The results are in from the California Department of Business Oversight's (DBO) investigation into online marketplace lending.
What happened
Last December, the regulator sent a survey to 14 online marketplace lenders specializing in both personal and small business loans with a request for trend data about their loan and investor funding programs between January 1, 2010, and June 30, 2015.
While the agency expressed "no desire to squelch the industry or innovation," the DBO said it remained obligated to "protect California consumers and businesses," particularly as the industry demonstrates rapid growth.
In a report with aggregate data of the 13 responses received by the regulator, the DBO revealed just how much the industry has grown in recent years, finding the total dollar amount of transactions increasing from $1.99 billion in 2010 to $15.91 billion in 2014—a jump of almost 700 percent. California saw even faster growth, with an increase of 936 percent from 2010 to 2014. And respondents were already on pace "to far outstrip" their prior performance through the first half of 2015, the DBO noted, having already amassed $12.47 billion of transactions.
The dollar amount of the companies' consumer financial and small business financing transactions reflected a similar rise, growing by 715.7 percent and 629.5 percent, respectively, to $12.97 billion and $2.94 billion. On a national basis, the number of small business financing transactions exploded 1,767 percent from 12,868 in 2010 to 240,277 in 2014.
For consumer transactions, the median APR ranged from 5.74 to 34.01, with a higher range for business transactions (15.5 to 51.8 percent). Over the time period, median APRs generally declined, the DBO found, both nationally and on a state level.
Delinquency rates for consumer transactions (defined as 30 or more days past due) ranged from 0.03 to 17.94 percent of the total outstanding transactions for the first half of 2015; in California the range was slightly higher, from 0.90 to 25.30 percent. As for delinquencies in small business financings, the numbers were lower. At the end of the first half of 2015, they ranged from 0.36 to 8.96 percent on a national basis and 0.48 to 8.45 percent in California.
The DBO's survey also requested information about online marketplace lending business models and platforms. That information remains to be analyzed, the regulator noted, and may require supplementary requests for documentation and information from lenders.
Why it matters
"Clearly, California has a lot at stake in this growing segment of our financial services market," DBO Commissioner Jan Lynn Owen said in a press release about the investigation results. "It's crucial that we better understand the industry. These companies are providing needed access to financing. But we want to make sure our regulatory structure adequately protects the interests of our consumers and small businesses, and works effectively for industry." What the DBO does with the information it gathered remains unclear. While the stated goal of the investigation was "to determine whether market participants are fully complying with state lending and securities laws," the regulator acknowledged it was also an attempt "to assess how the state's regulatory regime is working, and should work, with respect to the industry."
To read the summary report of the DBO's investigation, click here.
