments to Lending Club and they take that money and distribute it to the lenders that fund your loan. If you don’t pay your loan back, Lending Club will try to collect the debt from you, but the individual investors have waived their right to try to collect the debt, so it won’t be like a loan shark is out to get you.

If you’re an investor, there is money to be made in making loans on Prosper and Lending Club. Some have said that prosper and lending club scams their investors because the default rates have been relatively high, but in the last several months, Lending Club and Prosper.com have taken steps to make sure that they only loan to individuals who are likely to repay their loan.

Many investors have made between 9.00% and 14.00% APR back on their money. Investing through Lending Club or Prosper does take a bit more work than simply investing in a mutual fund, but it does offer some good diversification outside of stocks and bonds.

At the end of the day, Prosper and Lending Club are definitely not a scam. They are both legitimate companies that offer legitimate securities to real investors. There are a few people that have made bad loan decisions that have lost money investing in loans through these companies, but like any investment, there is some risk involved.

You can learn more about investing in Lending Club at LendingClub.com.