Time to clean up P2P loan websites

Two high-ranking employees at Eastern Investment Corporation, a financial service company which operates an online investment platform to provide peer-to-peer (P2P) lending service, have been found guilty of "illegally absorbing public deposits," marking what lawyers describe as China's first illegal fundraising case for a P2P platform, the 21st Century Business Herald reported.

Most P2P platforms simply take the normal borrowing process that happens between ordinary individuals and transplants the experience online. As such, these platforms and the "match making" services they offer to borrowers and lenders should not be seen as part of the regulated financial industry. In fact, many of these platforms often do not verify information submitted by borrowers and lenders, which means both sides are taking big risks.

Unfortunately, many P2P lending platforms are becoming conduits for illegal activity. This amplifies credit risk, dampens financial innovation and gives the rest of the Internet financial industry a bad name. This recent case should sound the alarm bell that it's time to crack down on the illegal activities taking place on these websites.