‘We Cannot Have Opaque Black Boxes Running Our Economy,’ Says Director of US PIRGJune 9, 2016 | By: Sean Murray
During a marketplace lending event hosted by the FTC, one panelist said he was not impressed by the reliance that some consumer lenders have on proprietary algorithms and secret sauces to determine who gets approved for a loan. Ed Mierzwinski, Consumer Program Director for U.S. PIRG, a nonprofit consumer interest group, expressed that regulators should investigate these methodologies. “We cannot have opaque black boxes running our economy,” he said. “That may be something that excites the investors” but credit fairness has to come first, he added.
Meanwhile, Jessica Milano, a Deputy Assistant Secretary for the U.S. Treasury, explained that underwriting methodologies used by consumer marketplace lenders still produce results that are highly correlated with FICO. The Treasury published a much-talked-about report on marketplace lending just last month.
Peter Renton, who founded the LendAcademy blog and LendIt conference, countered Mierzwinski by explaining that alternative data sources are not so much about assessing credit-worthiness, but rather about verifying the identity of the applicant.
Milano and Renton both conceded that things were different on the business lending side of the industry.
This was an educational event, not an inquiry or hearing so nobody was officially being scrutinized. FTC Commissioner Edith Ramirez said in her introductory speech that “most observers agree that, given the advantages it offers both lenders and borrowers, marketplace lending is here to stay.”
You can watch a recap of the 3-hour event below. It starts at about 1 hour in to the recording.
Last modified: June 9, 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.