Lending Loop halts new loan requests amidst talks with “securities regulatory authorities”

Lending Loop

Toronto-based Lending Loop posted a notice on its website yesterday stating that the startup has suspended new loan requests on its website. A similar statement was sent to Lending Loop users via email today (posted in full below).

Lending Loop called the move an “act of good faith” and a voluntary decision, with the peer-to-peer lender currently engaged in discussions with unnamed securities regulatory authorities. It should be noted that in June of last year, the Ontario Securities Commission released a statement that laid out expectations for P2P lending services in Canada, claiming that some services might be subject to requirements under the Ontario Securities Act.

“If you are approaching any Ontario investors to fund peer-to-peer loans or loan portfolios, then you should be talking to the OSC about securities law requirements, including whether you need to be registered or require a prospectus,” Debra Foubert, Director of Compliance and Registrant Regulation at the OSC, said at the time.

Multiple sources familiar with the matter have told BetaKit that Lending Loop was not only failing to adhere OSA regulations, but openly flaunting its decision to skirt them, specifically in its decision to accept funds from non-accredited lenders. The company told the Financial Post in November that it was following a U.S.-style model, allowing any Canadians with $50 to pool money into larger loans for small businesses.

According to our sources, this decision did not sit well with certain Canadian financial institutions, which opted to halt all transactions relating to Lending Loop, forcing the company to switch to non-bank backed payment partners. Apparently, Lending Loop’s Uber-style model of skirting regulation then caught the eye of the OSC.

Lending Loop has said that it will continue to service all funding loans during the stoppage, and all existing lending partners will be able to withdraw funds at no cost. BetaKit has reached out to Lending Loop for comment.

Update (03/03/16): We’ve received a response from Lending Loop CEO, Cato Pastoll, which can be found below.

“All I can say is that we worked closely with our lawyers for over a year to ensure that we structured our platform in a manner that was both legal and compliant with applicable regulations. As indicated in our post, we voluntarily and temporarily stopped posting new requests as an act of good faith. We sincerely hope that the Canadian FinTech ecosystem will collectively foster an environment that is not only safe and reliable but is also flexible and innovative. We are adamant that P2P lending is an essential part of the future of the Canadian financial sector as it is starting to become in almost every other developed country in the world.

“These things do happen to new and innovative companies that operate in regulated environments. You mention Uber’s struggles in your post but further pretty similar events happened to P2P lenders Lending Club and Prosper in the U.S.”

Lending Loop Email statement:

Lending Loop is currently engaging in discussions with the appropriate securities regulatory authorities. During this time, we have decided to voluntarily and temporarily halt the posting of new loan requests on the marketplace. Lending Loop will continue to service all existing loans and lenders will continue to be able to access their account, monitor their portfolio and withdraw funds at any time at no cost. In the interim, Lending Loop will continue to fund loan requests from businesses using its own capital.

Since October 7th, 2015 more than 3,000 Canadians have signed up to join Lending Loop in pursuit of prospering with Canadian businesses. Investors have helped businesses hire new employees, expand their stores, purchase inventory and re-tool their shops. We are tremendously proud to have brought together a community of investors that has collectively proven that peer-to-peer lending can thrive in Canada.

In the meantime, please do not hesitate to email us with any questions or feedback you have. We’d like to thank you for your patience as we put forth efforts that will bring a more robust peer-to-peer lending model to Canada for the long-term.

Douglas Soltys

Douglas Soltys

Douglas Soltys is the Editor-in-Chief of BetaKit and founder of BetaKit Incorporated. He has worked for a few failed companies and written about many more. He spends too much time on the Internet.