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P2P lending

May 2, 2008

It seems this “new method” of lending is beginning to re-appear on the Canadian market. CommunityLend has a web site with information about itself and what it does. There are some very valid points for peer to peer lending but there seems to be things that need to be discussed, outlined and disclosed.

Will this industry be regulated? In other words with a solicitation to the general public, through a business model that derives profit, is it to be viewed as a “bank”? Lending, for those that have not had much experience, is not just a science but also an art. There are a myriad of variables that one has to view and digest before funding a loan. My fear is that people are getting involved to save money i.e. cheaper interest rate for the lender and higher interest rate for the depositor, without assessing all of the risks involved. Lending institutions are obligated to follow some due diligence in lending due to responsibility to shareholders, owners, members, directors and regulators. If all goes well and there are no defaults everyone is happy. But one needs to plan and assess what will take place when things don’t go well.

CommunityLend is doing this for free. Maybe I have overlooked this on their site but could someone tell me if they are taking any fees or basis points for setting up these P2P loans. I see they have raised $2.5 million in capital so there are some costs to cover here.

The management, directors and advisors are a pretty knowledgeable group of individuals. Are they seeing CommunityLend as a good business that they can invest in? Being solely cynical, if they know the business they know what they can make in profit setup as the conduit for this type of industry. As a middleman they assume no risk and just piece the deal together. I would hope they would divulge their interest without the platitudes about social aspects of P2P lending. You are in it for the money, right? Wouldn’t a proper disclosure be in order similar to mortgage brokering?

Don’t get me wrong, I am for P2P as long as the playing field for all participants in a public call for funds is equal. Banks and larger financial institutions seem to think they are too big to finance smaller lending so there is a vacuum here that needs to be filled. Putting a term loan into a revolving credit card with an exorbitant interest rate does no one except the lender any ‘good’. I worry about people loosing money by not knowing what they are getting into.

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2 Comments leave one →
  1. May 2, 2008 6:06 pm

    @tinfoiling …. let me add something to this post. Your points are highly valid because you clearly take a consumer view.

    – p2p lending in Canada will be regulated, and it will be regulated by the securities commissions of each Province. We know this based on a years work of legal review, and work with those commissions
    – why is a loan a security? A loan displayed online is an investment, and thus comes under the securities mandate
    – nothing is for free …. CommunityLend will charge borrowers and lenders a fee. We will announce that fee closer to launch. Rest assured it will be reasonable, and on market.

    Any other questions, fire them over!
    Colin

  2. May 3, 2008 2:11 am

    For usual fee structures of p2p lending services check the details about comparable p2p lending ventures in other markets published at:
    http://www.p2p-banking.com

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