If I want to lend my friend $5,000, governmental regulations don’t seem terribly necessary. But what if I want to lend $5,000 to the small entrepreneur who I met on the internet? How should that agreement be regulated?
This is the question currently facing the peer-to-peer (P2P) lending industry. State law has governed the industry since its popular inception, but from 2008 onward, the Securities Exchange Commission (SEC) has taken control of the reins—a development that has rightfully upset many P2P lending companies.
P2P lending is not much more complex than the story related above. Through websites such as Prosper, Lending Club, Kiva, Loanio, VirginMoney, and Zopa, borrowers interact with lenders and swap information before determining a flexible lending rate. Owing to the low transaction costs, both lenders and borrowers usually walk away with better deals than could have been secured at a bank or with a credit card. To date, Prosper has loaned $211 million. Continue reading