California Investigates US Marketplace Lending Space

By Guglielmo de Stefano on Tuesday 15 December 2015

Alternative Lending

California regulators are honing in on the marketplace lending space.

Last Friday, the Department of Business Oversight – the body that licenses financial-services companies in California – asked a list of 14 marketplace lending platforms to respond to an online survey. The regulator appears to be interested in better understanding the industry and may be planning to sharpen its licensing and regulatory approach to platforms in the future. Californian policymakers are particularly keen on assessing the industry’s size in the state, how loans are funded, how many businesses and consumers it involves and lending practices.


The platforms involved include the likes of Kabbage Inc., Prosper Marketplace Inc., Avant Inc., OnDeck Capital Inc. and Social Finance Inc, but the full list of companies targeted has not yet been determined.


According to Bloomberg, the inquiry was triggered by two major events.


The first one was the discovery of a loan made to one of the shooters in the San Bernardino, Calif. attack, some weeks before the shooting, through the US platform Prosper. Representatives of the online lender argued that its loans are subject to stringent identity verification and screening procedures that are required by law, including U.S. antiterrorism and anti-money laundering laws.


The second trigger is linked to a study conducted by the Federal Reserve Board and the Federal Reserve Bank of Cleveland. According to this research, small-business owners could face difficulties in comparing the various credit products offered by online lenders and they do not fully understand the terms of the loans. The platforms are reportedly being cooperative with the Federal institution.


Rob Frohwein, chief executive of small business lender Kabbage, commented:


“We welcome the opportunity to engage with regulators to ensure that small businesses have access to the products and services they need to grow”


Similarly, a representative of Prosper added:


“Happy to work with the Department to understand our company and the industry.”


The inquiry follows on from the formal Request for Information (RFI) issued in mid-July by the US Treasury, the purpose of which was to seek public input on expanding access to credit through online marketplace lending. Unlike the RFI, California regulators are seeking more specific information about US players, including the number of total loans issued to date, the number of delinquent loans, annualized interest rates, and the various firms’ borrower verification processes.


Platforms invited to answer the survey will have time until March 9th next year to do so. In the meantime, the Treasury is still examining the nearly 100 responses to the RFI of last summer. It’s evident that US regulators are developing a hunger for information and that the whole industry is facing increased scrutiny.

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