Peer-to-peer lending matches people who want loans with people who are potentially willing to fund those loans. The 'matching' is done via an intermediary - a peer-to-peer lending service.
Peer-to-peer services work in different ways, but typically they are website based. Borrowers list their request on the peer-to-peer lending website, then lenders browse the website to decide which loans to invest in.
Sometimes websites will show details of specific loans - for example 'Peter wants $10,000 to help pay for his wedding - he'll pay 7% interest'. Other times the service will group up similar loan requests so the investor invests in a part of everyone's loan.
Typically the service sorts out the administration, for example, for the money to go from the investor to the borrower(s), dealing with repayments and interest payments, and chasing any defaults.
Peer-to-peer lending is a type of financial market service covered by the FMC Act. The Act enables borrowers to raise up to $2million in any 12 month period, without having to issue an investment statement or prospectus (or a product disclosure statement from 1 December 2014). Some peer-to-peer lending services may restrict borrowers to smaller loans than the full $2million. Because borrowers will only get the funds they are seeking if there are people willing to lend it, there are no guarantees they will raise the money they are seeking to.
Generally, a peer-to-peer lending service is one where you act as an intermediary between borrowers and lenders. The loan must generally be for personal, charitable or small business purposes.
Peer-to-peer lending offers individuals, small businesses, community groups and charities a way of borrowing up to $2 million in any 12 month period from the general public with simpler compliance obligations than a standard issue of debt securities. There are obligations on both those borrowing the money and on the peer-to-peer lending service provider.
With a licence you can provide services to borrowers who want to offer debt securities without supplying a product disclosure statement (PDS). By using your licensed service these borrowers can rely on an exemption in the FMC Act that means they don't need a PDS, although they must still meet all their other legal obligations.
See clause 6 of schedule 1 of the FMC Act for more about the exemption.
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