This news is a little bit late, but its worth mentioning. Evidently CNBC is reporting that Wells Fargo Bank is banning its employees from participating in peer-to-peer lending platforms like Prosper.com and LendingClub.com. The main reason is because peer-to-peer lending has started to cut into the business that Wall Street Players like Wells Fargo have traditionally enjoyed. Wells Fargo doesn’t like it so they’ve banned their employees from participating.
From the article:
Wells Fargo has banned its employees from lending their own money through peer-to-peer loan platforms, in a sign of growing tensions between new “P2P” lenders and the largest U.S. bank by market value.
“Ethics administrators” at Wells Fargo decided to forbid staff from P2P lending after concluding “that for-profit peer-to-peer lending is a competitive activity that poses a conflict of interest.”
Tensions between banks and peer-to-peer platforms have arisen because the P2P model cuts traditional lenders out by matching capital directly with borrowers. The juicy yields on offer have attracted investments from a range of would-be lenders, including hedge funds and private individuals.
The CNBC piece does raise some concerns for users of Prosper.com – evidently the article also says that some of the wall street players have been exploring ways to securitize peer-to-peer originated loans. If true this gives credence to rumors that Prosper.com is moving towards a two tiered approach for loans access. The rumors, although I haven’t been able to substantiate them, suggest that Prosper is giving access to the best quality loans to its institutional clients – leaving the lower quality, lower return loans for Joe and Jane average. This is because in order to securitize the loans, prosper would need to provide large blocks of loans meeting various criteria (e.g. borrower reliability, risk/return metrics, etc.) for corporate clients who have the money to make bulk purchases. If true, this would be a clear betrayal of the original spirit of the peer-to-peer model, which promised democratic access for both lenders and borrowers.
For more on the DINKS saga with prosper feel free to check out:
Crashing and Burning at Prosper.com
Another Prosper Borrower Goes Bankrupt
Putting 70,000 into Prosper.com
James Hendrickson
James Hendrickson is an internet entrepreneur, blogging junky, hunter and personal finance geek. When he’s not lurking in coffee shops in Portland, Oregon, you’ll find him in the Pacific Northwest’s great outdoors. James has a masters degree in Sociology from the University of Maryland at College Park and a Bachelors degree on Sociology from Earlham College. He loves individual stocks, bonds and precious metals.
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