Online Peer-to-Peer Lending Regulation: Justification, Classification and Remit in UK Law

Abstract

Despite its benefits, online peer-to-peer lending bears the risks associated with traditional forms of institutionalised lending. However, because individuals have taken over the role of the institutional lender, and the institutional participant in this form of lending takes a step back by acting only as an intermediary between the borrowers and lenders, ordinary individuals are left to bear the type of risks that institutions have traditionally borne, but without the same means of doing so. There has been little academic analysis of the role and form that regulation should take in the regulation of peer-to-peer lending and most discussions centre on the American regulatory experience. This thesis sets out to examine the theoretical classification of online peer-to-peer lending and the theoretical and practical justifications for regulating it. The aim is to ascertain the most appropriate way to regulate peer-to-peer lending, taking into account the underlying conceptual model which underpins it. The study adopts a theoretical analysis of P2PL participants and regulation based on the concepts of consumer protection and paternalism. It includes a doctrinal analysis of the UK peer-to-peer lending legislation and regulation to identify, describe and explain the rules pertaining to the industry. It also uses a comparative approach to compare P2PL with existing forms of financial lending and similar (dis)intermediated forms of transacting between individuals to show that online peer-to-peer lending is a unique form of intermediated transaction. The thesis argues that it is important that regulation displays an understanding of the underlying conceptual framework of the business model it aims to regulate. In doing so, it also argues that the peer-to-peer lending users are more than just ‘consumers’. They demonstrate a shift in the conception of individuals from consumers to prosumers because they participate in the production side of the services they receive. It goes further than existing discussions of prosumption by positing the concept of the ‘lendsumer’ to give a more accurate account of the role and experiences of peer-to-peer lenders and the effect this has on their transactional relationships and the risks they face because of this role. Based on this analysis, the thesis shows that the UK regulatory regime has limited suitability because it lacks awareness of the underlying prosumption model of peer-to-peer lending, focusing only on the business-to-consumer aspects. Consequently, it does not resolve all the issues resulting from the tripartite, participatory nature of the peer-to-peer lending transaction. In light of these findings, the thesis proposes the regulatory use of two main concepts and highlights their implications for peer-to-peer lending regulation. The first is the ‘lendsumer’ as a new paradigm of the consumer which has implications for the regulatory protections afforded to the P2P lenders. The second is the use of gatekeeper liability, adapted to online peer-to-peer lending, as a way to affect these protections in light of the particular vulnerabilities and risks experienced by the peer-to-peer lender.