On August 14, 2015, the U.S. Department of the Treasury extended the comment period to give the public more time to respond to a Request for Information (RFI) on marketplace lending titled “Public Input on Expanding Access to Credit through Online Marketplace Lending.” The public now has through September 30, 2015 to provide comments.
What’s the RFI about?
Treasury’s RFI asks for comment on the fourteen different topics that essentially ask whether new FinTech business models on marketplace/peer-to-peer lending benefit consumer. The topics include:
- In what ways does variation of different business models (from peer-to-peer to balance sheet lenders) would raise different policy or regulatory concerns?
- Noting that 85 percent of small businesses purchase supplies online, 83 percent manage bank accounts . . . [what] role are electronic data sources playing in enabling marketplace lending?
- Is marketplace lending expanding access to credit to historically underserved market segments?
- How are borrowers assessed for their creditworthiness and repayment ability? How accurate are these models in predicting credit risk?
- [W]hat harms might online marketplace lending also present to consumers and small businesses? What privacy considerations, cybersecurity threats, consumer protection concerns, and other related risks might arise out of online marketplace lending?
So what is Treasury’s motivation behind the RFI?
The Treasury RFI is a response to the fact that online lending is a rapidly developing and fast-growing sector that is changing the credit marketplace. The RFI notes that in less than a decade, online marketplace lending has grown to an estimated $12 billion in new loan originations in 2014, the majority of which is consumer lending. No surprise then that the Treasury wants to understand whether marketplace lending can expand access to credit, and how the financial regulatory framework should evolve to support the safe growth of this industry.
The likelihood is that Treasury is genuinely interested in encouraging marketplace lending because of its potential to expand access to credit. Importantly, the Treasury official who is leading the effort, Laura Temel, is not a regulatory lawyer but an entrepreneur (Temel graduated from Darden Business School in 2015; before that, she founded two startups—FitCause and PadTies–after a stint as an investment banker at Bank of America). We also hear Treasury Secretary Jacob Lew is personally engaged in the effort.
But the RFI also gives consumer advocates and traditional lenders a chance to voice concerns over marketplace lending, especially on the question Treasury asked about privacy, cybersecurity, and consumer protection. That’s why it is important for FinTech companies to tell their side of the story and explain how they are putting safeguards in place to address these concerns.
Why should FinTech companies respond?
Since Treasury is not a regulator of FinTech companies, some might ask if it’s worth taking the time to respond to the RFI. It is well worth it, and many FinTech companies are busy crafting thoughtful responses. They are doing so because the responses will become part of the public record and will be the basis for any report that Treasury might put out on the subject of marketplace lending. Such a report and the underlying responses to the RFI would provide a foundation for any future rulemakings by the Securities and Exchange Commission or the Consumer Financial Protection Bureau. No doubt any future legislation at the federal or state level would also be influenced by the RFI responses and report.
FinTech companies interested in ensuring their opinion is heard should strongly consider submitting responses to the RFI. Reed Smith attorneys are glad to help companies think through and draft their responses.
The full Treasury blog post extending the deadline is available here: http://www.treasury.gov/connect/blog/Pages/Comment-Period-on-Marketplace-Lenders-RFI-Extended.aspx