The growth of online alternative lending presents several advantages for both those seeking credit and those with excess capital to lend. Over the past decade, several different models of peer-to-peer lending have emerged in the US and U.K. Each of these models has developed in response to the different regulatory system it faces, which has led to the models’ different risk and reward profiles. However, the current regulatory framework for regulating peer-to-peer lending, especially in the U.S., leaves much to be desired. The inadequate regulatory regime not only hampers the potential for growth and further innovation in the industry, but also creates risks for consumers, lenders, and, as the sector grows, entire markets. There is no clear or easy answer as to the optimal regulatory regime, but regulators should at least consider the basic functions of peer-to-peer lending and how to address risks with a more comprehensive and sensible model for regulation.
William S. Warren, The Frontiers of Peer-to-Peer Lending: Thinking About a New Regulatory Approach, 14 Duke Law & Technology Review 298-316 (2016)