In our initial article announcing our top 10 considerations for financial institutions in 2016, which can be found here, our fifth consideration was marketplace lending. Just as the U.S. government and banking agencies have focused efforts to understand marketplace lending, so to should financial institutions focus some level of energy to understand the risk, and potential benefits of expanding relationships with marketplace lenders. This segment of the U.S. lending market is here to stay and will seek financing and more traditional banking relationships going forward.
There are a myriad of regulators and laws at the federal and state level that apply to online marketplace lenders, especially those making loans to individual consumers. For example, online marketplace lenders may be subject to a subset of the following federal statutes and their implementing regulations: the Bank Secrecy Act; the Electronic Funds Transfer Act, the Equal Credit Opportunity Act; the Fair Credit Reporting Act, the Fair Debt Collection Practices Act; the Gramm-Leach-Bliley Act; and the Truth in Lending Act. In many cases, the federal and state securities laws are relevant and significant compliance considerations. Additionally, regulators with authority in this area include: the Department of the Treasury; the Consumer Financial Protection Bureau (CFPB); the Federal Trade Commission (FTC); the prudential banking agencies (e.g. OCC, FDIC, FRB); the Securities and Exchange Commission; and state regulators. Below, we identify a few recent developments from the regulatory agencies.
Over the past year, some of these same regulators have made news with regard to their foray into the regulation of marketplace lending. For example, on July 20, 2015, the U.S. Department of the Treasury issued a request for information requesting comments from the public on expanding access to credit through online marketplace lending, which we previously wrote about here. The request for information from the Treasury department was quite broad and requested comments on the business models used and products offered by marketplace lenders; the potential for marketplace lending to expand access to credit in underserved markets; and how the regulatory framework should develop.
Additionally, the FDIC recently outlined its concerns about the risks associated with marketplace lending in the Winter 2015 issue of Supervisory Insights, which we previously wrote about here. In it, the FDIC focuses on the importance of effective risk identification for banks conducting any business with marketplace lenders and identifies specific risk categories to monitor, including third-party, compliance, transaction, servicing and liquidity risk. The FDIC has perhaps the most reserved view of banks doing business with marketplace lenders.
Finally, and most recently, the CFPB has indicated that it has begun accepting consumer complaints regarding online marketplace lenders making consumer loans, which we previously wrote about here. In conjunction with the CFPB’s acceptance of complaints, the CFPB released a Consumer Bulletin outlining the basics of marketplace lending for consumers. The acceptance of consumer complaints and the release of the Consumer Bulleting foreshadows the CFPB’s entrance into the regulation of certain aspects of marketplace lending to consumers.