US Treasury Releases White Paper on Marketplace Lending

US Treasury Department

Last year the U.S. Treasury took a step to learn more about marketplace lending in the form of a request for information on the marketplace lending industry. There was an immense amount of interest with a variety of companies participating across the industry.  Today, we saw the US Treasury’s response in a white paper titled Opportunities and Challenges in Online Marketplace Lending.  We will review some of the highlights below, but you can download the entire white paper here.

Regulation in the marketplace lending industry has been a hot topic in 2016. We’ve seen several trade organizations formed to work with regulators and what is interesting is the broad range of participation across government bodies in the white paper. Individuals contributing to the paper included representatives from the CFPB, FDIC, FTC, OCC, SBA, SEC, the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York. For those looking to better understand the industry, the white paper outlines the complexities of the industry and the current state of the lending verticals as well as major platforms.

Comments received by the Treasury were grouped into several themes which included:

  • Use of Data and Modeling Techniques for Underwriting is an Innovation and a Risk
  • There is Opportunity to Expand Access to Credit
  • New Credit Models and Operations Remain Untested
  • Small Business Borrowers Will Likely Require Enhanced Safeguards
  • Greater Transparency Can Benefit Borrowers and Investors
  • Secondary Market for Loans is Undeveloped
  • Regulatory Clarity Can Benefit the Market

The US Treasury also outlined several recommendations for the marketplace lending industry. Specifics are outlined on each, which are worthwhile to dig into and gauge where they have concerns and see risks.

  • Support More Robust Small Business Borrower Protections and Effective Oversight
  • Ensure Sound Borrower Experience and Back-End Operations
  • Promote a Transparent Marketplace for Investors and Borrowers
  • Expand Access to Credit Through Partnerships that Ensure Safe and Affordable Credit
  • Support the Expansion of Safe and Affordable Credit Through Access to Government Held Data
  • Facilitate Interagency Coordination through the Creation of a Standing Working Group For Online Marketplace Lending

In light of recent events it is now more important than ever for the industry participants to prove that this is an industry built on many of the positive aspects we have become known for such as trust and transparency. There will undoubtedly be regulators taking a closer look at the industry and it’s important that we work with them on meaningful regulation.