CommunityLend Person-To-Person Lending Preview Details! Canadian Prosper.com on its way!
CommunityLend Launching Soon? Maybe!
CommunityLend just got one of its legal documents published at the Ontario Securities Commission, and it has plenty of details on their future business plans. It looks like the OSC is granting them a bunch of exemptions. As they've said, they will be going 100% legitimate as possible, working with all necessary regulators. It seems to me that this document means that CommunityLend has overcome a major roadblock to launching in (some places in) Canada.
I just knew checking the OSC website all the time would bear fruits one day.
CommunityLend is a Prosper.com-type Person-to-Person lending service, where individual people can post their loan requests, and get bids against their loan. I've talked plenty about them on this website, so please feel free to browse around! (I first reported on CommunityLend back in June 2007).
Just a note, I'm not a lawyer, so I might not translate everything properly back into plain English, so don't take anything here as official, go by what's in the document!
Key CommunityLend Points from the Legal Document:
- Loans will be for a max of 3 years (I was hoping for longer!)
- Loans for now will be for 3 years only, with the other shorter time periods added later
- Loans will be repaid biweekly or monthly (not sure who gets to choose)
- Loans can be prepaid early without penalty
- "maximum aggregate permitted size of the Loan amount for each Borrower/issuer is $25,000"
- loans will only be made to "prime borrowers", so no "subprime borrowers"
- Loan Requests will be fulfilled through a bidding system
- CommunityLend will not be a party to the Loan Agreement
- Will be limited to residents of Ontario, Québec and British Columbia
- Plans to have an Application Program Interface for the website, I guess this can allow for 3rd party client bidding tools and stats tools
- Lenders must be accredited investors (this mainly means that only high-net-worth individuals can be lenders). So the lending side looks like it will run more tightly than it did in the USA (or with IOU Central)
- Lenders will also have to undergo "a Lender/investor know-your-client review and a two‑stage Lender/investor suitability review", among other things
- Borrowers will have to undergo a "know-your-client review and a Borrower/issuer suitability review"
- The Equifax eID‑Verifier System process will be used for identity verification, and if your address shows as somewhere other than ON, PQ or BC, you'll be rejected, so there might be some lag if you recently have moved
- There will be NO secondary market for loans, and they cannot be assigned either. So, if you're the lender, you're staying as the lender.
- $100k in total lending limit for individual accredited investors and non-institutional accredited investors, with some diversification requirements as well
- Minimum loan is $1000
- Borrowers are allowed a max of 2 loans at any one time
- CommunityLend will set up risk-adjusted Minimum Interest Rates
- Potential borrowers will be allowed to include the purpose of their loan in their listings, so there is some qualitative as well as the typical quantitative criteria used for bidding
- Some funky litigation policy for when you have disputes with your borrower that I can't comprehend and don't want to incorrectly translate here
- "CommunityLend will monitor any blogs, forums, or similar interactive communication channels on its website and within 48 hours remove any material from its website that it deems inappropriate, including material that raises investor protection concerns." So be sure to comment here, not elsewhere ;)
- Some loan performance data will be made public on their website
"the Exemption Sought will cease to be effective in the Applicable Jurisdictions on July 31, 2011 (the “Expiry Date”). As of the Expiry Date no new Loan Requests may be offered on the System and no new Investment Contracts will be issued; however, CommunityLend may continue to provide servicing, collection, record‑keeping and other services in respect of outstanding Loans that have not been repaid in full."---> So they will have to go to the regulators again and convince them to let them continue to operate in just under 2 years.
I foresee a potential supply vs. demand problem for funds. Middle class people simply won't be allowed to lend on the system, since they will likely not qualify as accredited investors. However, those that are accredited investors will likely be coming to the table with a lot of cash, especially if they are institutional investors. There is some talk in the filing about automated lending systems, so perhaps a large institutional investor can agree to have someone (CommunityLend?) bid on their behalf and bid on the small loans that would otherwise be too time-consuming to review and bid on. But who knows, maybe they already have some institutional investors already lined up.
Overall, congratulations to the entire CommunityLend team on pulling this all off!