Propser and Lending Club: why "financial suitability" for lenders?



Why do these organizations have financial suitability requirements? Are these just “concerned citizen” guidelines so that these organizations don’t get slammed in the media as preying on naive low-income people who think they can get big bucks, or is there something more serious going on?

Manager: “Ok guys, I need ideas on how to get more investors.”
Joe: “How about we open investing up to Virginians?”
Manager: “Eww, Virginians? Those tobacco-growing cousin-marrying hillbillies? What will that do to our image? ‘Borrow from hicks.’ they’ll call us.”
Joe: “Well, you have a point there, but I don’t think that Virginians are all bad.”
Bill: “How about the following policy for Virginians? They must either (1) have an annual gross income of at least $70,000 and a net worth (exclusive of home, home furnishings and automobile) of at least $70,000; or (2) have a net worth (determined with the same exclusions) of at least $250,000. In addition, they may not purchase Notes in an amount in excess of 10% of their net worth, determined exclusive of home, home furnishings and automobile.”
Manager: “I like it!”
Joe: “I’m still not sure why this is so important, because people from Mississippi are allowed to lend and we don’t put any of those requirements on them.”
Manager: “Shut up.”

Why would Prosper llending be restricted to high-income Virginians but they will take anyone from Mississippi? Why would they do that?

And, what actually happens if you sign up notwithstanding “ineligibility” and get caught? Nothing? FBI raid?

I am pretty sure they are following regulations set forth by the states named, not making self-imposed rules.

You might see the same sort of thing on a Web site that sells and ships liquor. They don’t not ship to your state because people are cheap in your state. It would be illegal for them to ship to your state.

Fact: Lending Club’s Califronia investor enrollment is all self reported without any verification of income or net worth.

Yeah, but what happens if the State of California somehow finds out you lied? Do they send the dogs and the bees and the dogs with bees in their mouths and when they bark they shoot bees at you? Has anyone ever gone to jail over this?