- Investigators are examining deposit into his account, Fox says
- Bove: Internet loan could be a `game changer' for regulation
Online lending platform Prosper Marketplace Inc. arranged a loan for Syed Rizwan Farook a few weeks before he and his wife allegedly opened fire on an office holiday party in San Bernardino, California, according to a person with knowledge of the matter.
Prosper, which matches borrowers with investors who want to fund them, declined to comment, citing privacy laws, when reached by Bloomberg. Investigators of the massacre are examining a $28,500 deposit into Farook’s bank account in mid-November and whether it was used to buy guns, Fox News reported Tuesday, citing an unidentified person close to the investigation.
While there’s no indication that Prosper is suspected of any wrongdoing, its role in providing cash to the alleged shooters risks stoking the already mounting debate over whether Internet loan platforms are adequately regulated. The industry has been growing rapidly, helping consumers and small businesses get money quicker and easier than applying to traditional banks.
Farook’s use of an online lender could end up being a “game changer” as regulators make decisions on how to proceed, Richard X. Bove, an analyst at Rafferty Capital Markets, said in an interview Tuesday after initial reports on the transaction.
Still, borrowers can’t easily tap those loans without access to the traditional banking system. Prosper and its competitors typically require applicants to have a bank account, and the ventures conduct checks on information on loan documents such as stated income. Banks, in turn, are required by U.S. law to “know their customers” and report suspicious transactions.
The shooting rampage that killed 14 people in California Dec. 2 is being investigated by U.S. authorities as an act of terrorism inspired by Islamic State, though not directed by the group. San Francisco-based Prosper’s role in arranging Farook’s loan was reported earlier Tuesday by Reuters and the Financial Times’s Alphaville. Laura Eimiller, a spokeswoman for the FBI in Los Angeles, declined to comment.
While Prosper arranges loans through its website, it doesn’t actually issue them. That task falls to WebBank, a Utah-based lender. In a statement Tuesday, WebBank declined to comment on Farook’s loan, citing laws that prohibit it from discussing borrowers.
“WebBank evaluates all loan applications in accordance with legal requirements including U.S. anti-terrorism and anti-money-laundering laws,” the lender said. “In addition, the bank continually works with regulators to address their inquiries and concerns and will fully cooperate with law enforcement agencies investigating this matter.”
Online loan platforms like Prosper have high standards for verifying details about borrowers, said Peter Renton, the founder of Lend Academy, an analysis website for investing in loans arranged through the sites.
“However, in this instance, we were dealing with a U.S. citizen with a supposedly clean track record who likely had access to bank accounts, credit cards and other forms of financial instruments,” he said. “It is my understanding that there are no red flags that could have been identified.”
Farook’s application for the Prosper loan was clean, and he said he would use the funds to consolidate debt, according to a different person familiar with the transaction who asked not to be identified because it was confidential. Refinancing is one of the most-common stated uses for loans arranged through the service.
The “fundamental problem” for any firm involved in making unsecured loans is whether borrowers will use funds as promised, said Bert Ely, an independent banking consultant. Farook’s loan probably won’t change how the government oversees the industry, partly because it’s unclear which agency would have regulatory authority, he added.
Existing rules already are top-of-mind for many large financial institutions. JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said during a panel discussion last week that banks are under immense pressure to track the money they handle, and that they face a constant risk of missing something. “We do move $6 trillion a day,” he said. “And I am terrified if, you know, if $100 goes to the wrong place, what the punishment’s going to be.”