NY Regulators Launch Online Lending Probe

DFS Investigates Lending Club

The New York state financial regulator, newly enmeshed in a probe into embattled online lender Lending Club, is widening its gaze to include other online lenders and is examining whether they should be licensed in New York state at all, Reuters reported on Thursday (May 26), citing unnamed sources.

The regulator, the New York Department of Financial Services, has not established just which firms may be under the microscope. But one tell may be the information that it gets in response to a mid-month subpoena of Lending Club, specifically regarding industry-wide practices that could draw more inquiries. In the case of Lending Club, the agency wants details on loans that were made in NY, the firm’s underwriting standards and how borrower data is backed up and verified. The agency will be looking at data in conjunction with state usury laws, which cap interest rates at 16 percent. Yet, Lending Club charges rates that run from 5 percent to as high as 29 percent. The firm has justified the higher rates by saying that the business is routed through WebBank, operating in Utah, where there are no rate caps.

Reuters noted that the investigation could have ramifications for peer lending outfits, such as OnDeck and Prosper, among others. The defaults across the spectrum are also rising. Prosper does not have a NY license, however.

For Lending Club, the NY action is the second official investigation launched into the firm since the resignation of its CEO earlier in the month, tied to improper loan activities. As has been widely reported, some loan sales did not conform with investor criteria for loans purchased.