P2P lending: What's to worry? | Pitch it! | Scoop.it

Former FDIC chair Sheila Bair explains why a good idea needs more regulation. (Investors are making good money extending credit to their fellow Americans via crowdlending platforms!

Brother, can you spare a loan?

Investors are making good money extending credit to their fellow Americans via peer-to-peer lending platforms (P2P), such as Lending Club and Prosper. P2P is also good news for borrowers -- most of whom are consolidating debts -- because they can often get interest rates lower than those offered by banks.

Mon dieu! Decent investor returns. Cheaper loan rates. Could this actually be a good financial innovation? Perhaps, but I see some causes for concern.

Securities regulators fret about potential fraud, since the companies don't always document borrower incomes. The cops also worry that investors can't understand how the companies determine the likelihood of default. Says David Massey, North Carolina's Deputy Securities Administrator: "Peer-to-peer investors generally don't have direct access to the information that might let them know whether they're buying into a loan that's going to pay them back, or whether they're taking a flier on a situation that's going to end in a default."

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Via Therese Torris, Marc Kneepkens