Marketplace Lending is dominating the Consumer and Business Loan Industry
In a report released on April 8, 2016 by the California Department of Business Oversight, the 13 largest marketplace lending companies saw a 930% increase in loan activity from 2010 to 2014. Among them, there were $15.9 billion in loans. Many more online lenders were not included in the report, which means that the actual growth is greater and is not showing any signs of slowing. In fact, in the first six months of 2015, these same 13 companies issued $12.47 billion in loans.
The California Department of Oversight undertook the study in order to obtain a better grasp of the breadth and influence of the industry, primarily with an eye toward consumer protection. As a part of data collection for the report, the Department requested in-depth information about lending practices and loan volumes. For instance, the study revealed that the largest percentage of loan volume in 2014 was to consumers—84 percent, while small business loans accounted for 18 percent.
It will be relatively easy to move forward with some sort of policymaking based on the information collected. The Department anticipates, once it has completed analysis of all the information collected through the initial study, along with answers to its follow up questions that some sort of additional oversight regulatory activity will ensue.
Growth also means federal scrutiny
The success of the marketplace lending industry also means more focus by federal regulators. The question of oversight and regulatory activity in regards to marketplace lenders, such as P2P is really only a matter of when, not if. In July of last year, the United States Department of the Treasury issued a Request for Information (RFI) from the online lending market. Last month, the Consumer Financial Protection Bureau (CFPB) became involved with marketplace lending for the first time. Other developments on various government levels are also dealing with marketplace lending.
Nevertheless, experts do not anticipate that there will be federal regulations in the very near future. Most agree that it will take at least a year before the federal agencies understand all of the aspects and dynamics of this growing market before it can begin to propose regulations. The RFI was intended to provide a base level of information and data to help regulators understand issues such as: how marketplace lending can serve the needs of borrowers traditionally blocked from access to credit; what are the various offerings and business models employed by lenders; and how the industry can continue its growth in a safe way that will protect both consumers and the industry. More than 100 marketplace lenders responded to the RFI, giving the Department a wealth of information to shift through before it can begin to articulate a plan of action.
The Consumer Financial Protection Bureau was established in 2011. It has been interacting on behalf of consumers with student loan agencies, mortgage lenders, and other financial products. Now it will also handle issues from small business owners and consumers related to marketplace lenders.
Marketplace lenders regulating themselves
In the interim there could be state regulatory activity, although most experts do not predict much of this either. What is happening, though, is self-regulation, such as the Small Business Borrowers Bill of Rights developed by a coalition of marketplace lenders who joined with other financial players to develop a package of best practices by which small business borrowers will be protected. In other arenas, marketplace lending companies have joined forces to develop and implement best practices, such as requirements for transparency and trustworthy lending practices, designed to protect consumers and ensure the continued good health of the industry.
From all indicators, we can expect expansion and security of the online lending industry to continue for the foreseeable future. All of this is good news for consumers whose access to loans in a safe, quick and efficient manner will only improve.