In a week in which the sector has been rocked by the Lending Club scandal, online marketplaces have been warned in a new report from the US Treasury that they need to be more transparent and should, in some cases, face greater regulatory oversight.
Earlier this week Lending Club shares plunged after chief executive Renaud Laplanche was forced to quit in the wake an internal review of loan sales to an investor. The news was just the latest setback for an industry that has seen rivals Prosper and OnDeck Capital suffer from a tightening of the capital markets.
Now the Treasury Department has issued a white paper on the industry which says that firms that lend to small businesses should be subject to more federal consumer protection laws. The agency says that the evidence suggests that loans of under $100,000 to firms share characteristics with consumer loans but do not enjoy the same protections.
The paper also calls for companies to boost transparency through a public database for tracking data on their loans. Meanwhile, lenders should have better access to government-held data to help them make credit decisions.
Next up, the Treasury says that an interagency working group make up of FDIC, CFPB, SEC and FTC should be established to investigate where else regulatory work may be needed and ensure a joined up approach to the nascent industry.
In March, the US Consumer Financial Protection Bureau (CFPB) announced that it is to start accepting complaints about loans filed with marketplace lenders, ramping up the regulatory pressure on the nascent industry.
Read the full paper:Download the document now 515 kb (PDF File)