I received a new "State Financial Suitability Requirements" notice this morning as I logged into my prosper account. Basically Washington State is deciding whether or not it's wise for people to invest in peer to peer lending. If you don't meet their requirements then you will be breaking the law if you continue to lend.
How long until we see these sort of requirement before one is allowed to invest their own hard assets in the stock market, real estate, heck why not even charitable giving?
For the record my small Prosper investment has payed out 12.44%. That's way more than any of my other more traditional investments. I also appreciate the fact that it gives me the ability to lend capital directly to people and businesses who are in need at a time when we continue to hear news stories of frozen capital markets. Is prosper a risky investment? Oh heck yes, but if investors know that going in and aren't expecting any sort of bailout in the case of lose, then stay the heck out of my financial dealings! I wouldn't be surprised if banks or other financial institutions had a hand in drafting these requirements as they would rather individuals be forced to lend their capital through them rather than via a more direct channel.
State Financial Suitability Requirements
The state of Washington has financial suitability requirements.
1. Financial Suitability Requirement:
The Notes are being offered only to a lender (a husband and wife are treated together as one lender) who satisfies the suitability requirements set forth below. You must meet one or more of the suitability requirements (a-b) in order to purchase Notes from Prosper.
A - I have an annual gross income of at least $70,000 and a net worth as set forth below, of at least $70,000, and I will not purchase Notes that in the aggregate, exceed 10% or more of my net worth as set forth below, or
B - I have a minimum net worth of $250,000 and I will not purchase Notes, that in the aggregate, exceed 10% or more of my net worth as set forth below.
Note: Net worth is calculated exclusive of home, home furnishings and automobiles, and Lender members may not value assets included in the computation of net worth at more than their fair market value.
2. Certification under Penalty of Perjury:
The undersigned has carefully read this Suitability Questionnaire for Individuals and confirms, under penalty of perjury, that the information contained herein is accurate, true and complete and if there should be any change in such information at any time, the undersigned will immediately furnish the revised or corrected information to Prosper.
Under penalty of perjury, I confirm that the information contained herein is accurate, true and complete and:
[ ] I confirm that I meet one or more of the financial suitability requirements in sections a or b set forth above.
[ ] I confirm that I do not meet any of the financial suitability requirements above.
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3 comments:
Interestingly I received the same message. I contact Washington Dept of Financial Institutions. They indicated it was not a "law," but rather a directive they have given to Prosper. The reason for this is Prosper's heavy debt load and, according to the person I talked to, does not relate to their actual "product."
Seems something is missing though, as I see no reason that there would be heightened risk, as Prosper indicates they have a backup servicing agreement in place in the event of their closure. If you want further information, the Securities Division of WDFI can provide the information.
Apparently it will be reviewed again in a year when Prosper's registration is up for renewal.
Thanks Anon for the additional info. I will try to follow up and see what info I can get. Regarding the info they provided you. Since Prosper is a public company their financials are public and if you review them you'll see that they are indeed in a fairly dire situation since their expenses FAR exceed revenue. At this point they are basically existing on external funding lifelines. All that being said the financial products they offer are sound from a lender perspective. In my opinion, this decision by the WDFI will only make matters worse for Prosper as it restricts the possible lender pool and limits the number of new loans that get fully funded and thus further restricts Prosper's revenue streams from originating and servicing those loans.
This is ridiculous... I can understand putting some basic restrictions on large financial institutions to discourage high risk investments since their influence on the economy can be so vast and far reaching but since when are regulation on individuals on what they can and can't invest in ok? Prosper does a fantastic job of informing the lenders to the risk involved. So, Washington, you are telling me that you won't restrict my ability to invest in obviously risk stocks or "invest" thousands of dollars on gambling but you will restrict my ability to lend what I'm willing to risk to other people? I mean, the State allows people in debt with horrendous credit ratings BORROW tons of money using the marketplace with huge APY% and get even more in debt and over their head, yet if you have positive cash flow to invest...oh no, that's not happening...
I read some of prospers financial statements and if the fact that they are operating on borrowed money to stay affloat is why the State is concerned I can see where they are coming from but I don't believe this is the right of the state to flat out tell us not to invest. People invest in risky things all the time, in companies that fail, in stocks that plummet, in friends and family that never pay them back. Its up to the person to know what they are willing to risk, not the state.
I for one don't make nearly enough gross anual income, nor do I have $70,000 lying around so I guess I'm stuck investing in the volotile stock market or something... I guess another example where the rich get richer while the working man gets the shaft. I wonder if the banks had any influence on this... P2P lending must have them at least a little worried.
Anyway, thanks for letting me blow off steam. I think next I call/write the proper people to complain.
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