Peer-to-peer lending is such a new industry that it's off the radar, for the most part, of Pennsylvania banking and investment leaders. Those who are familiar with it seem to be fine with the new practice.
Peer-to-peer lending (or P2P, the industry term) allows investors to buy the loans of direct-lending companies who give loans to those with good or very good credit but still can't get a loan at a traditional bank with the heightened regulations after the recession. After acquiring Direct Lending LLC of California last month, Emerald Asset Management of Manheim Township is now one of those investors that can buy peer-to-peer loans and reap the reward of higher-than-average yields.
Emerald President and CEO Joseph Besecker gave me this true-life example of a P2P loan his company would be interested in buying as an investment: A man who makes $10,000 a month got into a dispute with his veterinarian over some bills for his pet. While the dispute was going on and he wasn't paying the bill, it damaged the man's credit. It's since been taken care of, but the black mark remains on his credit rating, throwing up a red flag in the loan departments of traditional banks.
"Would anyone really think he's not going to pay that back?" Besecker said. "I mean, he's making $10,000 a month. Those are the types of loans we're looking to invest in."
In Pennsylvania, however, peer-to-peer lending is still somewhat unfamiliar. Ed Novak III, spokesman for the Pennsylvania Department of Banking and Securities, said there have been no licenses issued in Pennsylvania for a P2P lending company to do business here. If one did, it would have to apply for a license as a non-bank lender and submit a securities filing.
"We would review any such applications with any eye towards their compliance with the Consumer Discount Company Act and the Pennsylvania Securities Act of 1972," he said.
Two wealth management firms in the region said it fell out of the area of their expertise and didn't want to comment.
I had Jim Gibson, president and CEO of Integrity Bank in Camp Hill, on the phone this week and I was getting frustrated that I couldn't find anyone from local banks to talk about P2P. So I sprung it on him, thinking he would be worried about the new form of lending since, at its core, it's a way to go around the banking system. When Napster went around the music industry, or when movie piraters went around Hollywood, those major industries didn't exactly take it lying down.
Here's what he said:
"We really don't see that as having any impact on us at all. At least not in the near future. I just don't see it. Part of that reason is that we are averaging more than $10 million in growth in net loans each month. When you're having that kind of growth, people obviously like what we're doing with loans."
Nick DiFrancesco, president and CEO of the Pennsylvania Association of Community Bankers, said because P2P lending is a private enterprise, it won't have an effect on the FDIC if there is a disaster akin to the lending crisis that helped cause the recession. That makes them safer to the banking industry as a whole, he said.
He also said, generally, people getting credit when they might not have been able to get it from the traditional banks is good for the economy as a whole.
"The economy is better off when entrepreneurs have access to credit at multiple risk/rewards levels," he said in an email. "Some business plans don't fit between the borders of traditional banking. A diverse economy requires dynamic funding sources for capital."
If someone out there in the banking industry is going to hate, hate, hate P2P lending if (when?) it goes more mainstream, they're just not talking much yet.
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