Peer to Peer Lending Legal States (2023)

Author: Cassidy Rhea | October-19-2019 | 6:10 PM

Peer to Peer Lending Legal States (2)

Peer to Peer Lending Legal States (3)Let me ask you a question, have you ever loaned a friend $100 bucks, which he gave back to you a week later, along with a case of beer as a thank-you?
Of course, you have, we all have!
Though, my friends aren't as hip as yours, instead of a case of beer, I might get a few vintage Star Trek action figures instead, since, obviously they're a bunch of damn nerds.

Anyway, it was a pretty positive experience, wasn't it? You got some beer, and you were able to help your buddy out of a tight spot. Bonus points are awarded since neither of you had to find a suit to go deal with bankers and all their “Sign-your-life-over-to-me” nonsense.

Well, what you were doing was technically an informal method of Peer to Peer lending (also written as P2P Lending), a quickly growing type of investment now open to regular people – made available now that everyone has computers and smartphones. Basically, P2P lending allows everyday people to loan small amounts of money (2K – 40K) to each other without ever dealing with a bank. I know a few people who regularly lend small amounts of money out as a form of investment, and they consistently receive a 5%-10% return.

Shit, who knew you could make money loaning out cash without joining the Russian Mafia?

Here Are the Basics of P2P Lending

Inside a Peer to Peer Lending marketplace, lenders and borrowers are matched up, and money is lent out at an agreed upon level of interest. These marketplaces are exclusively virtual, being held online through websites and apps, mostly containing individuals and small businesses in need of a few grand in a short period of time. When you get your money paid back, with interest, the company who owns the website takes a sliver of that interest payment.

So, you log on to one of these sites, and see all the people who are in need of money. Who in the hell trusts people on the Internet? Half of them are lying shits, and the other half are bots run by the New World Order, right? Luckily, with these new P2P lending sites, all the potential borrowers have been checked out and confirmed to have good enough credit to qualify for a loan, and most sites have programs in place to aid the borrower in paying back the loan, just in case they do default.

Though giving money to strangers on the internet sounds like the worst idea on planet earth, successful investors mitigate risk by spreading their money out among all types of people, who are categorized as higher risk to lower risk borrowers. By not taking on huge amounts of risk, you can make quite a bit of money lending out your cash. Take a look at the Financial Samurai and how he made a very nice 10.64% profit with very little work. 10% is higher than the average profits coming out of the stock market (unless you're a politician and can avoid conviction for insider trading...)

The two biggest and most popular platforms are Prosper and Lending Club. What makes them special, is that Prosper and Lending Club are open to all people, and not just accredited investors.

Something that really pisses me off about the US government is how they make it illegal for regular people to join in some of the the highest producing investment vehicles. Many P2P lending platforms like Funding Circle aren't available to regular people, you have to be a member of the special group of Accredited Investors if you want to make money.

Just as a refresher, an accredited investor:
...must have an annual income exceeding $200,000, (or $300,000 joint), Or have a net worth over 1 million.

(Video) Peer-to-Peer Lending (AKA P2P Loans or Crowdlending) Explained in One Minute

So, you must be a heart surgeon... or Tom Brady to be an Investor.

Thanks to you SEC for looking out for the little guy! I sure am glad the government is protecting me from potentially making money.

Luckily, Prosper and Lending Club actually have their shit together. They approach each individual state to get residents permission to invest through their platform.

So, let's take a look at what you are really wanting to know: CAN I LOAN OUT MONEY IN MY STATE???

P2P State by State Breakdown

Let's take a look at the current map.

Peer to Peer Lending Legal States (4)

Note: These layers are included in the Investment Webmap.
Directions are here:

If you are in a Green state, you will be able to lend out money. You lucky SHIT!
If the state has Blue stripes, you can only lend out money using Prosper.
If the state has Red stripes, you can only lend out money using Lending Club.
If your state is Grey, you're in a backwards garbage state like me, in Pennsylvania. Welcome to the suckage, we can't do shit.

It's a mixed bag if you ask me. Pennsylvania, Ohio and Texas are known to be wet blankets, but Hard-Partying states like North Dakota don't yet allow investing? I'm disappointed.A few states are only cleared by either Prosper or Lending Club. For instance, West Virginians can only work with Lending Club. Prosper just didn't seem to trust them boys in WV. They apparently have seen the documentary The Wild and Wonderful Whites of West Virginia.
Being an ex-resident of WV, I can't say I blame them. And that documentary will do ANYONE in.

Still, Those in hip states like Utah, South Carolina and Colorado can do all the loaning they wish. If you live in one of these green states, you can start making money now on either platform.

Though lending is legal in all the green states in the map, unfortunately a few of those states do have some unnecessary, overreaching, bullshit requirements you need to obtain before you can become a lender:

Alaska, Idaho, Missouri, Nevada, New Hampshire, Oregon, Virginia and Washington:
You must have an Annual Gross Income of at least $80,000 and a Net Worth of at least $80,000
You must have a Net Worth of at least $280,000.

And even if you do qualify, you can't invest more than 10% of your Net Worth.

(Video) WARNING: Why Peer To Peer Lending is a BAD INVESTMENT

Your Annual Gross Income must be at least $85,000.
a Net Worth of at least $200,000 ($300,000 joint).

And again, Even if you do qualify, you can't invest more than 10% of your Net Worth.

Here's a further breakdown:
States where there is No Lending Allowed: Arizona, Ohio, New Mexico, North Carolina, North Dakota, Pennsylvania, Texas.

States where there is No Borrowing Allowed: Lending Club (Iowa), Prosper (Iowa, West Virginia)

State governments, being the convoluted mires of disorganization that we all know and love, are very slow to allow residents this permission. Things are constantly changing, so be sure to check back with these sites every now and again. Here are the important pages for both platforms:

Lending Club – State by State

Prosper – State by State

Geographic Diversity

One of the most cutting-edge strategies is to diversity your loans across Geographies. If you grew up in a shit-hole town like I did, you know that when things get bad, they get bad for EVERYONE. When people get unemployed, they don’t have money to spend in the local businesses, so the businesses need to tighten their belts, usually losing some staff members along the way. This creates more unemployment, and the businesses continue to struggle. This is called Decent into Economic Depression.

Knowing this, you realize that you need to spread your money around. Put some in Baltimore, and Pittsburgh, and Maui, and Youngstown. This way, you won’t get hit by a local depression.

You may also end up spying a city where you can get a lower amount of defaults, and focus some cash on these great areas.

If you're astute, you might consider spreading your loans out over multiple continents. There are actually platforms that can help you with this task, such as Mintos, that operates just like Lending Club but over the European Union – Finland, Estonia, Romania, Poland, Latvia, but also other countries like Indonesia, Vietnam, Mexico and Spain.

Luckily, this platform is open to Americans. Funny, how we CAN loan money out to a European P2P company, but we can't do it in our own country. Strange, isn't it?

(Video) Is P2P Peer To Peer Lending Safe Here's What You Need to Know

Returns are similar to Lending club, being around 5-11%. In order to become a Mintos investor, you will need a European bank account. You can open an European bank account as a physical person non-resident, or done virtually through a company like Payoneer that provides digital payments 100% online.

Mintos Review Here, here and here

There are other options if you want to get on with the European Union (Plus the UK) even though they are not very well known. Let's go over a few of them that are open to all Americans.

Assetz Capital will allow you to invest in United Kingdom loans. As a reminder, the United Kingdom is England, Scotland, and northern Ireland. This is open to American companies and individuals, though may take some time to get started since you have to do some paperwork if you're signing up as an individual.

Estateguru is similar a P2P lending market, but only with property loans. Again, you'll have to have a European bank account.

Another option is the Estonian E-Residency program, that allows you to open a EU Company, even if you are a resident of another country. Bank accounts and general operation within the EU is much easier when you have E-Residency with Estonia. I think this a little more complex than you will need, but it's always nice to know that there are real tricky shits in this world who can help you avoid governmental red tape.

For those of you who don't know, Estonia is here:

Peer to Peer Lending Legal States (5)

There are plenty of resources set up that allow you to open a European bank account without actually going there, but if you do, check out my post on the Scummiest World Vacations. If you're gonna go, go big.

Understand that world economies can be very tricky. Be sure you offer loans to people who can pay them back. Take a look at how unemployment stacks up across the world. Maybe lending 200K to a barista in Oman is not the best idea. But, that being said, Europe has some of the highest unemployment rates in the world. It's not far behind sub-Saharan Africa and the Middle East.

Peer to Peer Lending Legal States (6)
Final Word

P2P Lending is a game changer for the small-time investor wanting to get more streams of passive income. Because it hasn’t yet been infiltrated by everyone, there are still strategies and more effective ways to make money in this space, without being overrun by every Tom Dick and Harry trying to get rich.

And you don’t have to bore yourself stupid with Stock Indices and P/E, EBITAs, or Short Sales as % of float nonsense. You just have to have a basic understanding of statistics, and an understanding of human behavior.

(Video) Lending Club Review & Returns After 4 Years Investing Peer to Peer Lending App

There is a great website fififinance that goes into detail about Peer to Peer lending, and how he's made money as an investor in the past.

Use my Webmap

You can also view this data in our Investments Webmap, here's how:

Go to the map landing page

Click the Investments MapPeer to Peer Lending Legal States (7)

Click the Webmap tag in the box that pops up.Peer to Peer Lending Legal States (8)

When the map opens, go ahead and hit the “Layers-off” button floating on the left of the screen.This just makes the map run faster and removes all of the unnecessary map data.
Peer to Peer Lending Legal States (9)

Hover over the Layers button to see the layers drop-down menuPeer to Peer Lending Legal States (10)

Scroll down until you see the Peer to Peer Lending States Layer. Click the box to load the layer.Peer to Peer Lending Legal States (11)

Data is now loaded showing Peer to Peer Landing data. Add other layers if you want to explore further investment data for each state/city.
Peer to Peer Lending Legal States (12)

Check Out Some of Our Other Posts

Peer to Peer Lending Legal States (13)

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Which states do not allow peer-to-peer lending? ›

States where there is No Lending Allowed: Arizona, Ohio, New Mexico, North Carolina, North Dakota, Pennsylvania, Texas.

Is P2P lending legal in the US? ›


The SEC forbids P2P platforms from crediting the borrower's loan directly to the lender. As a result, American P2P lending platforms do not function as true matching platforms. Instead, the lending platform requests a bank to originate a loan from the platform to the borrower.

Is peer-to-peer lending regulated by FCA? ›

Following consultation, the Financial Conduct Authority (FCA) is introducing rules designed to prevent harm to investors, without stifling innovation in the peer-to-peer (P2P) sector.

How much can you make peer-to-peer lending? ›

Peer-to-peer lending can provide higher returns than many savings accounts or traditional investing accounts. For example, Prosper's peer-to-peer lending platform reports that it has provided average historical returns of 3.5% to 7.5%.

Are payday loans legal in all 50 states? ›

Payday lending is legal in 27 states, with 9 others allowing some form of short term storefront lending with restrictions. The remaining 14 and the District of Columbia forbid the practice. Some states have aggressively pursued lenders they felt violate their state laws.

How many states have predatory lending laws? ›

Payday Loan Regulations

Seven states—Maine, New Mexico, Ohio, Oklahoma, Oregon, Virginia, and Washington—have imposed some measure, such as term limits, fee limits, or number of loans per borrower that provide some protection for consumers.

Who regulates P2P? ›

The P2P lending is regulated by the Master Directions for NBFC Peer to Peer Lending Platform issued by the RBI in 2017. Only an NBFC can register as a P2P lender with the permission of RBI. Every P2P lender should obtain a certificate of registration from the RBI.

Who regulates P2P lending? ›

5.1 For the reasons outlined in Section 4, it is proposed to bring the P2P lending platforms under the purview of Reserve Bank's regulation by defining P2P platforms as NBFCs under section 45I(f)(iii) of the RBI Act by issuing a notification in consultation with the Government of India.

How many P2P lenders are there? ›

Number of P2P-NBFCs India 2022, by city

As of January 2022, the Reserve Bank of India (RBI) had registered 25 non-banking financial companies (NBFC) to run peer-to-peer (P2P) lending platforms.

Can banks do peer-to-peer lending? ›

Borrowers and lenders benefit from peer-to-peer lending in the following ways: When compared to other types of investments, P2P lending offers investors higher returns. Peer-to-peer lending is a more approachable source of revenue for some borrowers than traditional loans from banking institutions.

Is P2P safe? ›

Yes, Peer to Peer (P2P) lending in India is safe as long as you invest through an RBI Certified P2P NBFC like LiquiLoans or Faircent. Although there are other factors that you must consider before you become a lender on one of these platforms.

What is a P2P agreement? ›

Peer-to-peer lending (P2P) is a way for people to lend money to individuals or businesses. You – as the lender – receive interest and you get your money back when the loan is repaid.

How many times your salary can you lend? ›

Most lenders will lend 4.5 times an annual salary whether you're employed, a freelancer, contractor or limited company director.

Is peer-to-peer lending taxed? ›

First off, yes, it's definitely taxable. There's no need to panic though as the taxation terms on P2P loans are actually pretty reasonable. The interest you receive through loans is taxable just like any other form of income.

Is peer-to-peer lending passive income? ›

3. Peer-to-peer lending. Another way I decided to diversify my investment portfolio and make passive income was through peer-to-peer lending. This is when you loan money to borrowers who might not qualify for traditional loans.

Are states allowed to borrow money? ›

Borrowing — by issuing bonds — is a tried-and-true way for states and local governments to finance the cost of building and maintaining infrastructure. Projects financed with bonds can give a state's economy both a short- and long-term boost.

Do payday loans go away after 7 years? ›

In most states, the debt itself does not expire or disappear until you pay it. Under the Fair Credit Reporting Act, debts can appear on your credit report generally for seven years and in a few cases, longer than that.

Can payday loans come after you after 10 years? ›

The good news for you, Gabriela, is that the statute of limitations for written contacts where you live in California is four years. If the payday loan collection account is for a debt from 2014, then it seems like it is well past the statute of limitations. This means that the collector cannot take you to court.

Is the rule of 78 still used? ›

The rule of 78 may still be used by some, but not many, lenders. It is widely viewed as unfair to borrowers who may decide to pay their loans off early to get out of debt. Borrowers pay more with the rule of 78 than with simple interest.

Which states have usury laws? ›

Usury occurs when money is lent at a rate that is higher than the rate permitted by law or at a rate that is considered unreasonably high. All States and the District of Columbia have laws governing the legal interest rate permitted, including what constitutes usurious lending.

How do I sue for predatory lending? ›

If you are a victim of predatory lending practices, some steps to get your money back include: Filing a complaint with the Consumer Financial Protection Bureau. You can visit the website to file a complaint or submit your complaint by phone.

What are the risks of P2P lending? ›

The risk involved with peer-to-peer lending is the risk of default by the borrower, i.e., the borrower doesn't pay the interest and the principal amount. If a borrower defaults, a P2P platform can assist the lenders in recovery and file legal notice against the defaulter. But that is all the platform can do.

Who are three stakeholders in P2P? ›

Bachmann et al. [6] analyzed the stakeholders of online lending platforms, including internal managers, general employees, and shareholders of the platform and external regulators, investors, borrowers, community organizations, bank cooperative institutions, credit rating agencies, and small loan institutions.

Where does P2P money come from? ›

Generally speaking, you can make P2P payments from a linked bank account or straight from the P2P account for free. But some providers charge fees — 2% or 3% to process payments drawn from a credit or debit card, for example — for other payment methods.

What happens if you default on a P2P loan? ›

Defaulting on a peer-to-peer loan

P2P companies may report your missed payments and any defaults to the credit bureaus. They may also continue to try to collect your payments as well as terminate your loan agreement.

Why did LendingClub shut down P2P? ›

LendingClub's gradual P2P lending wind down

This was because Folio Investments, its affiliate which offered the secondary market, agreed to be acquired by Goldman Sachs in May.

Is Lendbox legal? ›

We are excited to announce that Lendbox is now an RBI registered NBFC-P2P making us a fully authorized and regulated entity which can legally operate a P2P Lending Platform. Started in 2015, Lendbox is one of the India's leading peer to peer lending platform with over 190,000 registered users.

Is Zelle the same as P2P? ›

A prime target today for fraudsters is peer-to-peer, or P2P, payment platforms, such as Zelle or Venmo. These apps provide a quick, easy and inexpensive way for friends to pay each other back for dinner, homeowners to pay a handyman and parents to pay babysitters.

Which is the best P2P? ›

As per the forecast published by IndustryARC in “India P2P Lending Industry Outlook 2021-2026”, the market for P2P loans in India can grow up to USD 10.5 Billion by 2026.
6. Top Peer to Peer Lending Platforms in India
  • LenDenClub.
  • Finzy.
  • Faircent.
  • Lendingkart.
  • i2ifunding.
  • i-Lend.
  • Rupee Circle.
  • Paisa Dukaan.
8 Apr 2022

Is Bitcoin a P2P? ›

What is Bitcoin? Bitcoin uses peer-to-peer technology to operate with no central authority or banks; managing transactions and the issuing of bitcoins is carried out collectively by the network. Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part.

What are the three types of P2P networks? ›

Peer-to-Peer networks have been in existence since before the turn of the millennium. These networks exist in several types: file sharing, telephony, or VoIP, media streaming, and discussion forums. Each type serves a distinct role and can be utilized in both positive and negative fashions.

Can you lend money to someone and charge interest? ›

Well, the easy answer to those questions is yes - it is legal to lend money and charge interest, and in most cases, you should charge interest when lending money to someone you know. Failing to do so can result in tax penalties with the Internal Revenue Service (IRS), which can become costly.

When did P2P lending start? ›

Recognizing the importance of the sector, the RBI in October 2017 formally recognized P2P lending in India as NBFC-P2P.

Can I borrow 7 times my income? ›

A popular mortgage lender, Habito, has launched a new mortgage product where you can borrow up to 7 times your annual income, surpassing the maximum loan to income ratio that most banks can stretch to.

How much loan can I get on 20k salary? ›

How much personal loan can I get on a ₹20000 salary? According to the Multiplier method, on a salary of ₹20000, you will be eligible for ₹5.40 lakhs for 5 years. Going by the Fixed Obligation Income Ratio method, if you have monthly EMIs of ₹3000, you will be eligible for an amount of ₹4.08 lakhs.

How much can I borrow on 30k a year? ›

The amount you can borrow will vary between lenders, but - assuming you pass affordability checks - most lenders allow you to borrow up to between 4.5 and 5.5 times your annual salary. That means that if you earn £30,000, you may be able to get a mortgage of around £150,000.

How can I make $1000 a month in passive income? ›

9 Passive Income Ideas that earn $1000+ a month
  1. Start a YouTube Channel. ...
  2. Start a Membership Website. ...
  3. Write a Book. ...
  4. Create a Lead Gen Website for Service Businesses. ...
  5. Join the Amazon Affiliate Program. ...
  6. Market a Niche Affiliate Opportunity. ...
  7. Create an Online Course. ...
  8. Invest in Real Estate.

How can I make 2k a month? ›

How to Make $2000 a Month from Home (or ANYWHERE)
  1. Virtual assistant.
  2. Internet scoping.
  3. Blogging.
  4. Freelance your skills.
  5. Photography.
  6. Teach English.
  7. Amazon.
  8. Rent out your stuff.

Do all states have usury laws? ›

Usury occurs when money is lent at a rate that is higher than the rate permitted by law or at a rate that is considered unreasonably high. All States and the District of Columbia have laws governing the legal interest rate permitted, including what constitutes usurious lending.

Is lending money to friend for interest illegal? ›

Answers (2) Money lending as per law can be done only under license. But if you are casually lending money to some one, as you have asked, you can get a signed cheque of the person borrowing as security. But to be on the safer side you can also get a promissory note executed by the person borrowing.

What do state usury laws restrict? ›

Usury laws prohibit lenders from charging borrowers excessively high rates of interest on loans. These laws have ancient origins, as usury prohibitions have been part of every major religious tradition.

Which of the following is a mandatory regulation for P2P lenders? ›

This regulates P2P lending platforms as banks due to their credit intermediation functions and is therefore regulated as banks. As such, the platforms must obtain a banking licence; fulfil disclosure requirements and other such regulations.
5.The Way Forward
3 more rows

What is the highest legal interest rate you can charge? ›

The general usury limit is 12%, or four points above the average T-Bill rate for the past 26 weeks, whichever is greater.

How much interest can you legally charge? ›

In other words, the general rule is that a non-exempt lender cannot charge more than 10% per year (. 8333% per month), unless there is an applicable exemption.

What is the maximum legal interest rate in the US? ›

There is no federal regulation on the maximum interest rate that your issuer can charge you, though each state has its own approach to limiting interest rates. There are state usury laws that dictate the highest interest rate on loans but these often don't apply to credit card loans.

What to do if someone refuses to pay you back? ›

What to Do When Someone Doesn't Pay You Back
  1. Give gentle reminders. People are busy, and sometimes they forget about the money they owe. ...
  2. Renegotiate payment terms. ...
  3. Have them pay you with something else. ...
  4. Get collateral. ...
  5. Offer to help with financial planning. ...
  6. Ask to use their credit card.
24 Mar 2021

How can I legally send money to someone? ›

You can write a check, wire money, transfer between bank accounts, or even give actual cash. You know exactly how much you are giving, making it easy to stay under the $16,000 annual gift tax exclusion. Or, if you give more, it's easy to track and report on the gift tax return.

What happens if someone borrows money and doesn't pay back? ›

If the person you loaned money to is financially unable to pay and can prove it (whether through bankruptcy or a record of other financial problems), you may be able to write the unpaid debt off as an expense on your taxes. According to the Internal Revenue Service (IRS), this is called a bad debt deduction.

What are legal lending limits? ›

What Is the Legal Lending Limit? The legal lending limit is the maximum dollar amount that a single bank can lend to a given borrower. This limit is expressed as a percentage of an institution's capital and surplus. The limits are regulated by the Office of the Comptroller of the Currency (OCC).

What happens if usury law is violated? ›

Creditors are subject to stiff penalties for violating usury laws. Penalties for violating usury may include recovery of a multiple of the usurious interest paid, elimination of the borrower's obligation to pay interest going forward, or even jail time.

Is usury still illegal? ›

Is Usury a Crime? Usury is most often a crime but can also be a violation. The federal government, along with each state, has its own usury laws, stating the maximum interest rate that can be charged on certain types of loans.

What are the basic requirements of lending? ›

Here are five common requirements that financial institutions look at when evaluating loan applications.
  • Credit Score and History. An applicant's credit score is one of the most important factors a lender considers when evaluating a loan application. ...
  • Income. ...
  • Debt-to-income Ratio. ...
  • Collateral. ...
  • Origination Fee.
29 Apr 2022

Which three regulations support fair lending practices? ›

Fair Lending Laws
  • Equal Credit Opportunity Act (ECOA) This law affects every phase of the lending process and prohibits discrimination on the basis of: ...
  • Fair Housing Act (FHA) ...
  • Americans With Disabilities Act (ADA) ...
  • Civil Rights Act of 1866. ...
  • Home Mortgage Disclosure Act (HMDA)

What is a P2P agreement? ›

Peer-to-peer lending (P2P) is a way for people to lend money to individuals or businesses. You – as the lender – receive interest and you get your money back when the loan is repaid.


1. Safest P2P Lending Platforms in 2021
(P2P Empire)
2. Why I No Longer Invest in Peer to Peer Lending After Owning Thousands of Notes
3. Peer to Peer Lending Explained - Risks and Rewards
4. Is P2P Lending Going To Become More Safe? P2P Regulation Explained
(P2P Empire)
5. Peer to Peer Lending As An Investment: Should You Consider It?
(The Smart Investor)
6. Peer-to-peer lending via the Lending Club platform.
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