As peer-to-peer lending sites proliferate, borrowers are starting to rate-shop by requesting loans from multiple Web sites, and observers say the trend could increase risk for lenders.
Rate-shopping has long been associated with higher risk and is one of the factors that influences credit scoring.
However, the sites currently do not have a mechanism to let lenders know that the people requesting money could end up borrowing more than they had planned if all of their posted applications are funded.
The issue came up last week, when Loanio Inc. launched its site. One of the first listings was a duplicate of an active one on the site run by Prosper Marketplace Inc.
A lender who uses both sites noticed that Loanio's "mwatson147" and Prosper's "ersatzpnk" used the same photo, and that both users had requested the same amount of money for the same purpose: $2,800 for debt consolidation.
In the Q&A section of the borrower's listings on both sites, the lender asked the prospective borrower if she would accept both loans if they were funded through each site; the borrower said she would not.
Frederic Huynh, a principal scientist for Fair Isaac Corp., said it has long associated this type of aggressive shopping with risk.
"Anybody who is looking for debt, anybody who is shopping for credit, is riskier than someone who is not," he said. "There is a definite and clear relationship between the number of inquiries and the credit risk associated with them."
Still, this pattern is "it's not nearly as important as other areas, such as previous payment behavior or indebtedness," when assessing the odds that a borrower will default, Mr. Huynh said.
Sites like Prosper's and Loanio's are pitched as alternatives for people who cannot get a loan from a bank or think bank rates are too high. Many borrowers on peer-to-peer sites already have other debt, and this information is typically provided to prospective lenders, but the sites do not have a way to indicate whether a borrower has requested loans elsewhere.
Michael Solomon, Loanio's founder and chief executive, said in an interview last week that the issue was uncharted territory, but "I definitely see the potential downside of that activity" and how it could be a concern to lenders.
There are no rules in place prohibiting the practice, and "I'm not sure how we're going to be addressing that," he said. "It's something that we have to take a deeper look at to see if it becomes problematic, and it may be in the future that we may require somebody to disclose that, or we may not allow them to post if they're posting on another site."
Prosper's CEO, Chris Larsen, said in an interview last week that his site, which has been running for more than two years, would be more permissive.
"We actually think it's a positive thing," he said. "It just continues to show that consumers have the power now, particularly by using this new marketplace."
Lending Club Corp. of Sunnyvale, Calif., went live in May of last year, but in April of this year suspended lending on its site as it evaluated a new business model. Other sites, such as those run on GreenNote Inc. and Fynanz Inc., offer loans targeted at students.
Mr. Larsen said the expanding peer-to-peer lending market can regulate itself.
"We certainly think about the risk element all the time," he said. "The existence of an additional market doesn't really pose additional risk in that way."
Bobbie Britting, a research director with the consumer lending practice at TowerGroup Inc., a Needham, Mass., independent research firm owned by MasterCard Inc., said the question of risk "does come down to the point of how much are you gaming the system, if you're the borrower putting yourself out there on several different sites."
Since not all borrowers will be forthcoming about multiple postings, "it's incumbent upon the lender to go out and check all these different sites and look for you, and you could put different pictures up on all of them, so it's not as easily noticeable who you are," she said.
The peer-to-peer sites are facing an issue bankers faced long ago, Ms. Britting said.
"Borrowers would shop around different lenders, and that's why Fair Isaac had to change models, and the bureaus had to change their scoring models, to say that if a customer was shopping around, they were desperate for credit, and they probably weren't as creditworthy," she said.
The risk that borrowers will overextend themselves is real, Ms. Britting said. "They could get two loans at the same time, and then how would they pay them back? If they're not careful, they may be getting numerous sources of money that they don't have anywhere near the ability to pay back."
