Internet sites offering person-to-person lending have surged in popularity as borrowers look for help paying off credit card bills and investors search for double-digit returns. What’s less clear, though, is how this new style of lending should be regulated as it evolves.
Prosper Marketplace, Inc. and LendingClub Corp. are the biggest for-profit companies offering online platforms that let individuals act as lenders by investing in loans to borrowers.
Both are overseen by a combination of state regulators plus the Securities and Exchange Commission (SEC), the Federal Deposit Insurance Corp. (FDC) and the new Consumer Financial Protection Bureau (CFPB), according to a new Government Accountability Office report.
Together, the two companies have connected borrowers and lenders for a total of about 63,000 unsecured loans totaling $469 million through March 2011.
“[Person-to-person lending platforms are] rather small right now, so they’re not at the scale that they could potentially represent any systemic risk,” Matthew Sciré, GAO director of financial markets and community investment, told iWatch News. “So the argument for moving towards more of a consolidated approach is not compelling. There are certainly arguments on both sides of this.”
A consolidated approach would designate one federal regulator, such as the CFPB, to take primary responsibility for both borrower and lender protection. The CFPB might, for example, set disclosure requirements for lenders and borrowers, impose restrictions on certain lending practices, and perform examinations of lenders.