Marketplace Lending Association Formed to Defend Investor Marketplaces

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marketplace lending association

Funding Circle, Lending Club and Prosper have joined forces to create a collaborative non-profit body, i.e. a trade association. Its mission is “to promote a more transparent, efficient, and customer-friendly financial system by supporting the responsible growth of marketplace lending, fostering innovation in financial technology, and encouraging sound public policy.”

Among the already available resources on the association’s website is a white paper dictating “operating standards.”

The standards are broken down into five broad categories:

  • Investor Transparency and Fairness
  • Responsible Lending
  • Safety and Soundness
  • Governance and Controls
  • Risk Management

The group’s initial members are notable because Prosper only does consumer loans and Funding Circle only does business loans. Lending Club bridges the gap by doing a combination of both. That means that the group’s prospective membership will be fantastically broad. After all, what does a commercial lender providing capital to a $10 million/year business have in common with a personal lender helping a single mother refinance a credit card? The answer is their investor base.

The Security and Exchange Commission office in Washington DCAll 3 companies allow investors to invest in loans on their respective marketplaces and lo and behold “investor transparency and fairness” is the first, foremost and most detailed category of their white paper.

Indeed, one requirement to join the association is to be matching 75% of loans, by dollar, with commitments for funding from investors before the loans are issued.

The Marketplace Lending Association therefore probably seeks above all else, permanent acceptance of the ability for investors to buy loans or securities backed by loans in online marketplaces.

And it’s no wonder, just last week SEC Chairman Mary Jo White questioned these marketplaces during a keynote speech at Stanford University. “We expect that investors will receive disclosures about the loans underlying their investments, including information about the borrowers as well as the platform’s proprietary risk and lending models, that will enable them to make informed investment decisions – both at the time of investment and on an ongoing basis,” she said.

The SEC is not alone in their interest, hence the need for and now the emergence of, a Marketplace Lending Association.

Last modified: April 6, 2016
Sean Murray

Category: Marketplace Lending

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