NASAA Seeks Comment on Peer-to-Peer Lending Policy Statement

The North American Securities Administrators Association ("NASAA") seeks comments on a proposed "Statement of Policy Regarding Peer-to-Peer Lending" through online platforms. The proposed policy "is designed to provide a framework for registering securities issued by lending platforms under state securities laws."

The proposed policy sets out a substantial list of requirements applicable to the operation of a lending platform, the manner in which loans are made, and the obligations of the lending platform to both lenders and borrowers. Additionally, the policy imposes substantial documentation requirements as to the use of a trust indenture, required disclosures, the required agreements, lender qualifications and marketing materials.

The statement would establish as NASAA policy, the following lending platform requirements:

• a tangible net worth of at least $250,000, not be in "Unsound Financial Condition," and able to deliver an annual audited financial report to investors (lenders);
• its officers and directors must demonstrate the necessary knowledge to "supervise the origination, bundling and servicing of the loans";
• a majority of independent directors and at least one of the officers must have experience in cyber, e-commerce and technology;
• the ability to verify material information regarding borrowers such as employment, stated income, other debt incurred, and debt-to-net income ratios;
• disclose how often the platform verifies borrowers' material information;
• report delinquencies, charge-offs, and defaults to credit reporting agencies;
• engage in good-faith efforts to collect unpaid debt on the investor’s behalf; and
• in the event of a default, the lending platform must retain full recourse on debt securities issued through its platform.

Further, the statement would establish as NASAA policy, the following requirements for "Public Offerings of Peer-to-Peer Lending Debt Securities":

• public offerings of debt securities must be secured by a Trust Indenture;
• the Disclosure Document must include (i) information about Peer-to-Peer Lending Arrangements and (ii) a description of risks and material information of investing in peer-to-peer debt securities;
• the lending platform must disclose material information about the borrower as well as loan terms if the platform offers securities online;
• the lending platform, and those selling debt securities on behalf of the lending platform, will require investors to complete a subscription agreement;
• service agreement terms between the lending platform and the investors must be properly laid out under the investor agreements; and
• total sales to an investor in a lending platform must not exceed:
  • $2,200 or 5% of the investor’s annual income or net worth if the investor’s annual income or net worth is less than $110,000; or
  • 10% of the investor’s annual income or net worth, not to exceed $110,000, if both the investor’s annual income and net worth are equal to or more than $110,000.

The comment submission deadline is April 22, 2022.