I am doing some research on the peer-to-peer business model.

When looking at Lending Club, I was wondering what the legal framework model is for them.

To be more specific, how are they set up as a company? How do they manage the lenders' money and how do they interact for loan repayment, commissions, etc...? How is the lender's money transferred to the borrower? I guess not through the Lending Club company, for reasons of risk.

  • 1
    This question appears to be off-topic because it is about not directly related to personal finance
    – Dheer
    Oct 21, 2013 at 17:21
  • 3
    I can see this being on topic. It is important to know how something like peer to peer works before lending or borrowing from it. Banks processes are understood at a basic level so we can trust them, therefore understanding peer to peer is just as important as personal user.
    – MrChrister
    Oct 21, 2013 at 18:49

2 Answers 2


This is all answered in the prospectus.

The money not yet invested (available/committed to a note but not yet funded) is held in pooled trust account insured by FDIC.

Money funded is delivered to the borrower.

Lending Club service their notes themselves.

Read also my reviews on Lending Club.

  • Thanks, I was also hoping to find a graph with the different parties involved (i.e. Lender, Borrower, Trust, Lending Club) and the flows
    – samyb8
    Oct 21, 2013 at 19:15
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    @samyb8 not surprisingly, you can find that in the prospectus as well. See page 6 (page 10 of the PDF).
    – littleadv
    Oct 21, 2013 at 19:34
  • +1 @littleadv for doing his homework for him. He will probably get a good grade.
    – Pete B.
    Oct 21, 2013 at 22:20
  • If the homework was to force him read the prospectus, then I think the mission has been accomplished.
    – littleadv
    Oct 21, 2013 at 22:27

The best description of P2P lending process I saw comes from the SEC proceedings. They are very careful about naming things that are happening in the process.

Prosper Cease-and-Desist

Prosper got back to business after this order, but the paper describes succinctly how Prosper worked when its notes haven't yet been registered by the SEC.

SEC Proceedings

These materials contain a lot of responsible comments on how crowdfunding, including P2P lending, works.

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