The peer-to-peer lending industry could require additional regulations if it grows dramatically or introduces new products and services, the Government Accountability Office said in a new report.
Online loan matchmaking, also called person-to-person or P2P lending, makes loans available to individuals and small businesses, and offers investors above-average returns on their money. The sector has grown in recent years as conventional loans have become more expensive and more difficult to get.
As of March, two for-profit firms — Prosper Marketplace Inc. and Lending Club Corp. — had facilitated $469 million in loans. The main non-profit P2P platform, Kiva Microfunds, had arranged $200 million to microfinance groups, which gave loans to individual entrepreneurs in developing countries, the report said.
Research firm Gartner Inc. has estimated that by 2013, $5 billion could be handed out by P2P sources around the world.
The report examines the bifurcated regulatory approach to the industry, in which the Securities and Exchange Commission and state securities regulators protect lenders on the for-profit platforms and borrowers are protected by the Federal Deposit Insurance Corp. and Utah's Department of Financial Institutions.
The Consumer Financial Protection Bureau, which is still being developed as part of the Dodd-Frank financial reform bill, also will have a role. Its duties will include collecting and analyzing complaints, said the report, which was mandated by the Dodd-Frank legislation.
The report also considered whether peer lending should be consolidated under one regulator for lenders and borrowers. Its conclusion: Not right now, at least.
“Regardless of the option selected, new regulatory challenges could emerge as the industry continues to evolve or if it were to grow dramatically, particularly if that growth was primarily due to the increased participation of institutional versus individual investors,” the report said.
Officials from Prosper and LendingClub told the GAO that while lenders are predominately individuals, a growing number of institutional investors are participating.
The report also mentions that additional regulatory issues could arise as more services are introduced. For instance, LC Advisors LLC, a subsidiary of LendingClub, has registered with the SEC and state securities regulators as an investment adviser that will offer and manage separately managed accounts for high-net-worth and institutional clients to invest through LendingClub, the report said.
In a letter to the GAO after reading the report, SEC Chairman Mary Schapiro said her staff has actively worked with Prosper and LendingClub for several years. She added that investors in securities offered by the two are being provided with the information they need to make informed investment decisions.
"As indicated in your report, the person-to-person lending industry is a relatively new market, and innovation is occurring at a rapid pace, which could pose new regulatory challenges,” she wrote in the July 1 letter.
In January, the North American Securities Administrators Association Inc. issued an investor warning about peer lending over the Internet.