Person Lending
View metadata, citation and similar papers at core.ac.uk brought to you by CORE provided by Yale Law School Legal Scholarship Repository The Misregulation of Person-to- Person Lending Andrew Verstein* 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 inspiring 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, 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. TABLE OF CONTENTS INTRODUCTION ................................................................................... 447 I. PERSON-TO-PERSON LENDING .................................................. 451 A. The Heartland of Person-to-Person Lending ....................... 451 B. Core Benefits and Efficiencies of P2P Lending .................... 457 C. Risks: Lender’s Money, Borrower’s Privacy ........................ 466 II. P2P LENDING AND PROBLEMS WITH THE SEC ........................... 475 A. Regulatory Overreach ........................................................ 478 * Copyright © 2011 Andrew Verstein. Associate Research Scholar in Law and John R. Raben/Sullivan & Cromwell Executive Director, Yale Law School Center for the Study of Corporate Law, Yale Law School. I would like to thank Ian Ayres, Steven Bradford, Eric Chaffee, Steven M.
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