I was recently interviewed by Joe Saul-Sehy for the Stacking Benjamins podcast. At one point in the interview, Joe mentioned he was unable to invest because he lives in Texas, a state that is closed to both Lending Club and Prosper investors. This is really frustrating for Joe, because he is a big fan of peer to peer loans.
Joe is not alone. Millions of people like him can’t borrow or invest in loans because they live in closed states like Texas. But the situation is different for each state. Many people find their state is closed to Lending Club but open to Prosper.
The maps below show the open and closed states for borrowers and investors.
Borrowers: 45 States Open to Lending Club
As seen in the map below, almost every state allows people to get a loan through Lending Club. Just five states (Iowa, Idaho, Maine, North Dakota, & Nebraska) forbid it.
What if you live in one of the five states closed to Lending Club? If you live in Idaho or Nebraska, you are in luck. You can still apply for a loan through Prosper.
Borrowers: 47 States are Open to Prosper
In the map below you can see that every state in the US allows Prosper loans except Iowa, Maine, and North Dakota.
Live in a Lending Club or Prosper state?
Check your rate at both, go with the lower rate.
Won’t hurt your credit score.
Investors: 28 States Open to Lending Club
The situation for investors is more complicated. Just 60% of the United States can invest in peer to peer loans.
Twenty eight states are open for investing through Lending Club: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maine, Massachusetts, Minnesota, Mississippi, Montana, Nevada, New Hampshire, New York, Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming.
Live in a Lending Club investor state?
Open an account
(Signup is free and secure)
Is your state closed to Lending Club? Chances are you live in one of the seventeen states (like Texas, Pennsylvania, & Arizona) open to trading on the Foliofn secondary market. Trading is more complicated than simple investing, but can still offer an investor great returns. Read: How to Invest through Foliofn
Do you live in Alaska, Michigan, Missouri, Oregon, or South Carolina? Your state is open to Prosper even though it’s closed to Lending Club.
Investors: 31 States Open to Prosper Marketplace
Thirty one states are open for investing through Prosper: Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New York, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin and Wyoming.
Live in a Prosper investor state?
Open an account
(Signup is free and secure)
Live in Kentucky or Massachusetts? You can still invest at Lending Club above.
Is your state open to both? You’re in luck!
If your state is open both to Lending Club and Prosper, you get your pick. Read this: Lending Club versus Prosper for Investors
I am an investor with both companies (see my returns), and believe this diversification helps spread my risk. Each platform has different underwriting criteria (standards for who gets to borrow money), so by spreading my investment across them both I make my overall investment more stable and rewarding.
Why Don’t Texas or Ohio Have Peer to Peer Lending?
Notice how nearly twenty states do not allow any peer to peer lending? Why is this? The answer is complicated. The short version: these loans have been legally defined as securities by the SEC, yet they are not part of any national securities exchange (like the New York Stock Exchange).
As a result, both Lending Club and Prosper have had to apply to each state for access, and each state’s security regulators have different opinions. Some, like Washington State where I live, have welcomed peer to peer lending with open arms. Others (like Texas, Ohio, or Maryland) are more wary that this investment could hurt their investors, so they have not approved access.
Thankfully, a “blue sky exemption” may change this situation in the coming year.
When Will More States Open to Lending Club?
In February I sat down with Renaud Laplanche, Lending Club’s CEO, and asked him about how things could change in 2015 (read the interview). He mentioned that more states could open up to Lending Club now that they are a public company traded on the New York Stock Exchange. Read: Lending Club becomes a Public Company
Lending Club believes their IPO gives them a “blue sky exemption”, which would mean they could be regulated on the national level and no longer need state by state permission. However, some states have resisted this reading of the law, and may legally challenge Lending Club’s efforts to use the blue sky exemption in this way.
As a result, the future of state eligibility is quite uncertain. If I had to guess, I do think we’ll see more states open up in 2015, but all fifty states will probably not be open for at least a few more years.
Want to Help? Lobby Your State Security Regulators!
If you live in a state closed to investors, there is still much you can do. Your state’s security regulators need to know that you, a citizen of their state, feel peer to peer lending is a safe and consistent investment. As more people reach out to them, their opinions are sure to change and mature.
Click here to contact your state securities regulator. If you want to go the extra mile, you can also reach out to your state representatives here. They often have much greater sway with the security regulators than simple citizens, so their opinion definitely matters.
The fact is that these officials would offer more support Lending Club and Prosper if they knew more about them. However, peer to peer lending is still quite unknown on the national level, so many regulators are justifiably suspicious toward it. But with enough time and positive history, this situation is certain to change.
US map courtesy of: SuperTeacherWorksheets.