Ensuring adequate consumer protections is one of the broad goals of the financial regulatory system in the United States, together with ensuring the integrity and fairness of markets, monitoring the safety and soundness of institutions, and acting to ensure the stability of the financial system. U.S. regulators take steps to address information disadvantages that consumers of and investors in financial products may face, ensure that consumers and investors have sufficient information to make appropriate decisions, and oversee business conduct and sales practices to prevent fraud and abuse. Responsibilities for helping ensure consumer financial protection and otherwise overseeing the financial services industry, including person-to- person lending, are shared among various federal and state regulatory agencies and numerous self-regulatory organizations. The manner in which these regulators oversee institutions, markets, or products varies depending upon, among other things, the regulatory approach Congress has fashioned for different sectors of the financial industry. For example:  Federal banking regulators subject depository institutions (hereafter, for simplicity, banks) to comprehensive regulation and examination to ensure their safety and soundness. Until July 2011, the banking regulators serve as the primary consumer protection enforcers and supervisors for the banks under their jurisdictions. These regulators include the Office of the Comptroller of the Currency (OCC) for national banks; Board of Governors of the Federal Reserve System (Federal Reserve) for domestic operations of foreign banks and for state-chartered banks that are members of the Federal Reserve System; Federal Deposit Insurance Corporation (FDIC) for insured state-chartered banks that are not members of the Federal Reserve System; National Credit Union Administration (NCUA) for federally insured credit unions; and the Office of Thrift Supervision for federal thrifts. Both FDIC and the Federal Reserve share oversight responsibilities with the state regulatory authority that chartered the bank.  The Federal Trade Commission (FTC) is responsible for enforcing many federal consumer protection laws. Until July 21, 2011, FTC is the primary enforcer of federal consumer financial laws for nonbank financial services providers. After that date, FTC will share responsibility for such enforcement with the Bureau of Consumer Financial Protection (known as the Consumer Financial Protection Bureau or CFPB), as discussed later. In addition, FTC investigates nonbank financial services providers that may be engaged in unfair or deceptive acts or practices and takes enforcement action. Because it is a law enforcement agency, and not a supervisory agency, FTC does not regularly examine nonbank financial services providers or impose reporting requirements on them, but instead focuses on enforcement. State regulators have been the primary supervisors of nonbank financial services providers, and state-level powers and levels of supervision have varied considerably.  SEC is the primary federal agency responsible for investor protection. Like FTC, it does not comprehensively regulate and examine companies that issue securities. Rather, federal securities regulation is intended to protect investors in specific securities through disclosure requirements and antifraud provisions that can be used to hold companies liable for providing false or misleading information to investors. State securities regulators—represented by the North American Securities Administrators Association (NASAA)—generally are responsible for registering certain securities products and, along with SEC, investigating securities fraud. As a result of the Dodd-Frank Act, which mandated the creation of CFPB, federal regulation of consumer financial products and services is in the process of consolidation. CFPB will serve as the primary supervisor of federal consumer protection laws over many of the banks and other financial institutions that offer consumer financial products and services and will be one of the enforcers of these laws. Upon assuming its full authorities, CFPB will, among other things  assume rulemaking authority for more than a dozen existing federal consumer financial laws from other federal agencies, as well as new rulemaking authorities created by the Dodd-Frank Act itself; supervise compliance with federal consumer financial laws with respect to certain nondepository financial services providers, including those involved in residential mortgage lending, private student lending, payday lending, and “larger participant of a market for other consumer financial products or services,” to be defined through CFPB rulemaking; supervise compliance with federal consumer financial laws with respect to banks holding more than $10 billion in total assets and their affiliates; and research, monitor, and report on developments in markets for consumer financial products and services to, among other things, identify risks to consumers. The date for transferring consumer protection functions to CFPB is July 21, 2011. Until a director takes office, the Secretary of the Treasury has the power to perform some of CFPB’s functions, and the Department of the Treasury (Treasury) has formed an implementation team to start up the agency. The Dodd-Frank Act also established the Financial Stability Oversight Council (FSOC) to convene financial regulatory agencies to identify risks and respond to emerging threats to the financial stability of the United States. Chaired by the Secretary of the Treasury, FSOC is comprised of the heads of CFPB, FDIC, SEC, and other voting and nonvoting members—including a state banking supervisor and a state securities commissioner. Among other duties, FSOC is to  monitor the financial services marketplace in order to identify potential threats to the financial stability of the United States; facilitate information sharing and coordination among federal and state financial regulatory agencies on developing policies and regulatory activities for financial services; identify gaps in regulation that could pose risks to the financial stability of the United States; and  provide a forum for discussion and analysis of emerging market developments and financial regulatory issues. Prosper and LendingClub provide two major Internet-based platforms currently operating in the United States that allow lenders to select and fund loans to borrowers for consumer and business purposes. Lenders participate on these two platforms by buying notes that correspond to a specific loan, or share of a loan, with the goal of being repaid principal and receiving interest. As shown in figure 1, according to data provided by the companies, Prosper grew rapidly after launching its platform in November 2005, facilitating about $176 million in loans by September 2008 (about $5 million per month). After suspending its operations in October 2008 to register a securities offering with SEC—as we discuss later—Prosper resumed operation in July 2009 at a lower loan volume than before (about $2 million per month through December 2010) but grew more rapidly beginning in 2011 (about $4 million per month from January 2011 to March 2011). LendingClub facilitated about $15 million in loans between when it issued its first loan in June 2007 and March 2008 (roughly $1.5 million per month). Between April 2008 and October 2008, LendingClub suspended its sales of notes to lenders to register a securities offering, although it continued to make loans to borrowers using its own funds. LendingClub grew rapidly after resuming operations in October 2008, facilitating about $7.6 million in loans per month. As of March 31, 2011, about 60,000 Prosper lenders had funded about $226 million in loans to more than 33,000 borrowers. At the same time, about 20,600 LendingClub lenders had funded about $243 million in loans to about 25,000 borrowers. According to industry officials, researchers, and online discussion forums, individuals participate as lenders in for-profit, person-to-person lending platforms as an alternative to traditional savings vehicles (e.g., savings accounts, money market accounts, certificates of deposit) that pay low interest rates. As of March 31, 2011, Prosper reported that lenders received average net annualized returns exceeding 11 percent for loans originated since it completed registration with SEC in July 2009, while LendingClub reported net annualized platform returns exceeding 9 percent for all loans since it issued its first loan in June 2007. Around the same time, the annual percentage yields for savings and money market accounts and 3-year certificates of deposit listed on bankrate.com were lower, ranging from 0.1 percent to 1.2 percent and 1.3 percent to 2.2 percent, respectively. Borrowers use person-to-person lending as an alternative source of credit. Interest rates on these loans may be lower than those on traditional unsecured bank loans or credit cards. As of March 31, 2011, the annual percentage rate for a 3-year loan was as low as 6.3 percent for Prosper and 6.8 percent for LendingClub, depending on the borrower’s credit ratings or loan grades, while the average annual percentage rate for credit cards around that time was 14.7 percent. Nonetheless, the annual percentage rate could be as high as 35.6 percent for Prosper and 25.4 percent for LendingClub. In contrast, one credit card issuer had an annual percentage rate of 49.9 percent for cash advances and purchases made using its credit card. Prosper reported that the average annual percentage rate for all 3-year loans since its inception was 20.6 percent, and LendingClub reported that the same average for its loans was 11.4 percent. Lenders using these platforms generally provide capital in relatively small amounts for borrowers who are typically seeking fairly small, unsecured loans for consumer purposes—such as consolidating debts, paying for home repairs, or financing personal, household, or family purchases—or, to a lesser extent, for business purposes. Lenders can invest in many loans and may fund an entire loan request or only a fraction of each loan request—as little as $25 per loan. As of March 31, 2011, Prosper lenders invested on average about $3,700, while LendingClub lenders invested on average about $8,640. Both platforms restrict borrowers’ loan request amounts to between $1,000 and $25,000 for Prosper and up to $35,000 for LendingClub, and the average amount borrowed was $5,886 for Prosper and approximately $9,980 for LendingClub.