In light of the recent expansion of online marketplace lending, the United States Department of the Treasury (the “Treasury Department”) has issued a request for information (“RFI”) seeking public comment on alternative online lending. Specifically, the Treasury Department is seeking input on the business models and products that alternative lenders offer to small business and consumers, the potential for alternative lending to provide access to credit to underserved markets, and the extent to which changes are needed in the regulatory framework in order to properly manage the risk of this growing market segment.
The Treasury Department is seeking comments on fourteen “key questions” related to aspects of online marketplace lending, including the following:
- marketplace segmentation;
- the role of electronic data sources in enabling marketplace lending;
- how alternative lenders are addressing the needs of different borrowers, including small business borrowers, consumer borrowers, subprime borrowers, and “thin-file” borrowers;
- the extent to which marketplace lending expands access to credit for underserved markets;
- the customer acquisition process;
- assessment of creditworthiness, including the effectiveness of underwriting models in predicting risk;
- reliance by alternative lenders on financial institutions;
- how marketplace lenders outsource services to third parties;
- the extent to which the federal government should play a role in encouraging growth of alternative lending;
- whether marketplace lenders should be required to have “skin in the game” and the applicability of other risk retention requirements;
- data privacy concerns;
- investor financing of marketplace lending;
- availability of secondary liquidity and securitization; and
- key trends and issues that policymakers should consider.
Regulatory Landscape of Online Marketplace Lending
Online marketplace lenders, a segment of the financial services industry that primarily uses investment capital and data-driven online platforms to lend to small businesses and consumers, includes balance sheet lenders typically funded by venture capital or hedge funds, online platforms or peer-to-per lenders, and bank-affiliated online lenders. While some online marketplace lenders may be subject to the jurisdiction of the Consumer Financial Protection Bureau (“CFPB”), the Federal Trade Commission, and/or various other federal and state regulatory agencies, depository institutions that provide the financing and underwriting for bank-affiliated lenders are subject to the oversight of their primary prudential regulators—the Office of the Comptroller of the Currency (“OCC”), the Federal Deposit Insurance Corporation, the Federal Reserve Board, and the National Credit Union Association. For example, the Office of the Comptroller of the Currency has addressed the various regulatory risks associated with “franchising” arrangements in its 2013 bulletin on Third-Party Relationships, applicable to national banks and federal thrifts.
Although the Treasury Department does not have direct rulemaking authority with respect to alternative lenders or financial institutions, it does coordinate closely with various other federal regulators, including the CFPB and the OCC. Accordingly, responses to the RFI and the Treasury Department’s resulting findings could substantially influence the future regulatory landscape for online lenders.
Any entity actively involved in online marketplace lending—whether as an alternative lender or as a bank financing an alternative lender—should consider whether submitting a response to the RFI is appropriate. While the RFI is primarily fact-finding in nature, key findings by the Treasury Department could shape the future regulatory environment in this developing area of financial services. Finally, any entity considering submitting input to the Treasury Department should bear in mind that all comments will be made public.
Respondents should seek to address the specific questions posed by the Treasury Department in its RFI. Comments must be submitted on or before August 31, 2015.