Peer-to-peer lending services like Prosper got a new lease on life from the House of Representatives today, which included an amendment to move regulation of the space from the SEC to a new banking regulatory agency in a major financial reform bill.
Previously the SEC had claimed regulatory oversight over P2P lending, forcing services like Prosper to shut down while undergoing a process to register its loans as securities. The regulatory mess effectively stunted the nascent market; while Prosper and Lending Club made it through, Zopa decided to pull out of the U.S., and smaller services shut down or have yet to be approved.
However, if the Senate and President Obama approve the legislation, by next spring peer-to-peer lending could be overseen by the new Consumer Financial Protection Agency. Sure, it’s just swapping in a new regulator, but Prosper CEO Chris Larsen said he thinks it’s a better fit than the SEC, which is built to regulate investors, not borrowers.
Larsen, who saw his company go dark for nine months from October 2008 to July 2009, told us he’s ecstatic about the bill’s passage. “It declares that peer-to-peer lending is not a security, which we think was very obvious in the first place,” he said. Prosper was able to make it through because it had raised $40 million in funding from investors like Accel Partners, Fidelity Ventures and Benchmark Capital, but the shutdown was “quite painful and very expensive,” said Larsen. Now, with the legislation on the books, Prosper feels confident it can go out and raise more funding.