Bernal Bucks welcome here

You’ve heard about slow food, but what about slow money?

Slow money is exactly what Arno Hesse hopes to bring to his Bernal Heights, San Francisco neighborhood with Bernal Bucks. The goal behind Bernal Bucks is simple: More money circulates locally when spent at locally owned businesses, which in turns contributes to the local economy.

Here’s how it works:

• Individuals get Bernal Bucks stickers by making a donation to a local charity
• Bernal Bucks is not its own currency but rather a sticker you place on existing $10 bills (Because the sticker is removable, you’re not defacing currency, which is illegal) Each $1 donated buys you one sticker
• Use the currency at local businesses and get rewarded — a free apple at the grocery store, $5 off your massage, etc.

I first met Arno at BarCampBank San Francisco (where the spark behind the project ignited) and asked him to elaborate on the motivation driving the project:

Arno Hesse

Bernal Bucks is our pilot project for a new model of community finance. It aims at keeping the money in local circulation, and to use the intra-community money flow to grow the neighborhood’s prosperity.

In some way, the financial crisis has highlighted the urgency for communities for more resilience against (inter)national finance mess-ups beyond their control. While the local conditions have been developing positively in many places, the big banks have throttled credit and thus money inflow, due to their problems.

A mere five months after launching, 50% of local businesses representing about 70% of the transaction volume in the market. The beauty of the project is at the same time in its simplicity (no new currency or payment methods to get adopted) as well as in its power to reshape local economies. With more and more businesses giving rewards to FourSquare users for checking in it stands to reason that giving rewards for Bernal Bucks — where you can reward actual transactions — has the potential for even wider adoption among merchants.

What’s next for Bernal Bucks? Organizers are working on launching a local shopping card for sometime this year. This should make adoption even easier for everyday individuals while maintaining universal merchant acceptance. And everything being tested is with an eye towards scalability in other local communities.

What do you think about the idea behind Bernal Bucks? Would you use it in your community? Please share your reaction in the comments below.

Now, it looks like it may be Lending Club‘s turn in the US. According to a notice posted on their site, they have stopped allowing their lenders to initiate loans via the site. (More coverage at Netbanker, Techcrunch, and Center Networks.)

Like IOU Central, they’ll continue to service existing loans. However, in an effort to maintain credibility with the borrower side of the equation, they will also continue to accept loan applications, which they will fund themselves from this point on. How long they’ll be able to do that for without having to start placing caps on new loans, I don’t know. They’ve announced $12.3 in total financing.

My guess is their legal team is burning the midnight oil. Anyone thinking of starting their own P2P lending marketplace may want to review this telling video from 2006 where Chris Larsen of Prosper talks about the effort they spent working with regulators before launching, which he says gives them a two year lead over potential entrants to the space. In Canada, CommunityLend seems to be taking a similarly cautious approach to regulatory issues.

But that’s changing.

Sites like SmartHippo empower consumers with tools and the information on the best available rates that they previously did not have access to. Peer to peer (P2P) lending sites such as Prosper and Lending Club empower consumers to bypass banks and lend directly to each other, with the promise of better rates on both sides of the equation. Where technology now provides a scalable way for consumers to exchange information and capital between themselves, the middlemen of the past are no longer as relevant.

Needless to say I’m a but fan of P2P lenders so I was quick to sign up with IOU Central was the first Canadian company to launch in the space. (I tried signing up with Prosper, but the site is restricted to US residents with a Social Security Number.) Lo and behold I logged into IOU Central today to start using the site only to be greeted by the message that “IOU Central is now operating with limited functionality.” Translation: No new loans on IOU Central, at least for now. Startup North was the first to report on this here.

I just spoke with Phil Marleau, their President and CEO, and he told me the action was taken at the request of the Autorité des marchés financiers, Quebec’s securities regulator. The agency is infamous for its impotence in front of real issues that should be under its control, such as its abysmal failure to help the 1,600 investors who lost $130 million in the Mount Real scam back in 2005.

He told me the AMF paid a visit to IOU Central yesterday and asked them to halt operations. It turns out that individuals using the site to lend money are making an investment, so IOU could be construed as selling securities.

“The important thing is that we’re working with the regulators and want to comply,” Marleau said.

According to Marleau, IOU Central had received legal advice stating they did not have to be regulated. This was based on the fact that their model was closely based on the way Prosper and Lending Club operate in the U.S., as well as Zopa in the UK. Based on this legal advice, IOU Central did not bother to even brief regulators on what they were doing.

Canada’s other P2P lender, CommunityLend, hit the scene with a lot of noise when they announced in December they had raised $2.5 million in financing. However, they have yet to have launched, citing the needs to properly address regulatory compliance issues first.

When IOU Central launched earlier this month, it looked like they had come out of nowhere and one-upped CommunityLend. CommunityLend must be gloating now.

“Our approach has been to build a viable and sustainable company, that will appeal to Canadians, and their desire for security with anything financial,” Colin Henderson, CommunityLend’s CTO told me via email. “There are no shortcuts with peoples money, and we have been working hard with the regulators for over 8 months, on over 40 Licences to ensure we can satisfy the needs of Canadians, by the time we launch.”

Marleau, to his credit, at least put on positive spin on the events: “When we’re back up, it’s going to be a better model. Because we’ll be regulated and that adds credibility and confidence.”

Here’s hoping it happens quickly. Canada’s financial system, an oligopoly if I’ve ever seen one, badly needs some shaking up.

You enter your username and password in two steps now, and if you don’t see your message and image on the password screen, you know you’re not on the right site, so you don’t enter it.

So far so good. Except as part of their “enhancements,” passwords longer than six characters long stopped working. Needless to say, their customer service lines have been busy all morning, and if you do manage to get through, hold times exceed half an hour.

Nice way to reward the customers of yours who actually did what the security-conscious were supposed to from the start and had longer (more secure) passwords, isn’t it?