The concept of peer-to-peer lending ("P2P"), that first evolved in the United Kingdom and United States, is currently a fashionable topic in jurisdictions like Brazil where consumer needs and spending are growing and strict financial regulations apply. P2P is in fact seen as an inclusive alternative providing individual consumers with cheap and debureaucratized credit.
Basically, individual potential lenders and borrowers meet through an online P2P platform, aiming to negotiate and formalize low-ticket P2P loan transactions, which usually would not be feasible within the traditional financial system or are out of the sight of big financial groups.
Technology has worldwide transformed online platforms created to support the various types of business and their underlying relationships, changing significantly the ties between players and the behaviour of businesses and people. In a P2P structure, the challenge of lawyers is to formalize the relevant legal relationships and make sure that the business is in line with legal and regulatory provisions applying to financial services.
In Brazil, there is a question of whether the intervention of a financial institution would be required or recommendable. Due to usury provisions, only financial institutions are authorized to extent credit at interest rates beyond 12% per annum. Notwithstanding, one can argue that there would be no breach to banking law and regulations if the transactions were to remain below the legal interest ceiling. Considering fees, costs and taxes applying to the structure, however, the application of rates lower than 12% per annum may prove unfeasible. If a financial institution can be brought in to act between those lenders and borrowers, it would be able to on-lend to the borrower funds raised from a certain lender in the same terms and conditions, through a back-to-back funding loan. Higher costs and fees, but no discussion or regulatory risk.
The discussion on the need for a local intermediary financial institution is different, though also pertinent, when all of the lenders are resident outside of Brazil, where theoretically limitations on interest rates should follow international standards, mainly if the loan documentation is formalized under foreign law. In this case, a detailed analysis should be performed on whether application of foreign law would violate Brazilian international private law principles contained in Section 17 of the Introductory Law to the Brazilian Legal System - Decree-Law No. 4.657/1942 - "laws, acts and decisions of another country, as well any statements of intention (declarações de vontade) will not be applied in Brazil when they offend national sovereignty, public order and/or moral values". Risk may remain from a practical perspective when enforcement is to be sought in Brazil as, in that case, local courts may limit interest rates at 12% per annum. This matter is, however, a controversial one.
Moreover, it is very important that the business model be structured in a way that there is no room for interpretation that the platform would be performing unlicensed "intermediation of third parties financial resources" if it is to operate without a banking license. Although there is no definition in law of the activity of "financial intermediation", the meaning as per legal doctrine is the activity of collecting funds/savings from the general public in order to on-lend them to borrowers as a principal. It is therefore clear that the platform must not collect funds from the public in any manner whatsoever to avoid regulatory risk if it is to operate without a banking license. It should, instead, act as a mere meeting point with no participation in the flow of resources.
It is also worth noting that where a P2P platform originates a loan to a Brazilian resident extended by a lender residing outside of Brazil, that transaction would need to follow the provisions of Brazilian law No. 4,131 in that registration with the Central Bank of Brazil on the ROF module (Registro de Operações Financeiras or Financial Transaction Registration) of the RDE (Registro Declaratório Eletrônico or Electronic Declaratory Registration) of the electronic system of the BACEN ("SISBACEN") will be required in order for lenders to have loans capable of repatriation. An operation and an expert partner able to streamline registration proceedings is very welcome as a high number of high-speed transactions is expected to be generated by the platform.
There are interesting initiatives in Brazil for the creation of P2P businesses and a few platforms are already in activity. Local banking lawyers have often been questioned about the legal issues that deserve attention in the structure. Obviously, in a jurisdiction where laws and regulations on financial services are fairly strict, relevant legal and regulatory questions arise, but once those are faced in a professional fashion to adapt the business model to the local environment, the country proves to be a very fruitful soil for this type of credit.
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