The new House financial reform bill has been described as a positive development for the p2p lending community and welcomed by industry leaders such as Prosper CEO Chris Larsen. The reason is the move of transfer of regulatory authority from the SEC to a new entity, the Consumer Financial Protection Agency (CFPA). Getting out of the clutches of the SEC probably is good news; so many nascent p2p marketplaces that initially seemed so promising, from Yadyap to People Capital to Zopa, have either stalled or shuttered US operations in face of overwhelming regulatory requirements. Even those that survived – Prosper, Lending Club, and Pertuity Direct — were set back considerably at the time.
Yet, I’m concerned about a new entity receiving such broad sweeping power in the name of consumers and what it means for the p2p community. The Consumer Product Safety Commission, for example, has not looked with particularly friendly eyes upon the “innovation” of direct selling of handmade children’s items (rather than relying on mass production in China) and threatens to significantly curtail the operations of small sellers on Etsy. It is a sad day when the interest of big business overrides the best interests of the consumers in the name of protecting them.
Here’s to hoping that the CFPA, if it is in fact created (still a great uncertainty), will recognize the benefit of alternative credit models to consumers, rather than restricting access in fear of innovation and newness and of course, the lack of a massive lobbying effort to speak for the consumers who can now access loans at reasonable rates and the lenders who can make sound investments.