As marketplace lending continues to grow in its scope and influence in the loan financing industry it's important to stay abreast of the changes in regulation and governing of the sector.
For that reason, the fine attorneys of Chapman and Cutler LLP diligently prepare an annual survey detailing the principal regulations applicable to internet-based lending.
Introduction To This Year's Marketplace Lending Survey
In addition to continued rapid growth in lending volumes, the past year witnessed several transactions that represent important milestones in the industry’s development.
The most prominent of these transactions were the successful initial public offerings of LendingClub Corporation and On Deck Capital, Inc. Also significant, however, was the completion of several securitizations including the first securitization of peer-to-peer (“P2P”) consumer loans to obtain an investment grade rating. The securitization of internet-originated loans can play an important role in reducing investor funding costs and supporting industry growth.
Federal and state regulators in the past year did not undertake any broad-based initiatives focused on internet-based lending (excluding payday lending). Last year’s CashCall decision by the West Virginia Supreme Court did, however, highlight the risks that consumer lenders may face if they originate their loans through commercial banks and rely upon the bank’s involvement in the program to claim exemption from state lending regulations. As Chapman and Cutler discuss within the survey, it should be possible for internet-based lenders and the originating banks to take certain steps to reduce those risks (though not necessarily eliminate them).
No Longer Called Peer to Peer Lending Regulation Survey
Readers who have seen their previous surveys may note that Chapman and Cutler LLP have changed the title this year from “The Regulation of Peer-to-Peer Lending” to “The Regulation of Marketplace Lending.”
The change was made because internet-based lenders now offer a wide variety of financial products (including student loans, small business loans and real estate loans) in addition to the consumer loans on which the industry initially focused. It’s also appropriate because, in contrast to expectations that may once have prevailed, most internet-based lenders today do not fund themselves by selling pass-through notes to retail investors over the internet (i.e., the “pure” P2P model) but instead rely upon a combination of equity, privately placed pass-through notes, commercial lines of credit and/or whole loan sales to institutional investors. Of course, regardless of its source of funding, any prospective operator of an internet lending platform must be careful to plan and operate its business in compliance with applicable regulations.
Regulatory costs have proven to be a significant barrier to entry into this industry; such costs will remain a significant expense for those platforms that commence operations, and any failure by a platform operator to comply with applicable regulations can result in civil or criminal penalties, litigation expense, adverse publicity or, in an extreme situation, the termination of its business. In this regard, the hope is that their survey will help lenders and other market participants understand the key regulatory issues facing them. As a final word, be aware that this survey is intended only to identify the principal regulations that apply to internet-based lending and does not provide detailed guidance on the steps required to comply with any particular law. Below you will find a screenshot of the table of contents and a link to the entire 50 page report.
Read The Full Report Here...
More Information About Marketplace & Peer to Peer Lending Regulation
If you would like further information concerning any of the matters discussed in the Marketplace lending regulation survey, please contact Peter Manbeck or Marc Franson of Chapman and Cutler LLP.