The US Consumer Financial Protection Bureau (CFPB) is to start accepting complaints about loans filed with marketplace lenders, ramping up the regulatory pressure on the nascent P2P industry.
Because marketplace lenders offer several types of consumer loans, the CFPB says a consumer submitting a complaint should select among the different categories for products and services that best apply to their situation, whether that be for a 'mortgage', 'consumer loan', or 'student loan'. The CFPB forwards complaints to the marketplace lender and works to get a response - generally within 15 days.
“When consumers shop for a loan online we want them to be informed and to understand what they are signing up for,” say CFPB director Richard Cordray. “All lenders, from online startups to large banks, must follow consumer financial protection laws. By accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn to when they encounter problems.”
The CFPB Monitor
from law firm Ballard Spahr believes the CFPB’s objectives in taking these actions are questionable, since consumers already could complain about marketplace loans using the CFPB’s existing loan categories.
"Rather than seeking to provide additional protection to consumers, perhaps the CFPB’s primary objective is to warn marketplace lenders that they are clearly on the CFPB’s radar screen," states the firm.
Indeed, the CFPB’s advice to consumers appears to signal the type of scrutiny marketplace lenders can expect, suggests the Monitor. The CFPB tells consumers to “keep in mind that marketplace lending is a young industry and does not have the same history of government supervision and oversight as banks or credit unions. However, marketplace lenders are required to follow the same state and federal laws as other lenders.”
While the CFPB is not currently taking complaints about business loans, including business loans made by marketplace lenders, it recently indicated that it plans to build an infrastructure to oversee small business lending complaints.
According to the 2014 ICBA Community Bank Lending Survey, community banks routinely report that regulatory costs have reduced the number of loans and mortgages offered to customers, providing an edge to innovative new peer-to-peer platforms.
In December, Prosper Marketplace found itself in hot water after it disclosed that San Bernardino shooter Syed Rizwan Farook borrowed $28,500 from the online lender just weeks before he and his wife went on a murderous rampage with a car stocked with guns, pipe-bombs and ammunition. This drew the business into the debate about terrorist financing, raising the scrutiny of online lenders in California and on the Hill.
More recently, rival outfit Lending Club moved to transfer more of the risk on its loans to its banking partner WebBank in exchange for paying higher fees to the bank in an effort to get ahead of a change in the law following a ruling that loans sold to non-banks have to follow state rules, which can have caps on how much interest is charged.