California Opens Inquiry Into Marketplace Lending Industry

  • State seeks information on industry's size, loan funding
  • Inquiry will inform how state regulates fledgling industry

California is conducting an inquiry into the practices of 14 so-called marketplace lenders to better understand the industry and how the state should think about its licensing and regulatory approach to the companies.

The Department of Business Oversight, which licenses financial-services companies in the state, is seeking to assess the industry’s size in California, how loans are funded, and how many businesses and consumers it touches, the regulator said Friday in a statement that didn’t identify which firms had been contacted. As part of the inquiry, the state asked the companies to respond to an online survey by March 9.

Marketplace, or peer-to-peer, lenders have grown quickly as consumers and small businesses turn to the online platforms to get credit more easily and quickly than working with a bank. The firms typically match borrowers with investors who want to fund them. Last year, they helped arrange $12 billion of debt in the U.S.

“These online lenders are filling a need in today’s economy, and we have no desire to squelch the industry or innovation,” DBO Commissioner Jan Lynn Owen said in the statement. “We have a duty, however, to protect California consumers and businesses, and they have more and more at stake as this industry grows.”

Kabbage, Prosper

Representatives for On Deck Capital Inc., Social Finance Inc., Prosper Marketplace Inc. and Kabbage Inc. confirmed that they received the survey. The companies are among the largest in the industry. The inquiry was previously reported by the Wall Street Journal.

“At SoFi, fairness and transparency are critical factors in our partnership with our members,” said Debra Jack, a spokeswoman for the lender. “We strive to have an equally transparent approach with regulators.”

LendingClub Corp., the largest marketplace lender, declined to comment on whether it had been contacted. Beth Haiken, a spokeswoman for the firm, said in an e-mail that the company “understands the state is particularly interested in transparency and disclosure of credit terms and costs.”

The industry has come under increased scrutiny after reports that one of the shooters in the Dec. 2 massacre in San Bernardino, California, got a loan through Prosper weeks before the attack. A U.S. congressional panel is now considering whether the industry needs more oversight.

Planning for the California inquiry began months before the shooting that killed 14 people, said Tom Dresslar, a spokesman for the Department of Business Oversight.

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