Just to Be Clearer-er: Seriously, It's Security Regulations

I've seen, heard, and received a couple of inquiries questioning and/or tying the prohibition of Pennsylvanians from Lending on Prosper to the Pennsylvania Department of Banking and the 6% rate cap.

The rock you want to look under though, is security regulations, and the Pennsylvania Security Commission's interpretation of said regulations.

(You might want to look at past posts here, here, and here.)

It seems that the biggest culprits in the dissemination of this information are the responses folks are receiving from their Elected Pennsylvania Officials.

My take is that for the most part, our State Representatives and Senators don't really know what is going on with Prosper, and probably aren't even in tune with the presence of, or the growing demand for p2p lending. Something that by the way, is not a big secret. -It's only a Google search away!

Instead, it probably goes something like this:

An Email from a frustrated Pennsylvanian hits their inbox.

They give the email a quick once-over.

A sip of coffee and a crumbling bite of danish later, it dawns on them that as an elected official, they should probably take a closer look.

Leaning towards their monitor, they zero in on the word "Lending".

The wheels start turning. Stroking their chin, they think, "Lending? ... Money? ... Hmm ... ... Hey! Banks lend money!"

They reach across their desk, crumbs spilling into their keyboard, and hit the intercom, "Hey, I need someone to call the Department of Banking to see what this 'Prosper Internet to Peer Lending' thing is all about."

The result is an email response from a staffer pointing out that 'Pennsylvania discourages Pay-Day-Loans of any type!' -and maybe a link, but at least mention of the Loan Interest and Protection Law (Act 6 of 1974), and the Consumer Discount Company Act (Act 66 of 1937).

So Just to be Clear:

This whole situation does NOT have to do with Banking Regs.

It has everything to do with Securities Regulations and the Registration of Promissory Notes as Securities.

Prosper was even kind enough to provide the following statement on The Official Prosper Blog, dated 9/22/08:

In response to inquiries regarding the origin of the decision to discontinue lending activity in Pennsylvania, we would like to clarify that this decision relates to the Pennsylvania Securities Commission’s interpretation of Pennsylvania securities regulations. Due to the confidential nature of our discussions with the Commission, we cannot disclose any further information about our discussions, other than to say we respectfully disagree with their interpretation and are attempting to work with them to address their concerns.

So if you are just picking up on pa4pl, or the situation in general, I hope this saves you some time, and provides some direction.

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