Lending Club has now issued more than $200 million in loans to borrowers through its peer-to-pere lending marketplaces, yet many consumers still have concerns whether or not Lending Club is a scam or whether or not the company is defrauding consumers in some other way. It’s natural to have some level of concern about financially innovative companies, such as Lending Club, but it’s certainly not a scam.

When Lending Club and its primary competitor Prosper.com went into business during the middle of the last decade, there wasn’t much regulation surrounding the world of peer-to-peer lending industry. The SEC stepped in and regulated the peer-to-peer lending industry after accusing Prosper of illegally selling unregistered securities. Both Prosper and Lending Club worked out their legal status with the SEC and have the loans made to borrowers listed with the SEC as registered securities. The two companies have also worked out their legal standing with the majority of the 50 states so that borrowers in all but a few states can get loans through the two companies.

If you are getting a loan from either company, it’s no different than getting a loan from a bank or credit union, but you may get an even better interest rate. You make your payments directly to Lending Club or Prosper and they distribute your payment to the investors that funded your loan. If you default on your loan, the company will certainly try to collect the debt form you as is their legal rights, but the individual investors have waved their rights to try to collect on the debt, so you don’t have to worry about any individual coming after you.

If you are considering investing in peer-to-peer loans by way of Prosper or Lending Club, there are some risks involved, but it’s certainly not an investment scam. Prosper drew criticism from its early investors because of the relatively high default rates that occurred, but the company has since gotten its act together and investors on both Prosper and Lending Club are reporting positive rates of return on their investments. Many investors are making around 9% with their peer-to-peer lending investments and investors that take on more risk are reporting even higher returns. It does take a bit of work to invest with Prosper or Lending Club, but it can be an interesting alternative investment that provides diversification outside of stocks and bonds.

Both Prosper and Lending Club are listed with the San Francisco Better Business Bureau. Lending Club currently has a B+ rating and is a BBB accredited business. Prosper also has a B+ rating. Both companies have had a few complaints during the last few years on the BBB, but it appears that both companies have resolved all open issues.

Prosper.com is not a scam and Lending Club is not a scam. Both Prosper and Lending Club are real companies that offer real loans to real people. They also provide investors a unique opportunity to invest in consumer debt, especially through its Lending Club IRA–but it’s not an investment that is without risk.

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