Peer?to?peer lending is the latest investment rage in an environment of tight money and costly lending practices. Also called social lending or P2P, internet sites are luring investors with the promise of higher than normal returns with little reference to the risks. While borrowers make out with cheaper money, investors should beware!
“The devil is in the details” when it comes to trusting an intermediary to handle such transactions. As Liz Skinner points out in her recent article for Investment News entitled “Regulators Sound Alarm About Latest Investment Rage”, the investors and borrowers never have direct contact. Can you trust intermediaries like Lending Club and Prosper, two of the more popular sites, to vet their borrowers? They claim investors can make between 6.9% and 10.9% on loans to “qualified” borrowers. For this kind of profit the loans have to be paid back timely and in full. If not, the truth is that none of these loans is secured by the Federal Deposit Insurance Corp. or any federal or state agency; simply put, there is little regulation of this market. Since careful investigation by the organizations arranging these loans is an investor’s first line of defense, investors should carefully consider the intermediary organization’s qualifications and lending guidelines
The Dodd-Frank Act mandated a one-year study of the regulatory framework for peer-to-peer lending by the General Accounting Office yet regulations are still murky. If loans go sour, legal assistance will almost certainly be necessary to recoup invested funds.
Call Page Perry, an Atlanta-based law firm with over 125 years of collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have assisted dozens of investors in recovering over $120 million from brokerage firms since 2005. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding their investment problems. For further information, please contact us.