Last Fall, in its 2015 Rulemaking Agenda, the Consumer Financial Protection Bureau (“CFPB”) signaled its intent to “to develop rules to define larger participants in markets for consumer installment loans.” Under the Dodd-Frank Act, the CFPB is authorized to issue “larger participant” rules to define entities in a particular market for consumer financial products or services. The issuance of such rules opens the door for supervisory and examination authority over such entities. Fast forward to Spring 2016, when the CFPB announced that it is accepting complaints from consumers regarding alleged problems with online marketplace loans, and it appears that the CFPB has marketplace lenders squarely in its sights.
Marketplace lending, originally referred to as “peer-to-peer lending,” uses online platforms to connect borrowers and lenders, generally for unsecured loans. The platforms or marketplaces themselves typically do not lend money or invest in the loans, but rather “underwrite, price and service” such loans. While marketplace lending is generally subject to numerous federal consumer finance laws, including the Truth in Lending Act, Equal Credit Opportunity Act, Fair Credit Reporting Act, and the Fair Debt Collection Practices Act, as well as state consumer protection laws, marketplace lenders typically have no direct federal supervisor.
This could change if the CFPB decides to include marketplace lending within the scope of any rule covering installment loans. While a larger participant rule may not impose any substantive limitations on marketplace lenders, it would permit the CFPB to conduct examinations of their internal operations and consumer practices. Accordingly, a supervisory rule, and the access it entails, may be a prelude to future substantive regulations. Indeed, Director Richard Cordray, in announcing the complaint database, stated that “[b]y accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn to when they encounter problems.”
In the context of the CFPB’s Rulemaking Agenda and the complaint database, the Director’s comments should put marketplace and other online lending participants on notice that new oversight and regulation could be in store. Further, such participants should carefully consider submitting comments to any proposed CFPB rules to shape their scope.