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Peer-to-peer lending challenges traditional lenders
MADISON, WIS. (12/28/07)--The concept of borrowing from peers rather than from financial institutions or credit card companies is gaining broader acceptance, but worries some lenders. Peer-to-peer (P2P) lending is offered by a few companies with each providing different twists in service (USA TODAY.com Dec. 26). The main reasons that borrowers turn to P2P lending are to obtain lower interest rates than most financial institutions offer and to avoid amassing credit card debt, according to a Javelin survey conducted in November. Zopa is a United Kingdom-based P2P lender that began operating in the U.S this month. It has an unusual lending model that allows borrowers with good credit to obtain a loan from one of six credit unions that partner with Zopa. Members who want to earn interest on their savings can purchase one-year Federal Deposit Insurance Corporation-insured certificates of deposit (CD) from the credit unions. The CDs pay interest rates up to 5.1%. However, the American Bankers Association (ABA) said P2P lending circumvents the operations of financial institutions by linking borrowers directly to lenders. ABA said the banking industry is monitoring this situation. The upshot is that the growth of the P2P market could be a threat to unsecured lenders--especially credit card issuers--who will have to become more competitive with rates and rewards offered to customers, said ABA.


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