Why peer-to-peer lending startups are running out of cash
They were supposed to transform the financial landscape: Prosper.com, Zopa, Lending Club, and other peer-to-peer lending startups brokered loans from one Internet user to another. But they are now on the ropes. Another victim of the credit crisis? No. What's killing the nascent business of peer-to-peer usury is a lack of forethought.Lending is heavily regulated; why should Internet lending be any different? State and federal regulators, including the Securities & Exchange Commission, are looking into the business, and Prosper, the largest of the pack, stopped taking money for loans from individuals yesterday while the rules get sorted out. (It's still trying to lend to borrowers through more traditional sources of financing.) This much is true: Worsening credit among consumers makes it harder to find profitable borrowers to match up with lenders. But these companies should have sorted out their legal situation long before the market went into crisis.