This form of lending is fertile ground for high-tech crimes and fraud, such as tax evasion, money laundering, terrorist financing and theft of personal information.
But, operations of such companies have some shortcomings. For example, they falsely advertise profits, or provide inaccurate information related to risks when participating in the service. Some lenders also lend at very high interest rates, far exceeding the interest rate cap of 20 per cent per year legally allowed by the country.
The SBV warned if a dispute arises due to the failure to claim loans, lenders may lose money as it makes it difficult to claim responsibility from P2P lending platform providers.
According to the SBV, the lending may cause socio-economic instability due to borrower defaults, causing long-term and heavy consequences that many countries around the world have experienced. China had to eliminate some online lending companies as they were in fact high-tech criminals working to cheat investors.
How virtual learning prepares students for the future that does not yet exist. The big question is whether companies listing common stock will be able to obtain preemption on their payment dependent notes. The issue is still unclear and several states have expressed doubt that a payment dependent note is truly pari passu or senior to common stock, notwithstanding the notion that debt is senior to equity.
For instance, assuming the nonrecourse aspect of the payment dependent note is respected, a holder would not recover assets in a bankruptcy of the platform ahead of creditors or even common stockholders of the platform.
If the borrower does not pay, the holder receives nothing. The mechanic of payment dependent notes is to make them separate and distinct from platform risk. This cuts both ways, however, and if they are treated as truly separate, they should not be able to be combined back for purposes of federal preemption.
So do not expect them to give up without a fight. As platforms consider an IPO, it is important to think through the process carefully and understand the recent reforms and changes to what it means to be a public company. Platforms that are current public debt filers, such as public payment dependent note issuers, can still elect EGC status in connection with their IPO, even if their debt went public prior to the December 8, , EGC cutoff.
This added dynamic and pivot—from managing to scale to managing for profitability—will add an important dimension to the industry, which is still largely in private hands. It will be interesting to see if public P2P companies show markedly different behavior from their private company counterparts. Regulators of the U. P2P industry are somewhat fragmented among banking, securities, investment funds, trade and consumer protection agencies and groups—federal, state and local.
The challenge for P2P regulators is to be able to effectively apply old law and cases to new technological developments and ways investors will invest. Many regulators have a view that investor protection, above all, must be achieved, and that substance over form will rule the day. Regulators also need to maintain flexibility to pounce on situations where investors are harmed by unsavory tactics or put at undue risk.
We have already seen an enforcement case in the crowdfunding world against a platform that clearly crossed several double-yellow lines in the road see In the matter of Eureeca Capital SPC. The P2P industry would be well-advised to continue to work and collaborate with regulators in order to manage expectations on both sides.
In addition, legal counsel should be sought to guide platforms and investors in navigating difficult judgment calls and potential gaps of interpretation that might exist in the P2P world. One reason P2P has been spared the harshest enforcement cases and indictments is that borrowers, platforms and investors are up to now coexisting in an environment of noncoercion and disclosed outcomes.
P2P serves a great purpose in rebuilding our economy, especially with credit-worthy borrowers who cannot get adequate credit from traditional lending sources. Platforms are bona fide financial services technology disruptors. Collaboration is key to continuing to make things work smoothly, and to be fair the largest platforms are shouldering the most work in this regard. Payday lending and mortgage reform have offered the industry a nice regulatory diversion for now. But as rates creep up and borrower FICO scores get lower, whether that buffer holds remains to be seen.
Participants in the market should feel good about the progress that has been made to date, but the true test of market permanence will come from how it manages through the next market cycle. The P2P land grab is on. Traditional sources of credit are being replaced with new platforms and credit providers. Offline lenders are developing an online presence. New platforms have seemingly been around for years. Above all, competition for borrowers and investors is fierce.
On the horizon are battles over leverage and the need to scale, scale, scale. In the midst of this frenzy is a potential legal and regulatory powder keg. Here are my top five legal and regulatory issues in the P2P real estate sector:. Often real estate transactions quote investors a projected internal rate of return. These IRRs are based on the developer or borrower executing on a business plan in accordance with a budget.
Budgets are usually created by the developer and might have embedded assumptions. There might be a good explanation for it, but make sure there is. I believe quoting an IRR—and leading sales discussions with projected IRRs—that are highly dependent on far-flung assumptions are quite likely to draw regulatory heat. Disclosure and transparency are of prime importance as the industry continues to develop.
You are better off selling a deal a day or two later than luring in investors with return claims that you know cannot be achieved. IRR is more often used in equity deals, but be careful whenever you quote someone a projected return. Loan-to-value ratio LTV is a critical metric in evaluating whether to invest in a loan. As the name would suggest, it is the ratio of the amount of the loan to the value of the underlying secured property. LTV is usually based on a property appraisal or some other objective valuation of the property.
ARV is the ratio of the loan amount to the value of the property after the developer applies the proceeds of the loan and spruces it up.
It assumes the project can be completed on time and on budget, and that the market for the property in the future will be somewhat healthy with no macroeconomic downturns that affect value. Through various channels, including the National Assembly and government hearings, we have actively engaged in activities to increase the necessity and understanding of the P2P Financing Act.
The key contents of the P2P Financing Act and matters requiring your special attention are as follows. Hwan Kyoung KO hwankyoung. For more information, please visit our website: www. This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish.
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