LendingClub Corp. and other companies that arrange consumerloans over the Internet are running out of options in avoiding alegal blow that may force them to lower interest rates they chargecertain borrowers.

The U.S. Court of Appeals in Manhattan refused this week toreconsider its decision that effectively restricts the so-calledmarketplace lenders from bypassing state usury laws by partneringwith banks in states where there are no such rules. The rulingeffectively would stop a practice whereby the lenders can make aloan to a borrower in, say, New York—where interest rates arecapped at 16 percent for most loans—by originating it in Utah,which has no usury limits.

Firms like LendingClub and Prosper Marketplace Inc., also knownas peer-to-peer lenders because they started out by directlylinking borrowers and funders over the Internet, match up peopleseeking consumer or small-business loans with investors such ashedge funds.