While online marketplace lenders are subject to many of the same rules as banks for loan originations, marketplace lenders receive less direct oversight, the Treasury Department said today in its long-awaited report on the marketplace lending industry. Providing more “effective oversight” of nonbank lenders could lead to greater transparency and “better outcomes for borrowers,” the Treasury found.
ABA applauded the Treasury’s focus on robust, consistent oversight regardless of charter type. “A policy ecosystem that supports innovation both inside and outside banks is wholeheartedly supported by the banking industry,” said ABA President and CEO Rob Nichols, who added that Treasury’s emphasis on partnerships between banks and online lenders was particularly welcome.
However, ABA pushed back on the Treasury’s suggestion that Congress should enact consumer-style protections for small business loans of less than $100,000. “There are numerous laws today that ensure small business loans are made responsibly,” Nichols said. “What is needed is proactive oversight to ensure that rules are followed and borrowers are treated fairly regardless of the provider. Adding more regulations and restrictions on all lenders — bank and nonbank — will only make it harder and more costly for the smallest of loans to be made.”
Other Treasury recommendations include developing industry standards for nonbank lenders on handling servicing and delinquencies, creating a private-sector registry for online lenders’ capital markets activities and partnering with community development financial institutions. The Treasury also recommended that the federal government continue to open up data to support marketplace lenders’ underwriting decisions and convene an interagency working group to coordinate policy actions.
Meanwhile, the Treasury said it would be monitoring the performance of marketplace lenders’ alternative credit scoring models, the effect of a rising rate environment on online lenders’ performance, the availability of liquidity for lenders funded principally by investors rather than deposits, the cybersecurity and Bank Secrecy Act performance of online lenders and the movement of marketplace lenders into mortgage and auto loans.