Online Lending Clubs Challenge Bank

(CBS)  The Federal Reserve may have slashed the benchmark interest rate to zero percent, but the frozen credit market isn't showing many signs of thawing yet. So more consumers are turning to each other, reports CBS News correspondent Priya David.

Online person to person loans could total almost $6 billion dollars by 2010. For some, it's an unexpected lifeline.

"I needed a one lump sum payment upwards of $16,000," said Rob Ramonas

When Ramonas returned to civilian life from a four-year tour of duty as an Army nurse, a perfect financial storm was waiting.

First, there was a divorce, and then a house in limbo. Then Connecticut's Department of Corrections told Ramonas he owed four years of payments toward his pension. And all that while he was also trying to take care of his two-year-old child.

"I was flabbergasted," Ramonas said. "You know, how do you grab that kind of money all at once?"

Already maxed out at his credit union, Ramonas needed money fast. So he looked online and found LendingClub.com.

"Lending Club is a social lending network, which is an alternative to the banks," says LendingClub.com CEO Renaud LaPlanche. "It's a way for people who have the money to loan to people who need the money."

As major financial institutions stumble or fail completely, online lending sites like Lending Club are on the rise. Since 2005, the amount of their outstanding person-to-person loans has virtually doubled every year, David reports, swelling from $118 million in 2005 to $1.5 billion in 2008.

It works like this: Folks like Ramonas complete a personal loan request online.

"It was one of the easiest things I ever did." Ramonas says.

Once Lending Club approves the loan, lenders, like Howard Rubinstein, can choose to help fund it. In Lending Club, the average loan is for ten thousand dollars at a rate of thirteen percent for three years.

Wary of the turbulent financial markets, Rubinstein has invested thousands of dollars in on-line lending clubs.

"I was just really intrigued at the opportunity to make more money than I could make from CDs in the bank and at the notion of being able to lend without the bank as an intermediary," Rubinstein said. "I've been happy. I think I've made ten percent on my money since February, when I went in."

And hundreds of thousands of Americans are following suit, including Rob Ramonas.

"Once this loan is paid off I will go in there as an investor and make some loans to other people," Ramonas says.

[jusboutded]

I just lost a good small business because the building was no longer available to rent. I still have my stock, I know just what do, and Im a *** hard worker and I want to get back up and running. I dont believe in credit cards and the banks would just laugh at me, I know. Should I take my case to Lending Club? I would love to see someone else make some money by helping me do the same. [e-mail]

[chetthor]

Who collects for you amd how?.....................

do you offer up a family member as collaterial?...............

Is this a poormans credit union without the insurance?...............

If it seems like it''s too good to be true...............

[ramos937]

This is a great idea. I am already doing this at Kiva but will also look into Lending Club. This way, I can help and make a few dollars too.

One caution - All of these sites do have warnings as to what to expect. They should be read before lending.

[okiedokie8]

Wished they had talked more about numbers. I looked at Lending Club''s site and they show 2.8% default. If you invest in loans at an average of 13% interest, after defaults, losses and fees, you are still making a healthy 9-10%. Doesn''t that sound really good when stocks, bonds, and CDs are just jokes?

[okiedokie8]

Wished they had talked more about numbers. I looked at Lending Club''s site and they show 2.8% default. If you invest in loans at an average of 13% interest, after defaults, losses and fees, you are still making a healthy 9-10%. Doesn''t that sound really good when stocks, bonds, and CDs are just jokes?

[okiedokie8]

Wished they had talked more about numbers. I looked at Lending Club''s site and they show 2.8% default. If you invest in loans at an average of 13% interest, after defaults, losses and fees, you are still making a healthy 9-10%. Doesn''t that sound really good when stocks, bonds, and CDs are just jokes?

[okiedokie8]

Wished they had talked more about numbers. I looked at Lending Club''s site and they show 2.8% default. If you invest in loans at an average of 13% interest, after defaults, losses and fees, you are still making a healthy 9-10%. Doesn''t that sound really good when stocks, bonds, and CDs are just jokes?

[saynomore4]

I''m currently a lender at Lending Club. So far I''ve had no defaults, and am planning to put more money into my Lending Club account vs. my savings account. I think even with some defaults that will eventually come, I''ll end up earning around 9%. Glad to see them getting some good coverage.

[saynomore4]

I''m currently a lender at Lending Club. So far I''ve had no defaults, and am planning to put more money into my Lending Club account vs. my savings account. I think even with some defaults that will eventually come, I''ll end up earning around 9%. Glad to see them getting some good coverage.

[notopennshut]

But of course they won''t tell you about those who default. Stuff happens; loss of job, divorce, change in family circumstances and borrowers find it tough to come up with the money to repay. Then what?? Yeah, it''s nice to think you can help others, as long as you have the funds and would not miss it if it doesn''t get repaid, that will be fine. In the first place, most of those who need to borrow are already in tough situations, and trying to live or make do on borrowed money is more dicey than trying to make do with what one has. The lucky ones get back their dough with high interest, but we don''t hear of those who not only did not make a dime, but lost all their capital.