Ask Stacy: Is Peer-to-Peer Lending a Pyramid Scheme?

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Peer-to-peer lending is all the rage, and for good reason: It offers borrowers access to low-cost money and investors high-interest returns. But what if it's all a Ponzi scheme?

I recently got this question from a reader about our article 8 Ways to Earn More on Your Savings. It’s a good one…

To Whom It May Concern:

After reading your article from March 14, 2012 titled “Peer Lending,” my husband and I decided to do a bit of investing with Lending Club. I also saw that Lending Club was mentioned in an article from today (Aug 27) called “8 Ways to Earn More on Your Savings.” So far, we have no complaints, and some of our borrowers have even paid off their loans early!

However, when we met with our financial adviser a few weeks ago, he expressed concern that this may be a Ponzi scheme. He and my husband have both tried to look into the program further to see if the borrowers are, in fact, real. We have yet to find any evidence that proves or disproves their existence. My husband and I like the idea behind Lending Club, but we don’t want to find ourselves (or others who also chose to lend) duped a few years down the road if we learn that the borrower profiles are all imagined. Do you have any evidence that the borrowers on this site (or Prosper, for that matter) are legitimate?

It is my hope that since this site has been endorsed multiple times, MoneyTalksNews can direct me towards some kind of documentation which proves Lending Club is a legitimate organization.

Thank you for your help!

Here’s your answer, Stacy! (Nice name, by the way)

My first thought when I read this email was, “Of course sites like Lending Club and Prosper are real. Why wouldn’t they be? I’ve been doing stories on these sites for years – pretty much since they started – and have never heard a peep suggesting fraud.”

But then I started thinking: That’s probably exactly what Bernie Madoff’s investors were told. So instead of rejecting the question, maybe I should respect it. The fact is, while I’ve personally interviewed two lenders using these sites for TV news stories, I’ve never talked to an actual borrower.

So I forwarded Stacy’s email to the media relations representative for each site and asked them to allay her fears. Here’s how they responded…

Lending Club

Here’s Lending Club’s response in its entirety, from Chief Marketing Officer Scott Sanborn…

Hello! We’re so glad you’ve started investing with Lending Club, and are pleased to hear it’s gone well for you.

Lending Club is publicly registered with the U.S. Securities and Exchange Commission (SEC) and audited by Grant Thornton – an independent top 5 auditor.  In addition to auditing our financials (which are available publicly on our website and at, they also independently select a random subset of loans from our files and reach out to the borrowers to confirm both their and the loan’s existence. You and your adviser can find our current and previous Prospectus, as well as our annual and quarterly SEC filings on this page of our website.

So… rest assured that Lending Club borrowers are, indeed, real people. In fact, you can read some of their stories in articles like this CNN piece featuring Lending Club borrower Nansee Kim, and this story from The Street about Lending Club borrower John Good. Lending Club only works with borrowers with good-to-excellent credit – only 10% of applicants qualify for a loan. We pride ourselves on our transparency, and you and your financial adviser can download our complete loan data since inception on this page of our website.


Here’s Prosper’s response in its entirety, from Brad Lensing, Chief Marketing Officer…

Prosper is a leading peer-to-peer lending marketplace that connects borrowers and lenders. Over the past six years, more than $397,000,000 has been borrowed through the Prosper platform for things like debt consolidation, home improvements, and small business loans. Prosper’s Notes are publicly registered with the U.S. Securities and Exchange Commission (SEC). Prosper files in-depth and comprehensive reports with the SEC that are available to the public. The prospectus, which is the public offering document included within the registration statement, provides a detailed description of both Prosper and how Prosper’s platform works. In addition, Prosper is a public reporting company, with five years of audited financials. These documents are all available via the SEC or our company Website at

My take

A few takeaways from this exercise…

  • When it comes to Lending Club and Prosper, I’m satisfied with their responses and feel confident that both are real organizations offering loans to real people. That being said, if Stacy has further concerns, she should click the links in the responses above and read more. She could also do an online search for each site, along with the word “complaints” and see what comes up. Finally, she could check sites like the Better Business Bureau to see what they have to say.  In short, it’s always a good idea to do what Stacy did – question everything. There’s no shortage of scams out there, and better safe than sorry.
  • Even if Prosper and Lending Club are legitimate sites offering solid returns, it’s a good idea not to put too many eggs in any basket. Whether it’s the stock market, real estate, bank savings, peer-to-peer lending, or anything else, the only good portfolio is one that’s diversified among several types of investments. This not only makes it safer, it can also make it more profitable.
  • Advice from financial advisers like Stacy’s should be taken with a grain of salt, especially if they’re on commission. While I can’t tell from her email what type Stacy employs, it certainly sounds like he’s either uninformed or afraid to lose business to what could be a better investment. In either case, not a good sign.

Stacy Johnson

It's not the usual blah, blah, blah

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