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Which States are Open to Lending Club and Prosper Investors

by Peter Renton on May 11, 2011

This is a question I see a lot. Currently, there are many states that are simply not open to people who want to invest in peer to peer lending. Is your state one of them? Both Lending Club and Prosper have a different set of investor eligible states, which I will detail here.

Lending Club

Lending Club allows direct investment from 28 states: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Kentucky, Louisiana, Maine, Minnesota, Missouri, Mississippi, Montana, New Hampshire, Nevada, New York, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin, West Virginia, and Wyoming.

If you don’t live in these states you may still be allowed to invest in Lending Club, although not directly. But you can open an account with Foliofn, their trading platform. Here you can buy notes held by other investors. There are many states available for investing via the trading platform that are not available for direct investment: Alabama, Alaska, Arizona, Arkansas, Indiana, Iowa, Massachusetts, Michigan, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Oklahoma, Pennsylvania, Tennessee, and Texas.

To make it easier for you I have displayed everything on a map below.

States Open to Lending Club Investors


Prosper handles things a little differently. Basically, if you can’t invest in Prosper directly then you cannot invest at all. There is no additional list of states that are available to investors on the trading platform.

Prosper allows investors in the following 29 states: Alaska, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maine, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New York, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin and Wyoming.

States open to investors in Prosper

Both companies are working on adding new states so this list could change at any time. For an up to date list and to look at additional investor requirements you should check the investor help pages at Lending Club and Prosper.

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Matthew Paulson (P2P Lending News) May 11, 2011 at 9:30 pm

Great maps. I’m glad I live in South Dakota – We can invest in about anything without the state getting involved :-)

Dan B May 11, 2011 at 10:58 pm

So what is the rationale behind certain states not allowing p2p investments & yet allowing the purchase of these same investments on the secondary market?

Adam M May 12, 2011 at 12:32 pm

@Peter: Any chance of getting Rob, or another one of your contacts at Lending Club to make a statement or two regarding the current status and plans for expansion into the remaining states? For example, Maryland, Ohio, Kansas, Vermont and Oregon are all completely out of the loop; what might the state’s reasons be?

With Lending Club, and Prosper for that matter, well past its quiet period (a few years), what is the current hold-up with something approved and “regulated” by the SEC?

Additionally, with the similar business models, why does Oregon and Washington D.C. allow Prosper, yet not Lending Club? For the flip side, South Dakota doesn’t allow Prosper, but allows Lending Club?

At the end of the day, there hasn’t really been significant progress in this arena, and for a potentially transient person, their “eligibility” could be hindered quite severely, thus limiting Lending Club and Prosper’s retention of some quality investors or attraction of new, well-funded investors. I myself have encountered issues with this (moved from Virginia to Pennsylvania to Maryland). Obviously, this has a limiting factor in my desire to continue to invest. Simple loophole is to show your address in another state (which I do, at a family member’s home), but that seems to be a bit much for someone to invest in a legitimate and regulated environment.

Side note: Louisiana and Kentucky appear to be miscolored on the LC map.

Peter Renton May 12, 2011 at 1:47 pm

@Matthew, Thanks. I am also glad to live in a state (Colorado) that allows me to fully participate in p2p lending.

@Dan, You raise a good question. I have been trying to get to the bottom of all this for quite some time, but I have still no had any definitive answers. I am intending to do a follow up post to this one that will explain the answer to this and other questions.

@Adam, I have asked Rob and others at Lending Club as well as people at Prosper and I always get the same answer: they are working on it but cannot comment on when or if a new state will become available.

Apparently even though p2p lending is regulated by the SEC, it is still up to the states to decide if they want to allow this kind of investment. You raise a point that to me is the most perplexing of all – if a state is allowable for either Prosper or Lending Club then surely it should allow both. When I find out I will report back.

Thanks for the catch of KY and LA. That is now fixed.

Dan B May 12, 2011 at 3:35 pm

@Peter…………Yeah let’s get Rob G. back here. I promise that I’ll lob him some real softball questions that even Larry King will be proud of.

Brian B May 12, 2011 at 4:49 pm

Another weird decision by states is that some, for example North Carolina, allow borrowers to receive loans through Lending Club, but they do not allow their residents to be investors.

This seems completely inconsistent. If it’s a legitimate business, both borrowing and investing should be allowed. If they don’t like it, they should both be disallowed.

Why would a state want to send all their money across state lines to give other states the profits? (or do they expect their own residents to default on the loans and only screw over the other states, so they are protecting their own investors from their own untrustworthy borrowers?)

Mike May 12, 2011 at 5:48 pm

Can residents of states limited to the FolioFN platform ask (or more accurately, select) questions of borrowers on the loan platform? If you move into a state that allows no further investing in loans, do you have to sell your current holdings? I don’t think LC or Prosper really follow up on the residency issue, just like they really don’t confirm your net worth. Kind of like their version of don’t ask, don’t tell.

Chris A May 12, 2011 at 6:18 pm

I live in Oklahoma, and opened a Lending Club account before the quiet period. I’ve been investing in new loans despite my state not allowing it. Am I special, or does Lending Club actually restrict investor accounts? And what are the consequences, if any, of me continuing to invest in new loans?

Peter Renton May 12, 2011 at 7:11 pm

@Dan, I will be talking with Rob G. soon and will encourage him to provide some input again.

@Brian, I can understand some states allowing borrowing and not investing because borrowing has far less risk. Once you have your money it really doesn’t matter what happens. But investors are all in for the long haul (or at least for 3 or 5 year terms). I don’t think the states question whether it is a legitimate business, because the SEC has given their ok after all, it is more a case of wanting to “protect” their citizens from investments deemed high risk. Some states are much more restrictive about this than others.

@Mike, My understanding is that residents from the Foliofn-only states cannot ask questions of borrowers whatsoever. I think what happens if you move to a state where p2p lending is not allowed, you can keep the notes you have but cannot make new investments.

@Chris, That surprise me. I would have thought since you live in a state that doesn’t allow direct investment that you would be restricted from investing after the quiet period. You may be special or they may have grandfathered you in, I really don’t know.

Having said all this, I have heard of several investors who have opened accounts in states where it is banned. They have used a friend or sibling’s address in an approved state and started investing. Of course, I can’t condone this behavior but I do know it happens.

Dan B May 13, 2011 at 5:52 am

By making the investment illegal but the investment in the secondary market legal, those states have actually increased the risk level for their residents who choose to invest. On top of everything else these investors that they are “protecting” make investment decisions with less information than the original purchasers & with zero borrower interaction.

I just did a count earlier tonight & though sales have slowed sharply in the last month, I’ve sold over 330 current notes at a 3% premium in the last 6 months (2% net to me after Folio fee). All of these notes had a declining or neutral credit score history. 6 months ago I’d never have imagined that I could do these types of numbers.

I know that some people will disagree with what I’m saying & claim that payment history matter & credit score history matter. They do, but I doubt that they make up for the fact that all the other information that is presented is now months, maybe even years out of date. And on top of that it seems pretty obvious that many of these “restricted investors” are paying a premium to buy the notes as well.

Brian B. May 13, 2011 at 8:28 am

Peter – ‘wanting to protect their citizens from investments they consider too high risk’

But there are already exclusionary elements that protect investors. Only financially qualified investors are allowed to participate. Something like 250k network required to invest, and you are not allowed to invest more than 10% of your networth. So the single mom schoolteacher on foodstamps isn’t allowed to invest her next paycheck into this system. Only middle-high income families will meet these requirements, and even still, they are not permitted to invest juniors entire college fund, only a very small fraction, a fraction so small that it would be overshadowed by the stock markets routinely +-10% bounces every year anyway.

How is that not sufficient protection? No low income families can try to make a quick buck. And no high income families are allowed to bet the farm. The networth limits already ensure that even if this risky investment fails, that nobody will become financially crippled through the losses.

If lawmakers think that default rates are going to be really high, that shows a lack of trust in their own constituents, or worse a dubious desire to allow their own constituents to scam other states investors. Since SEC has approved this business model, they have already suggested that there is reason to believe that excessive default is not an inevitable conclusion. So, if lawmakers trust that most borrowers are good apples with a few bad ones mixed in, its irresponsible and inconsistent to not allow a financially stable household to invest in p2p lending as no more than 10% of a diversified portfolio.

Brian B May 13, 2011 at 8:41 am

My main question I forgot to ask earlier – do we know where the holdup is? Are there laws that need to be passed through state legislatures? Is there just a guy with a rubber stamp at the Secretary of State office that needs to say yes?

-If it’s a law, lets find out the bill number so local voters can call their state congressmen and senators and push to get it passed.
-If it’s sitting on someone’s desk in the Secretary of State office, let’s find out who’s desk. Again, voters can call their elected official and ask for status updates and recommend a speedy push.

Assumption: Permission to invest from these states is held up by 1 or more state employees/committees/laws. (the alternative is that Lending Club/Prosper are the holdup, i find this to be unlikely)
Fact: Somewhere along the line, every state employee works for someone who is elected to their position, every policy can be overturned by someone, and every law can be changed.
-Step 1: Find out exactly what person or committee is holding up approval.
-Step 2: Find out who his boss is, and that person’s boss, etc until you reach the person who is voted into their office.
-Step 3: p2p sites provide us with talking points, specifics about bill numbers, application numbers, dates submitted, etc.
-Step 4: Local voters call their locally elected officials and make their opinions heard in a concise, logical, intelligent manner.

Wasn’t the blackout period only a few months long, and they came out with half the country’s permission. But in the years since, they have gotten permission from <5 new states. I see no reason to assume that the sites will be able to lobby for access to the remaining states on their own. If they could, it would have happened by now. State officials hearing support from local voters goes a long way as compared to requests from out of state corporations.

Peter Renton May 13, 2011 at 2:52 pm

@Dan, I am guessing that the powers that be in the states are completely clueless about peer to peer lending and therefore the laws have little chance of making sense to you or me. Having said that I did hear back from LC’s attorney about the question of why some states allow Foliofn only investments and I quote: “The reason why we are in some states under the secondary market but not the primary market is the securities laws applicable in those states – since we do not operate the secondary market a different set of securities rules applies that can make it easier to have the secondary market operate versus the primary market.”

Your other point about the premium others are paying is completely valid. I honestly don’t know how these Foliofn investors do it – almost all current notes are sold at a premium, so you really have to pay to play in those states.

@Brian, You talk about the “exclusionary elements” but as far as I can tell these are not enforced. When I opened up an IRA last month there was no mention (unless it hidden in a link I didn’t click on) of these requirements. So, my guess is that the requirements have to be in place on their web site but they don’t necessarily have to be strictly enforced.

I think the holdup is that some states have laws on the books that simply make this kind of “security” illegal, although I am at a loss to explain why some states allow Prosper and not Lending Club and vice versa.

I am going to do some research here in coming days and find out more information about the holdup and publicize the problems by state. Then people can call their state politicians and at least let them know there is a problem. I like all your ideas and I will see if we can get a grassroots movement going.

Dan B May 13, 2011 at 3:11 pm

@Peter……………The LC attorney either doesn’t know the answer or doesn’t know how to explain it. If what stands between allowing/not allowing restricted states residents to use the secondary market is as he explains it,……………..then why does Prosper, who uses the same FolioFN outfit, not allow users from any of the restricted states residents to buy/sell in the secondary market? After all, LC & Prosper share many of the same restricted states, don’t they?

This answer that was given to you is a perfect example of the low intelligence/low quality people that I was referring to when I made the comments earlier this week about the lack of quality people in p2p.

Peter Renton May 13, 2011 at 4:29 pm

@Dan, My understanding is that Prosper interprets the laws differently. While no one there will give me an official response other than “Foliofn is only available in states where Prosper is approved” my guess is that the lawyers there decided to take the safer route. After being slapped by the SEC in Prosper 1.0 I think now Prosper is being extra cautious.

And as I am sure you know, most lawyers are employed to say as little as possible in response to any question asked of them. I certainly don’t believe it is a reflection of low intelligence, but rather an adherence to the letter of the law, which is often not helpful to people like you and me. I will keep digging.

Dan B May 13, 2011 at 6:37 pm

Well if all they need is somebody who says nothing & can talk BS, then they should hire me as I can do that effortlessly………….& likely cheaper too.

Peter Renton May 13, 2011 at 8:28 pm

@Dan, I think they are hiring….

Dan B May 14, 2011 at 11:10 am

@Peter………Well if you see me go through a Arianna Huffington like transformation here you’ll know that I’ve followed up on that. (i.e. her late 1990′s transformation, not the recent one)

Peter Renton May 14, 2011 at 3:29 pm

@Dan, Somehow I think that is unlikely…

Charlie November 17, 2011 at 5:28 pm

Found this via google. Was there ever a follow up article on this? Thanks in advance.

Peter Renton November 18, 2011 at 10:43 am

@Charlie, Here is the follow up to this article:

Allen Montgomery January 22, 2012 at 3:43 pm

Last time I checked, these things were a hell of a lot safer than lottery tickets, which my state shamelessly promotes. I am tempted to leave the state of Indiana, just to escape this idiotic paternalism.

Peter Renton January 22, 2012 at 10:26 pm

@Allen, You can also put your entire life savings into a penny stock that promptly files bankruptcy the following month and you lose everything. There is not a lot of consistency with the state securities laws but I think you will find it is not just Indiana – some other states just as bad.

Paul April 9, 2012 at 7:15 pm

Is there an option for Iowa residents to apply for a peer to peer loan anywhere?

Starting a new business and need some capital to get going.

“If I say it, will it come?

Peter Renton April 11, 2012 at 1:55 am

@Paul, I am afraid Iowa is one of the few states that do not allow loans with the p2p lenders Lending Club and Prosper. Maybe one day, but it is one of three states not allowed by either p2p lender. You will have to look elsewhere for that loan.

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