On the logic that everything is easier when taken on with a team, the big names in marketplace lending are joining forces and forming their own nonprofit trade association.
The CEOs of Funding Circle, Lending Club and Prosper have announced the launch of the Marketplace Lending Association (MLA).
Between the three, about $20 billion has been loaned out, and analysts predict that, by 2020, the marketplace lending sector could represent assets totaling around $122 billion. The new association is aimed at promoting responsible business practices and “sound public policy.”
“As an industry, there’s not one specific issue we’re particularly worried about — the space is already heavily regulated, with borrower protections on one side and securities rules on the other,” said Sam Hodges, cofounder and U.S. managing director of Funding Circle, which is based in London.
“But it is really important to be in active dialogue with regulators to provide a forum for thoughtful discussion as the industry develops. Specific regulation [for the marketplace lenders] could be a healthy thing.”
A healthy thing that is clearly coming soon as regulators are beginning to take a very active interest in the sector, particularly in regards to its rapid growth and potential systemic risks.
The Office of the Comptroller of the Currency said last week it was seeking comments on a whitepaper on “responsible innovation” in marketplace lending. The FDIC warned mainstream banks about buying marketplace debt, and the CFPB has set up a special desk for marketplace lending-based complaints.
Lenders are responding by beefing up their compliance teams and adding board members with financial regulation experience and connections: Sheila Bair, former FDIC chief, joined Chicago-based lender Avant’s board this week; Raj Date jumped from the CFPB to the board of Prosper; and former Treasury Secretary Larry Summers sits on Lending Club’s board.
MLA is getting off the ground this week as LendIt, an annual industry event, is coming around in San Francisco. So far, the idea has gotten some good buzz from industry members.
“Right now, we’re lining up against various agencies individually,” noted David Klein, chief executive of CommonBond, a student loans specialist serving some 14,000 borrowers. “We’re telling our stories uniquely, rather than combined.”