The Misregulation of Person-to-Person Lending
UC Davis Law Review, Vol. 45, No. 2, 2011
86 Pages Posted: 26 Apr 2011 Last revised: 3 Mar 2015
Date Written: November 21, 2011
Amid a financial crisis and credit crunch, retail investors are lending a billion dollars over the Internet, on an unsecured basis, to total strangers. Technological and financial innovation allows person-to-person (“P2P”) lending to connect lenders and borrowers in ways never before imagined. However, all is not well with P2P lending. The SEC threatens the entire industry by asserting jurisdiction with a fundamental misunderstanding of P2P lending. This Article illustrates how the SEC has transformed this industry, making P2P lending less safe and more costly than ever, threatening its very existence. The SEC’s misregulation of P2P lending provides an opportunity to theorize about regulation in a rapidly disintermediating world. The Article then proposes a preferable regulatory scheme designed to preserve and discipline P2P lending’s innovative mix of social finance, microlending, and disintermediation. This proposal consists of regulation by the new Consumer Financial Protection Bureau.
Keywords: microfinance, microcredit, borrowing, finance, banking, securities regulation, disintermediation, social networks, peer-to-peer, person-to-person, p2p, innovation, technology, web 2.0, social lending, online, consumer finance, internet, Consumer Financial Protection Bureau, Dodd-Frank, crowdfunding
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