Alternative Finances

Treasury Taking A Closer Look At Online Lending

The U.S. Treasury Department has started studying the online lenders of the nation in an attempt to make sure the regulations on the books are relevant to the industry as it exists today.

Small banks’ position in the lending market has diminished to the point of near disappearance over the last several years — while a slew of alternative lenders have taken the field. Those lenders are powered by tech and funded by hedge funds and other institutions — and they say they can fix a failing marketplace by offering better access for a wider diversity of people.

The Treasury is not so sure it believes the hype and on Thursday (July 16) the department said in a statement that it is looking “to study the potential for online marketplace lending to expand access to credit and how the financial regulatory framework should evolve to support the safe growth of the industry.”

Since online lenders of their various stripes don’t face the same level of overhead costs, they say their secret sauce is the ability to offer loans for lower interest and approve them much, much more quickly than a typical lender can.

“While still a small component of the total consumer and small business lending market, it is a rapidly developing and fast-growing sector that is changing the way consumers and small businesses secure credit,” Antonio Weiss, a senior Treasury official, wrote in a blog post on the agency’s website.

And while that may sound positive, the Treasury is looking at lending for flaws as much as for winning practice.

Specifically, the Treasury inquired about how borrowers are assessed for creditworthiness and if lenders have to own some small part of a loan (“skin in the game”) so they face liability in the event of a default.

 

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