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COVER STORY Cautious Optimism Recommended O among consumers opting for online lending. "If they're purely online, they might not be regulated by [a] state's banking regulator, which could limit [a consumer's] options in the case of a dispute," he emphasized. Additionally, consumers need to do their due diligence, regardless of whether they're working with a traditional brick-and-mortar lender or an online lender, says John Breyhault, VP of public policy, telecommunications, and fraud at the National Consumers League. n another front, John Breyault preached caution newer services like Prosper and Lending Club might be dif- ficult for the average consumer to understand. P2P lending is regulated by the SEC as a sale of securities, and since these P2P lenders were required to register with the SEC, default rates have dropped. This is encouraging, but are these tools that average consumers will be able to use effectively either as a borrower or an investor? Prosper CMO Brad Lensing said Not only that, Breyault said are made by WebBank, a Utah-chartered Industrial Bank, which is regulated by the Utah Department of Financial Institutions and the FDIC. In any event, when it comes that investing and loan servicing activities on the Prosper mar- ketplace are subject to state and federal regulation. Loans originated through the Prosper marketplace to online lending, Tirabasso speaks from personal experience. She borrowed money for a home loan online through a major bank last year, which she called "easy and hassle-free." She closed the loan from her laptop via a web conference with a closer and attorney. In the meantime, she "received lots of communica- tion—phone calls to check email, email statuses—like my own personal assistant to remind me of steps." She only was required pectations for the ability of traditional lenders to engage consumers online isn't exactly off the charts. "Are they doing enough? Not much!" he said. "They need to both automate their decision-making, so that they can give real-time re- sponses, and provide the kind of online assistance that helps con- sumers make the right decision and be confident that they have done so. Having a Facebook page is no substitute." to authenticate her identity online, execute limited power of attorney, and view and agree to loan documents online with a closer and attorney. Nevertheless, Taylor's ex- Lending's Online Leaders Meet today's dominant technology providers. P ing it, seems to be finding a place among a burgeoning number of consumers. Prosper CMO Brad Lensing eer-to-peer (P2P) lending, matching those who want to borrow money with those interested in lend- says that investing and loan servicing activities on the Prosper marketplace are subject to state and federal regulation. Loans orig- inated through the Prosper mar- ketplace are made by WebBank, a Utah-chartered Industrial Bank, which is regulated by the Utah Department of Financial Institutions and the FDIC. Prosper is among the leading P2P lenders. During the past six years, more than $400 million in personal loans have crossed its platform, Lensing says. Borrowers seek Prosper loans to help pay down high- interest-rate debt, fund a small business, or even start a home improvement project, Lensing notes. They receive competi- tive fixed rates on loans up to $25,000. Investors also get un- precedented access to a large and historically profitable alternative asset class: consumer loans. In 2011, 11,231 loans totaling $75.2 than $406 million in loans have been generated on the Prosper platform, Lensing says. Borrowers and investors have Since its 2006 launch, more million in loan proceeds were originated through Prosper's plat- form. This year, to date (through September 30), through its platform, the lender has originated 15,129 loans totaling $116.2 million, Lensing says. He indicated Prosper is meeting a distinct need in the market. "Prosper and peer-to-peer lending as a whole have grown signifi- cantly to meet the needs of both borrowers and lenders. Through efficiencies gained through technology on Prosper's platform, credit-worthy borrowers receive competitive fixed rates, while investors on the platform receive access to short-duration predict- able high-yield income." both been affected by the debt crisis. Borrowers are faced with limited consumer credit options, while investors have seen low returns and high volatility on traditional asset classes. With Prosper, borrowers benefit by having access to credit with competitive rates, and investors benefit with predictable returns that show a low correlation to other asset classes. Neither Lending Club nor Quicken Loans would comment. According to the latest com- pany statistics on Lending Club's website, as of October 10, the club had funded loans totaling $935,315,475. Quicken Loans closed a record $30 billion in home loan volume in 2011, its website states. THE M REPORT | 25