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

See all articles by Andrew Verstein

Andrew Verstein

University of California, Los Angeles (UCLA) - School of Law

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

Suggested Citation

Verstein, Andrew, The Misregulation of Person-to-Person Lending (November 21, 2011). UC Davis Law Review, Vol. 45, No. 2, 2011, Available at SSRN: or

Andrew Verstein (Contact Author)

University of California, Los Angeles (UCLA) - School of Law ( email )

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