B2B Payments

Online Lending’s New Problem? Loan Stacking

Shutterstock

As the U.S. alternative lending industry continues to face a bumpy road — whether from struggling alt-finance players, corporate scandals or incoming regulation — reports are highlighting yet another hurdle headed its way.

Reports by Reuters on Friday (June 10) said loan stacking is emerging as the latest threat to marketplace lenders.

While stacking can sometimes occur when a lender uses a single source of collateral for multiple lines of credit, it often is the result of a borrower deceiving or withholding information from a lender. While some lenders actually embrace the practice, viewing it as a form of loan consolidation, others argue the practice can obscure the true risk of a borrower.

According to reports, alternative lending’s use of innovative risk mitigation and underwriting techniques, combined with inconsistent reports of loans to credit bureaus, can mean financing that slips through the cracks.

Reports also said that this lack of streamlined reporting in the industry can yield multiple loans being issued to the same borrower, obscuring the actual position of that borrower to any of those lenders.

According to LoanDepot Chief Risk Officer Brian Biglin, stacking is “causing problems with the whole industry.”

Other industry players, like Lending Club and Avant, told reporters that they are aware of the issue of stacking but, according to reports, “downplayed the risks and did not provide examples of specific actions taken to prevent the practice.”

OnDeck and Prosper, meanwhile, told reporters that they have integrated algorithms in their risk assessment strategies to detect and avoid loan stacking.

Loan stacking can not only obscure how much debt a borrower is accruing but can also signal that a borrower is taking out one loan to pay for another, reports said.

——————————

PYMNTS LIVE ROUNDTABLE: TUESDAY, JULY 14, 2020 AT 12:00 PM (ET)

Digital transformation has been forcefully accelerated, but how does that agility translate into the fight against COVID-era attacks and sophisticated identity threats? As millions embrace online everything, preserving digital trust now falls mostly on banks and FIs. Now, advances in identity data and using different weights on the payment mix afford new opportunities to arm organizations and their customers against cyberthreats. From the latest in machine learning for fraud and risk, to corporate treasury teams working in new ways with new datasets, learn from experts how digital identity, together with advances like real-time payments, combine to engender trust and enrich relationships.

Click to comment

TRENDING RIGHT NOW