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Peer-to-Peer Lenders Losing Court Battle

Consumer and small-business loans arranged over the Internet may be violating state interest-rate caps.

By Bloomberg News | Updated on August 14, 2015

LendingClub Corp. and other companies that arrange consumer loans over the Internet are running out of options in avoiding a legal blow that may force them to lower interest rates they charge certain borrowers.

The U.S. Court of Appeals in Manhattan refused this week to reconsider its decision that effectively 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.

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