Online lenders

Back at it again, another Chinese P2P lending scandal

  • After years of keeping its distance, China's policy toward P2P lending has changed dramatically.
  • The government is shutting down failing and fraudulent P2P lenders.
Back at it again, another Chinese P2P lending scandal

Online lenders in China just got a bit more cautious, as the country’s government seized $1.5 billion as a result of negligence in P2P lending throughout the country.

How big a deal is it?: This fraud is suspected to be widespread, as over 100 executives and 380 companies are currently being investigated.

Unfortunately, this isn’t the first time there has been scandal in the country’s p2p lending space. P2P lending in China is part of a rare, privatized industry in the communist country, and had been open to new businesses without much government oversight. There were 3,500 P2P lenders in the country in 2015.

Not the first crackdown rodeo: In 2016, Chinese police raided P2P lending giant Ezubao after it collected $9.14 billion from investors in what would later be identified as a Ponzi scheme. As a result, China noted it would refrain from approving new online lending platforms in the country for the time being.

Tight-to-open, the US strategy: The US P2P lending market began with two contenders, Prosper and Lending Club. Since then, the SEC has approved firms like Funding Circle and Upstart, which provide P2P investment options to accredited investors via Regulation D of SEC regulation.

Lending Club CEO Scott Sanborn has noted his distrust of the Chinese P2P marketplace and its Wild West mentality of lax regulations and open markets.

“In the US, there’s not a specific regulatory framework for our business model. We are fitting into the existing regulations, which existed to protect the lending side as well as the investment side. It’s not a perfect fit,” he said.

“As a result, there are not many platforms like us in the US. But in China, things were essentially open, which brings an incredible number of up to 6,000 online platforms. That’s two pretty different approaches.”

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