Online Peer-to-Peer Lending as a New Profit Industry and Debt Trap

Abstract

The recent financial crisis in the USA has resulted in increased unemployment rates, falling home values and growing household debt. Among the main drivers behind this meltdown are easy to obtain mortgages, student loans and credit cards, which constitute the largest portion of household debt in the USA (Dwyer et al., 2012). Federal student loan volume has increased approximately 833% in the last two decades and consumers now carry more unsecured credit card debt than ever before (Draut, 2005). As of 2010, there were at least six credit cards in circulation for every American family and approximately 80% of households who had credit cards owed more than USD 10,000 in unsecured credit card debt (Woolsey and Schulz, 2009). The role of traditional lenders (e.g. banks) in this trend is of prime concern. The aggressive use of lending practices by these institutions has resulted in an increase of 30% in unsecured credit card debt between 2001 and 2008 (Lawless et al., 2008). Subsequently, credit card debt has become more and more expensive over time, as indicated by the increase in fees that are charged by credit card companies to approximately USD 15 billion in 2009 (White House, 2009).