California State Regulators Open Inquiries into Marketplace Lending

Marketplace lenders have had a tough month due to them being on the negative end of headlines in December. The issues began following the revelation that one of the San Bernardino shooters in the tragic December 4th shooting event, had recently cashed in $28,500 that was sourced from P2P lending operator, Prosper Marketplace, and potentially used to acquire weapons. For its part, Prosper Marketplace stated that the loan was only processed after anti-Money Laundering Money Laundering Money laundering is a blanket term to describe the process by which criminals disguise the original ownership and proceeds of criminal conduct by making such proceeds appear to be derived from a legitimate source.Money laundering is an issue that traverses countless industries and sectors, which includes the financial services space. Though criminal money may be successfully laundered without the assistance of the financial sector, billions of dollars’ worth of criminally derived money are laund Money laundering is a blanket term to describe the process by which criminals disguise the original ownership and proceeds of criminal conduct by making such proceeds appear to be derived from a legitimate source.Money laundering is an issue that traverses countless industries and sectors, which includes the financial services space. Though criminal money may be successfully laundered without the assistance of the financial sector, billions of dollars’ worth of criminally derived money are laund Read this Term and customer Compliance Compliance In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a In finance, banking, investing, and insurance compliance refers to following the rules or orders set down by the government regulatory authority, either as providing a service or processing a transaction. Compliance concerning finance would also be a state of being following established guidelines or specifications. This designation can also encompass efforts to ensure that organizations are abiding by both industry regulations and government legislation. Understanding ComplianceCompliance is a Read this Term requirements were satisfied.

Another initiative now affecting the online lending industry is a recent inquiry by California State regulators, of which they sent notices to 14 marketplace lenders for more information. In a list compiled by American Banker, the firms include 12 marketplace lenders; Lending Club, Prosper Marketplace, SoFi, CircleBack Lending, Affirm and Avant, OnDeck Capital, CAN Capital, Kabbage, Funding Circle, Bond Street and Fundbox. In addition, PayPal and Square were also sent inquiries due to their providing of financing to merchant customers.

According to statements from state regulators, the inquiries weren’t related to the December 4th shooting, with the requests of information having been planned previously. The requests for information occur as marketplace lending has grown from to what could be a greater than $25 billion market in 2015. With loans being unsecured, it has led to questions of whether they are a safe investment and how the market will be affected by potentially higher interest rates in 2016.

Among information being gathered is operational transparency for lenders. Requested data includes total loans, average yields, delinquency rates, customer costs and compliance processes. As part of the inquiry, California regulators will be analyzing the suitability of marketplace loans for small businesses and consumers and whether they fully understand repayment costs.

The inquiries occur as lenders have been able to carve a growing niche of the lending market, both in the US and globally. Among the growth drivers is the platform’s ability to increase efficiency compared to traditional bank loans. As a result, online lenders can verify and process loans in hours instead of days. In addition, by utilizing non-credit score metrics, lenders are able to provide loans to borrowers turned away by banks.

In terms of rates, there is debate as to whether customers from lending platforms are able to source better yields than banks, with each side publishing reports relating to their benefits. Nonetheless, online lenders have proven themselves due to their breadth and ability to lend to customers rejected by banks.