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With the regulatory issues that peer-to-peer lending companies including Prosper Marketplace and Lending Club went through in 2008 and early 2009, many curious investors have asked about Lending Club’s legitimacy and Prosper Marketplace’s legitimacy.

The legal situation of Prosper Marketplace and Lending Club is that neither of the company is a “scam.” Both Prosper Marketplace and Lending Club are legitimate companies that are registered corporations and have registered with the Securities and Exchange Commission. Both companies have met all federal laws related to offering alternative investments.

Both Prosper Marketplace and Lending Club also have to meet state by state requirements. For this reason, both Lending Club and Prosper only operate in certain states. You will have to check with the company that you want to do business to make sure that they operate in your state of residence.

Some states have very complex regulatory structures and as a result Lending Club and Prosper Marketplace does not operate in all 50 states. This does not mean they are illegitimate or a scam, it simply means they have not crossed all of the T’s and dotted all of the I’s to make sure that they are in compliance with that  state’s regulatory structure.

Congress is currently working to provide a clearer regulatory structure to the peer-to-peer lending industry via its financial reform regulation that will put peer-to-peer lending companies under the Consumer Financial Protection Agency (CFPA) if the legislation passes. This legislation is seen by many as a sign that peer-to-peer lending isn’t just a passing fad and will continue to become an important part of consumer lending in the world.

It’s important to note that investing in peer-to-peer loans does have some risk involved, just like any other investment. Although most investors make money using the service, it is possible to lose money on a loan when a borrower does not repay. From a borrower’s perspective, getting a loan on Lending Club or Prosper is just like getting an unsecured loan from the bank. There’s no more risk than getting a loan from a bank or credit union to borrowers.

If you are worried about Lending Club or Prosper Marketplace being a scam or questioning whether or not Lending Club or Prosper are legitimate companies, don’t be. Lending Club is not a scam. You don’t need to ask yourself if Prosper or Lending Club is “legit.” Prosper Marketplace are not a scam, both are SEC registered companies and have jumped through all regulations related to peer-to-peer lending.