…reports Bloomberg Business. A recent decision by the Second Circuit (on which the court this month rejected a motion to reconsider)
restricts the so-called marketplace lenders from bypassing state usury laws by partnering with banks in states where there are no such rules. The ruling effectively would stop a practice whereby the lenders can make a loan to a borrower in, say, New York — where interest rates are capped at 16 percent for most loans — by originating it in Utah, which has no usury limits.
Firms like LendingClub and Prosper Marketplace Inc., also known as peer-to-peer lenders because they started out by directly linking borrowers and funders over the Internet, match up people seeking consumer or small-business loans with investors such as hedge funds.
Barring a successful request for review by the U.S. Supreme Court, the lower court’s May ruling means some of these firms’ existing loans may suddenly be deemed in violation of state interest-rate caps, Moody’s Investors Service said in June.
Read the story here.