United States: CFPB Statement
About Online Marketplace Lending: Less Than Meets the Eye on March 7, the Consumer Financial Protection Bureau ("CFPB") revealed it was accepting customer grievances regarding online marketplace lenders.1 From the tone of the early press, this has been viewed by some as a considerable brand-new event, with the Bureau lastly "taking objective" at market lenders. A closer reading of the publication, however, reveals that the CFPB's announcement might be more show than drug.
The More Things Change, the More They Stay the Same
The CFPB revealed that it is "now" taking grievances regarding online market loan providers. In fact, depending upon the product provided by a specific loan provider, the Bureau has actually been accepting complaints about marketplace loan providers for quite a long time. This is because the CFPB's customer problem system was developed out product-by-product for example, charge card,2 then mortgages,3 then student loans4 and not based upon the market delivery channels of those products, such as online versus store or bank versus non-bank.
Given this product-oriented focus, it ought to not be surprising that customers were already filing problems about market loan providers before this publication, and that those loan providers have actually reacted, as validated by an evaluation of the CFPB's consumer complaint database.
What has changed about the CFPB's event of problems concerning online marketplace lenders? The answer, simply put, is very little. The front page of the CFPB's problem webpage does not give the alternative to choose "market loaning" as a product type, and there is no direct reference to marketplace financing on that page.6 There are no references to marketplace financing when a consumer seeks to submit a grievance about a home loan, car loan, or student loan. Indeed, aside from a single sentence on the "Other Consumer Loan" problem page, clarifying that marketplace loans are a kind of installation loans,7 there are no references to marketplace loaning or alternatives to choose market financing as a problem type anywhere on the Bureau's problem website.Secret Takeaways.
In spite of the absence of compound in the CFPB's statement, journalism release and associating with consumer publication do consist of some essential lessons for companies that remain in or considering entering online market financing.The release signals that the CFPB plans to stake out substantial grass concerning this emerging market. As a nationwide firm with authority over both banks and non-banks, the CFPB may see itself as finest placed to adequately address this market.
This lack of supervisory authority which the CFPB recently mentioned it means to fix by passing a bigger participant guideline regarding installment lending8 leaves the Bureau with 3 primary levers: customer education, customer reaction (i.e., the problem procedure), and enforcement. The March 7 release touches on 2 of these 3 levers, by supplying customer education and inviting consumer problems.
Does that imply an onslaught of CFPB enforcement activity particularly targeted at marketplace lenders is close at hand? We think not, based on the CFPB's own prolonged list of near-term priorities set forth in its February 25 blogpost.9 That file, which lays out nine broad concerns over the next two years, addresses the principle of open-use credit but hardly discuss marketplace loaning, focusing more on traditional payday lending and relevant debt collection practices.Considered that the CFPB will be difficult pushed to accomplish even these 9 determined top priorities, we think it unlikely it has the capacity to add a tenth, channel-specific concern at this time. Rather, we anticipate the CFPB to rely primarily on customer education and the bully pulpit in the near term while it collects information about how the market functions. That stated, if the Bureau's concerns discuss your company's customer lending, you might expect an increased focus, despite the channels you use.
Second, the release highlights the CFPB's expectations concerning online lenders' compliance management systems. Advocates for depository organizations have at different times slammed the CFPB for having a double basic when it pertains to compliance expectations, permitting a greater tolerance for errors when it concerns non-banks. In his statement about market lending, however, Director Cordray made clear that when it pertains to consumer loaning, the CFPB expects compliance from all lenders, from online startups to big banks.While not always a cause for alarm, non-bank lending entities should make sure that their compliance programs fairly fit the size and complexity of their business, and that proper customer protections are in place. For those loan providers who have actually concentrated on growth, innovation, and client acquisition over legal compliance, the time to include a brand-new concern is now. Because while we do not anticipate sweeping enforcement activity in the near term, the CFPB may look for an outlier in the market to make an example of and signal its enforcement existence.
Third, the CFPB's announcement might be seen as a deliberate effort to motivate consumers to whine about their experiences with the online market loaning market. No matter whether the CFPB utilizes these grievances to create enforcement leads, if the Bureau achieves success in drawing a considerable variety of grievances, it will be considerable to market participants. The CFPB's complaint database, which contains unproven and confidential problems, is searchable by other regulatory authorities and by the complainants' bar, who might think about the information beneficial in their own efforts.
Further, provided the competitive nature of the marketplace, the reputational impact of these complaints can have major effects on specific companies and possibly the whole new industry. Marketplace lenders have to understand the Bureau's problem system and figure out how to limit any negative impact both by avoiding complaints before they get in the system and dealing with them effectively as soon as they have actually been made.While the CFPB's marketplace financing statement is not truly anything brand-new, market participants must not be contented but ought to instead use this time to build out or tweak their compliance functions in prep work for enhanced CFPB interest down the roadway.