Peer-to-peer (P2P) lending is a rapidly growing vehicle for consumer and business purpose lending. It can provide fast, efficient access to capital, particularly for small businesses, and relatively attractive financing to consumers who may not otherwise qualify for traditional loans from mainstream lenders. Investors are also attracted by the business model, because of the ease with which they can invest in loans and earn relatively high rates of return. Like all lending activities, however, P2P lending is heavily regulated. While some of the regulatory burdens can be reduced by structuring the business appropriately, regulatory costs – both in dollars and time – need to be factored into strategic planning. This article discusses some of the key regulatory considerations that P2P lending companies must address.

State Licensing -

States regulate lending practices principally through licensing requirements. A range of licensing requirements for the originating, brokering, and servicing of loans exists. Prior to engaging in The Legal Landscape for Peer-to-Peer Lending P2P lending, a company should make sure that it is appropriately licensed in the states in which it will be brokering, making, or servicing loans. Licensing requirements vary from state to state, and whether a particular state’s licensing requirements are triggered depends on various factors, including the size of the loans being made, interest rates and fees, and whether the loans are secured by real estate or are made for business purposes. Further, most states assert jurisdiction over out-of-state companies that make loans to residents of the state, particularly consumer loans.