The U.S. Department of the Treasury has released a white paper on the marketplace lending industry, “Opportunities and Challenges in Online Marketplace Lending,” summarizing their findings from more than 100 responses to a Request for Information (“RFI”) issued previously. The paper establishes an overview of the industry, identifies benefits and risks associated with the industry, and highlights best practices for platforms today.
The paper also provides policy recommendations, although, as frequently acknowledged, the Treasury is not a regulatory agency that would be involved in setting rules. The CFPB, FDIC, SEC, and others did contribute to this whitepaper, however, so it is seen as one of the first official review papers by regulatory bodies.
While the introduction, background explanations, and definitions were not new to those fluent in this industry, the Recommendations section garners the most focus. The Treasury “developed the following recommendations to facilitate the safe growth of online marketplace lending while fostering safe and affordable access to credit for consumers and businesses:”
- 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
While the first five are in discussion and even in practice by many platforms (though, to their point, not by all platforms), it is the sixth point that we find most interesting. The Treasury recommends a working group that includes the CFPB, FDIC, FRB, FTC, OCC, SBA, SEC, and a representative of a state bank supervisor. They identify possible areas for this group to address as the following:
- Identify & Promote Awareness of Existing Regulations that apply to Online Marketplace Lending
- Support Responsible Innovation
- Examine the Impact of Nontraditional Data on Credit Scoring Models
- Monitor Risk through the Credit Cycle
We believe most industry participants would support an effort like this and will watch development of such a group closely.