The drama surrounding online lenders — who they lend to, when, how and at what rates — continues.
In the wake of disclosures last month that Lending Club handled some of its loans improperly and that Prosper, the second-largest lender, is exploring strategic options, New York's financial regulator sent a letter to more than two dozen companies last week looking to garner more information about their activities, according to Reuters.
The agency, the New York Department of Financial Services, sent the letter to lenders that included Prosper, Funding Circle, Avant, Upstart and a host of others, according to an unnamed source.
The online lending arena is “raising some novel questions” among financial regulators as the model shies away from traditional banking activities, serving as a direct conduit between lenders and borrowers. The other prevalent model is to extend credit directly to borrowers and bundle the loans into packaged securities.
According to the newswire, the New York department said in its letter that it wanted to see “immediate compliance" with the state requirements for debt collection and other lending activities. The lenders, who assert that they do not require licenses, must offer up details on products and services, “as well as cash flow charts,” according to the letter, which was sent out earlier last week. Among those that had not yet received a letter, reported the newswire: Funding Circle, Upstart and Avant — though some of those firms said that should they indeed receive a missive, they would comply as quickly as possible with the agency's demands for information.