Community Banks Worried That Marketplace Lenders Have Regulatory AdvantageJune 8, 2016 | By: Sean Murray
Community banks have been slow to adopt services offered by marketplace lenders “out of fear of undue scrutiny by their prudential bank regulators,” wrote the Independent Community Bankers of America (ICBA) in a letter to the OCC last week. The banks would or could be more proactive in offering small loans in rapid fashion, if the regulators give “community banks the flexibility to lead the path,” they said.
One issue they raised was the consideration of a limited purpose federal bank charter, which, if implemented, would reduce the need for marketplace lenders to partner with chartered banks or eliminate the need for marketplace lenders to subject themselves to the maze of 50-state compliance. The ICBA, according to the letter, is all for this since it would subject marketplace lenders to federal oversight, but they fear it would not go far enough to truly level the playing field.
“For instance, if such a charter did not have authority to take deposits, the charter may be subject only to a compliance supervision and examination. ICBA believes that the recent problems that some of the online marketplace lenders have experienced with liquidity and earnings, as well as with compliance, makes it important that these lenders be subject to safety and soundness supervision and regulation.”
Their fear is that a limited charter would give marketplace lenders all the benefits but with less oversight than them, and that’s not fair. Not mentioned however is that marketplace lenders are for the most part regulated, albeit not in the exact same manner as banks. Another of the ICBA’s stated concerns is that marketplace lenders are exempt from safety and soundness oversight and thus their stability and liquidity is not being monitored.
“These companies have not experienced a serious economic downturn yet and already they have been subject to serious funding and capital issues,” they wrote.
While true, consumer deposits are not at risk since they don’t take them. And given the industry’s size at present, the potential danger to the economy should one or some fail, is relatively minor.June 8, 2016
Sean Murray is the founder of deBanked, an 11-year veteran of the merchant cash advance industry, a casual Lending Club and Prosper note investor, the co-founder of Daily Funder, an alternative lending speaker, consultant, writer, and enthusiast. Connect with me on LinkedIn or follow me on twitter.