Wells Fargo Tells Staff Not to Be Part of P2P Lending

Banker Resource
January 22, 2014 — 1,184 views  
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American multinational bank and financial services firm, Wells Fargo, has asked its employees not to take part in peer to peer (P2P) lending, according to recent reports. This move comes at the back of some start-ups offering low interest loans to borrowers even as they give lenders a bigger return on investments. The United States’ top home lender feels that their employees investing in lending is a ‘potential conflict of interest’. Employees at Wells Fargo were sent an email late 2013, telling them to “if possible, exit existing investments as soon as practical (without forcing a loss) or when the loans are paid off.” The bank has pointed to its code of ethics which said that the employees cannot make investments in privately held businesses that were in competition with the bank.

What is Peer to Peer Lending?

When an individual takes part in P2P lending, the bank doesn’t come into the picture at all. The P2P service handles all the work involving a loan, such as sending money to lenders and deducting payments from the borrowers’ accounts. Typically, when an individual states the amount of loan one needs and the interest rate he or she is willing to pay, the loan request goes into an auction where lenders bid on the loan, and with each bid, the interest rates could go down.

P2P and Banks – the Relationship

The P2P system has caused some banks to examine how to play a role in that industry – by providing finance to P2P loans. In general, banks and P2P platforms have had a fractured relationship because the latter have begun to draw the attention of not just small lenders, but hedge funds as well.

Two well-known lenders in the P2P system based out of San Francisco have offered over $3 billion worth of loans. However, one of the peer-to-peer platforms is a client of Wells Fargo, giving way to voices that criticize the bank’s move. Those who make investments in one of the platforms stand to earn in the range of 7.7% and 15.3%, making it a greater idea than banks. The biggest mark for P2P lenders is the credit card debt, while home improvement and vacation loans are also an important area. Experts say payday loan investors are also likely to enter the P2P arena.

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