The U.S. Treasury Department on May 10th issued a white paper calling for better oversight of online marketplace lenders, one day after the face of the industry — Lending Club CEO Renaud Laplanche — was forced out following a violation of the company’s business practices and lack of full disclosure to its board.
The Treasury Department’s white paper on marketplace lenders like LendingClub and On Deck Capital was called a “‘welcome to the real world’ moment” by analyst Ian Katz at Capital Alpha, as fintech lenders including SoFi have originated billions in online loans.
The paper called for, among other things, “more robust small business borrower protections and effective oversight,” ensuring “sound borrower experience and back-end operations” and more transparency for borrowers and the investors who fund their loans.The report also said that software the companies use can make the process faster and cut costs, but they also can throw off credit scores and carry “the potential for fair lending violations.
Applicants do not have the opportunity to check and correct data potentially being used in underwriting decisions,” the report said.The report also revealed plans for a dedicated group for the lenders, through “interagency coordination,” which suggests that fintech companies will see increased regulation.
Treasury officials acknowledged that the online lending industry is far from posing a threat to the U.S. economy similar to what the housing market did for the global financial crisis. The report estimated a $1 trillion marketplace for online lenders and that loan origination could grow to $90 billion by 2020. The Treasury’s paper in in its entirety can be found here: https://content.govdelivery.com/attachments/USTREAS/2016/05/10/file_attachments/547520/Opportunities_and_Challenges_in_Online_Marketplace_Lending_white_paper.pdfhttp://www.cnbc.com/2016/05/10/online-lenders-owe-borrowers-more-transparency-treasury-department-report.html