The Federal Trade Commission (FTC) recently held a FinTech forum addressing marketplace lending. The forum was promoted by the FTC as the first in a series it plans to hold exploring emerging financial technology and its implications for consumers.
The forum consisted of:
Panel 1: "The Current State of Marketplace Lending and Its Implications for Consumers." Panelists were asked to respond to a series of questions from FTC representatives (some of which were provided by audience members) regarding how marketplace lending operates. Topics included the process and timeframe for obtaining a loan, how creditworthiness is determined and the accuracy of information used in such determinations, how loans are funded, what marketing channels are used by lenders, who are the parties involved in making loans and after funding, how are consumer disputes handled, and who do lenders share consumer information with and what types of information is collected or shared, what are typical interest rates, fees, and repayment terms, and what disclosures do borrowers receive.
Panel 2: "Looking Forward: Protecting Consumers as the Market Evolves." Panelists were asked to respond to a series of questions from FTC representatives focusing largely on access issues, such as the use of marketplace lending to make small-dollar loans and expand access to underserved and non-prime consumers, including the role of alternative data.
Presentation by FTC Office of Technology Research and Investigation. An FTC technologist presented the results of an FTC survey that identified the "top 15" online marketplace lenders marketing personal loans to consumers with the goal of learning what consumers experience when they interact online with such lenders. The survey compiled information about the loan terms, fees, and loan issuers displayed on the lenders' websites, how the lenders advertised, the types of data tracking present when consumers visited such websites, and the types of data collected from consumers. The technologist stated that the survey's findings were not an official pronouncement and were offered solely for descriptive and research purposes.
In addition to industry representatives, consumer advocates and researchers, the first panel included a Treasury Department representative, the second panel included a representative of the California Department of Business Oversight (DBO), and both panels included FTC representatives. The Treasury Department representative responded to questions using information from the Department’s April 2016 white paper on the online marketplace lending industry.
The FTC representatives on the panels acted solely as facilitators. However, the questions asked of the second panel suggest that access will be an issue of future FTC inquiry. In addition, several issues were highlighted by Jessica Rich, the director of the FTC's Bureau of Consumer Protection, in her closing remarks, thereby providing a potential preview of additional issues on which the FTC is likely to focus. While noting the potential benefits of marketplace lending discussed in the forum (lower rates, better terms, expanding access, faster service), Ms. Rich reviewed several of the consumer risks that were discussed.
In particular, she noted the possible mandatory use by lenders of preauthorized electronic fund transfers to repay loans, a potential lack of transparency as to loan terms, and concerns about the privacy, data security, accuracy of information, and potential for discrimination arising from lenders' collection of traditional and non-traditional data for credit decisions. She also stressed the application of existing federal consumer protection laws to marketplace lending and such laws’ importance in creating a level playing field and fostering consumer trust in a growing marketplace.
Ms. Rich also appeared to signal that the adoption of self-regulatory codes is unlikely to insulate the industry from FTC scrutiny. She commented that merely having such codes is not enough to be meaningful and that there must be robust monitoring for compliance and tangible consequences for non-compliance.
Thomas Dresslar, who represented the DBO on the second panel, discussed the DBO’s follow-up to its survey that was sent to 14 marketplace lenders engaged in online consumer and/or small business lending (or other types of financing such as merchant cash advances). In April 2016, the DBO issued a summary report of aggregate data provided by the companies that responded to the survey. Mr. Dresslar indicated that the DBO has sent follow-up questions intended to allow the DBO to learn more about the types of information marketplace lenders are using to make credit decisions and how their policies and procedures ensure compliance with federal laws such as the Equal Credit Opportunity Act and Fair Credit Reporting Act. He also discussed the DBO's desire to increase the volume of non-payday loans under $2,500 being made in California and suggested there is a greater role for marketplace lenders to play in small-dollar lending.