Peer-to-peer lending companies, Prosper Marketplace and Lending Club, received welcome news from the House of Representatives during the month of December when an amendment was added to the bill that would move the regulation of peer-to-peer lending companies from the Securities and Exchange Commission to a new regulatory agency in President Obama’s financial reform bill.
Previously, the SEC had claimed regulatory oversight of peer-to-peer lending companies such as Lending Club and Prosper, even to the point of forcing Prosper to shut-down while going through a process to register its loans as securities. The regulatory debacle effectively brought the market to a standstill. Lending Club and Prosper both made it through the regulatory hurdles, but Zopa decided to pull out of the U.S. market. Several smaller services have also shut down or have not been approved yet.
The new legislation will still require approval by the Senate and President Obama, but peer-to-peer lending could be overseen by the new Consumer Financial Protection Agency (CFPA) by next spring.
Chris Larsen said in a statement released to the media that he’s excited about the bill’s passage. Larsen commented, “It declares that peer-to-peer lending is not a security, which we think was very obvious in the first place.”
Prosper Marketplace was able to make it through its “dark period” because of $40 million in funding that it had received from investors including Benchmark Capital, Fidelity Ventures and Accel Partners, however Larsen admits that the temporary-shutdown was “quite painful and very expensive.”
