Lending Club Investor and Borrower Requirements

As I stated last week, one of the reasons I moved to California was so that I could start a Lending Club IRA account and start lending money in the P2P network. For some reason, Washington, D.C. decided to be unreasonable and have not approved social lending for its citizens.

It’s my strong opinion that I should be allowed to invest my money the way I want to, so I hated that people in other states had an additional fantastic investment vehicle and that my investment choices were limited.

P2P Lending Requirements

For those wondering, only residents from the following states may invest with Lending Club:
CA, CO, CT, DE, FL, GA, HI, ID, IL, KY, LA, ME, MN, MO, MS, MT, NH, NV, NY, RI, SC, SD, UT, VA, WA, WI, WV, and WY.

Just 28 out of 51 (including DC) states. Kind of ridiculous if you ask me, I haven’t heard a good argument for NOT allowing peer to peer lending, but during a recent Yakezie Tweetchat that I hosted, we got some nice feedback, and it turns out there are some (still weak) explanations for why certain states don’t allow social lending.

I tried looking into other ways to enjoy P2P lending while living in D.C. and I thought I could try Lending Club’s Note Trading Platform (where you are allowed to buy already existing notes) yet again, there was a roadblock.

FOLIOfn Requirements

The restrictions on investing using Lending Club’s FOLIOfn note trading platform are far fewer and offers hope to many people who would not otherwise qualify.

Only people living in the District of Columbia, Kansas, Maryland, Ohio, Oregon, and Vermont are not eligible to become trading members with FOLIOfn. That’s a nice improvement to 45 out of 51 eligible states, but it still didn’t help my specific situation, so I just had to wait it out until moving to the Best Coast West Coast.

P2P Borrowing Requirements

I got curious to what requirements there were to borrow money (in my mind, it’s pretty hard not to allow people to seek out the lowest interest rates they could get, but sure enough, some states have done it), and while there are specific requirements such as minimum credit scores (660 for Lending Club), and a certain credit history, only 8 states don’t allow P2P borrowing yet, and they are Iowa, Idaho, Indiana, Maine, Mississippi, North Dakota, Nebraska, and Tennessee. It’s wonderful that D.C. residents aren’t exlcuded from this

Readers, Do you use Lending Club or another peer to peer lending program? If your state doesn’t allow it, would you if you could?

5 Responses to Lending Club Investor and Borrower Requirements

  1. Peter Renton says:

    Daniel, Good article and thanks for the link. Just one other thing I would add to your investor requirements. For Lending Club, to be officially allowed to invest you have to have an annual income of $70,000 or more and a net worth of more than $70,000 (California and Kentucky have additional requirements). There is also a 10% net worth limit on the amount of your investment. See here:
    http://www.lendingclub.com/kb/index.php?View=entry&EntryID=113

    Now, these limits are not actually enforced but Lending Club wants to protect the naive investors. It would be bad if someone lost their life savings by putting everything into say one or two loans paying 20% that end up defaulting.

    • Daniel says:

      @Peter Renton, You’re absolutely right, but what is a requirement if it’s not enforced?

      Also, wouldn’t it be more effective to have to take a training class on diversification or how LC works?

      • Peter Renton says:

        @Daniel, What the requirement does is please the SEC, I see no other practical benefit here. And yes, it would be MUCH better for Lending Club to run a training class on diversification but then they run into the problem of providing investment advice which they are not allowed to do.

        Of course, everyone could just read your blog posts (or mine) and be a better informed investor from the start…

  2. Really? My state is not on the list. :(

    • Daniel says:

      @retirebyforty, Soon enough, it doesn’t sound like anyone is against social lending, seems more like there are some legal issues that need to be solved. All in good time, hopefully.