The U.S. Treasury Department said it was willing to work withCongress on legislation regarding oversight and borrower protections for the marketplacelending industry.
The Treasury made the statement in a white paper covering itsreview of the industry, reviewing stakeholder opinions and providing policy recommendations.It also highlighted benefits and risks associated with online lending and statedbest practices for both established and emerging market participants.
The paper mentioned that new business models and underwritingtools, underlying the growth of marketplace lenders, were developed in a periodof low interest rates, decreasing unemployment and strong credit conditions. Thedepartment explored potential trends that might require ongoing monitoring whencredit conditions become weaker, examining how online marketplace lenders may adapt.
These areas included the impact of changing interest rates, increasingmortgage and auto loans originated by online marketplace lenders, potential cybersecuritythreats, the evolution of credit scoring, compliance with anti-money launderingrequirements, and potential liquidity risk.
While exploring potential liquidity risks, the paper mentionedthat to ensure market soundness prudent loan underwriting, securitization transactionpricing, and robust governance and disclosures are necessary. With an increase insecuritization activity, market analysts expect to see diversified online marketplacelenders access capital markets, which might lead to transactions with varying underlyingcredit quality.
Furthermore, the data highlighted that marketplace lenders currentlyserve prime and near-prime consumer borrowers, but "for technology to trulyexpand access to underserved markets, more must be done to serve borrowers who arecreditworthy, but may not be score-able under traditional credit scoring models."Community Development Financial Institutions have significant experience servingthis market, it noted. The paper suggested that through partnerships, online marketplacelenders can gain local knowledge and understanding of credit markets, which willhelp them reach more borrowers in distressed communities.
In addition, to encourage the safe growth of online marketplacelending, the paper recommended that online marketplace lenders should promote atransparent marketplace for borrowers and investors, ensure safe and affordablecredit through partnerships, and support robust and effective oversight. Furthermore,it suggested that online lenders should ensure a sound borrower experience and back-endoperations, expand safe and affordable credit through access to government-helddata, and create a standing working group for online marketplace lending to facilitateinteragency coordination.