Regulating Frauds in Online Marketplace Lending: A Comparative Study on China and U.S.

1
Zhen Lei
Zhen Lei
2
Jing Tao Andy Lin
Jing Tao Andy Lin
3
Ho Kai Chan
Ho Kai Chan
4
Ting Rose Dan
Ting Rose Dan
1 The Hong Kong Polytechnic University.

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GJMBR Volume 22 Issue C3

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Recent platform frauds in the U.S. and other parts of the world raise skepticism about the viability of online marketplace lending (OML), a fast-growing new industry. In China, over onethird of peer-to-peer lending platforms have failed, many involve outright fraud. We find in the U.S., OML platforms profit from loan origination but do not bear borrower credit risk, giving rise to the incentive to overstate borrowers’ quality. In China, most OML platforms are “balance sheet lenders” but not subject to the banking regulations. Failure to control borrower credit risk and moral hazard lead to Ponzi Scheme-type platform-runs. Our comparative case study on Lending Club (NYSE: LC) versus Yirendai (NYSE: YRD), and empirical analysis of 735 OML plat-forms in China confirm these observations. We discuss regulatory responses and market-based solutions including leveraging users’ social networks in lending.

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No external funding was declared for this work.

Conflict of Interest

The authors declare no conflict of interest.

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No ethics committee approval was required for this article type.

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Not applicable for this article.

Zhen Lei. 2026. \u201cRegulating Frauds in Online Marketplace Lending: A Comparative Study on China and U.S.\u201d. Global Journal of Management and Business Research - C: Finance GJMBR-C Volume 22 (GJMBR Volume 22 Issue C3): .

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Alt text: Study on online marketplace lending and fraud comparison between China and U.S.
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GJMBR Volume 22 Issue C3
Pg. 21- 32
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Crossref Journal DOI 10.17406/GJMBR

Print ISSN 0975-5853

e-ISSN 2249-4588

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GJMBR-C Classification: DDC Code: 658.473 LCC Code: HF5686.C7, DDC Code: 306.44 LCC Code: P120.E27
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August 26, 2022

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Recent platform frauds in the U.S. and other parts of the world raise skepticism about the viability of online marketplace lending (OML), a fast-growing new industry. In China, over onethird of peer-to-peer lending platforms have failed, many involve outright fraud. We find in the U.S., OML platforms profit from loan origination but do not bear borrower credit risk, giving rise to the incentive to overstate borrowers’ quality. In China, most OML platforms are “balance sheet lenders” but not subject to the banking regulations. Failure to control borrower credit risk and moral hazard lead to Ponzi Scheme-type platform-runs. Our comparative case study on Lending Club (NYSE: LC) versus Yirendai (NYSE: YRD), and empirical analysis of 735 OML plat-forms in China confirm these observations. We discuss regulatory responses and market-based solutions including leveraging users’ social networks in lending.

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Regulating Frauds in Online Marketplace Lending: A Comparative Study on China and U.S.

Zhen Lei
Zhen Lei The Hong Kong Polytechnic University.
Jing Tao Andy Lin
Jing Tao Andy Lin
Ho Kai Chan
Ho Kai Chan
Ting Rose Dan
Ting Rose Dan

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