Growing Pains: The Changing Regulation of Alternative Lending Platforms

Abstract

We review the legal and regulatory framework covering alternative (‘peer-to-peer’ or ‘marketplace’) lending platforms in the US, China, the UK and more briefly other countries. The main regulatory concerns are (i) enforcing consumer credit rules for unsecured personal lending; and (ii) protection of uninformed retail investors from mis-selling and platform failure. Alternative lending was first established with little regulatory oversight, but there has been substantial reregulation – first in the US via the 2008 SEC decision that platform investments are securities; subsequently in the UK, China and other countries. We anticipate further reregulation to protect retail investors, limiting the funding of loans from the ‘crowd’. Promoting credit supply through alternative lending platforms requires also institutional investor participation and embracing the use of technology in platform regulation (‘RegTech’).