{ "id": "R44614", "type": "CRS Report", "typeId": "REPORTS", "number": "R44614", "active": true, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 584745, "date": "2018-09-04", "retrieved": "2019-12-20T20:55:16.529127", "title": "Marketplace Lending: Fintech in Consumer and Small-Business Lending", "summary": "Marketplace lending\u2014also called peer-to-peer lending or online platform lending\u2014is a nonbank lending industry that uses innovative financial technology (fintech) to make loans to consumers and small businesses. Although marketplace lending is small compared to traditional lending, it has grown quickly in recent years. In general, marketplace lenders accept applications for small, unsecured loans online and determine applicants\u2019 creditworthiness using an automated algorithm. Often, the loans are then sold\u2014individually or in pieces\u2014directly to investors (although holding the loans on their own balance sheet is not uncommon). More traditional lenders are more apt to use employees to make credit assessments and to have a greater need for office and retail space. Traditional lenders also may hold loans themselves, but when they sell loans they are more apt to package many loans together into large securities rather than to sell a single loan or pieces of a single loan, like marketplace lenders. Due to these differences and to marketplace lending\u2019s lack of industry track record, marketplace lending is facing uncertainty about its advantages, its risks, and how it should be treated by regulators.\nSome observers assert that marketplace lending may pose an opportunity to expand the availability of credit to individuals and small businesses in a fair, safe, and efficient way. Marketplace lenders may have lower costs than traditional lenders, potentially allowing them to make more small loans than would be profitable for traditional lenders. In addition, some observers believe the accuracy of credit assessments will improve by using more data and advanced statistical modeling, as marketplace lenders do through their automated algorithms, leading to fewer delinquencies and write-offs. They argue that using more comprehensive data could also allow marketplace lenders to make credit assessments on potential borrowers with little or no traditional credit history.\nOther observers warn about the uncertainty surrounding the industry and the potential risks marketplace lending poses to borrowers, loan investors, and the financial system. The industry only began to become prevalent during the current economic expansion and low-interest-rate environment, so little is known about how it will perform in other economic conditions. Many marketplace lenders do not hold the loans they make themselves and earn much of their revenue through origination and servicing fees, which potentially creates incentives for weak underwriting standards. Finally, some observers argue that lack of oversight may allow marketplace lenders to engage in unsafe or unfair lending practices.\nMarketplace lenders are subject to existing federal and state regulations related to lending and security issuance, and some observers assert that the existing system is appropriate for regulating this lending. However, existing regulations were developed and implemented largely prior to the emergence of marketplace lending. Some observers argue that current regulation is unnecessarily burdensome or inefficient. By contrast, others argue that regulatory gaps and weaknesses exist and regulation should be strengthened. In addition, there is some uncertainty surrounding exactly how certain aspects of federal and state laws and regulations may be applied to marketplace lenders. Congress may consider policy issues related to these debates and uncertainties.\nThe evolution of the regulatory environment facing marketplace lenders is just one development that likely will occur in coming years. Traditional lenders that compete with marketplace lenders will adapt to the market entrants and market conditions, perhaps adopting certain marketplace lender technologies and practices. In addition, marketplace lending has not been through an entire economic cycle, and rising interest rates or the onset of a recession likely will reveal certain strengths and weaknesses of marketplace lending.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/R44614", "sha1": "7b1f274adf5cda61f5a328c95e7c592f1f54350d", "filename": "files/20180904_R44614_7b1f274adf5cda61f5a328c95e7c592f1f54350d.html", "images": { "/products/Getimages/?directory=R/html/R44614_files&id=/0.png": "files/20180904_R44614_images_ae3a9fe2d93006ba4c961e4055eee48d9a0a4f2e.png" } }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/R44614", "sha1": "7c1f6e1e87d2340cb3e845134ab3e412cff690ee", "filename": "files/20180904_R44614_7c1f6e1e87d2340cb3e845134ab3e412cff690ee.pdf", "images": {} } ], "topics": [] }, { "source": "EveryCRSReport.com", "id": 455545, "date": "2016-09-06", "retrieved": "2016-09-09T18:32:06.099424", "title": "Marketplace Lending: Fintech in Consumer and Small-Business Lending", "summary": "Marketplace lending\u2014also called peer-to-peer lending or online platform lending\u2014is a nonbank lending industry that uses innovative financial technology (Fintech) to make loans to consumers and small businesses. Although marketplace lending is small compared with traditional lending, it has grown quickly in recent years. In general, marketplace lenders accept applications for small, unsecured loans online and determine applicants\u2019 creditworthiness using an automated algorithm. Often, the loans are then sold\u2014whole or in pieces\u2014to investors. More traditional lenders are more apt to use employees to make credit assessments and have a greater need for office and retail space. Traditional lenders may hold loans themselves or package many loans together into large securities (a process called securitization). Due to these differences and to marketplace lending\u2019s lack of industry track record, marketplace lending is facing uncertainty about its advantages, its risks, and how it should be treated by regulators.\nSome observers assert that marketplace lending may pose an opportunity to expand the availability of credit to individuals and small businesses in a fair, safe, and efficient way. Marketplace lenders may have lower costs than traditional lenders, potentially allowing them to make more small loans than would be profitable for traditional lenders. In addition, some observers believe the accuracy of credit assessments will improve by using more data and advanced statistical modeling, as marketplace lenders do through their automated algorithms, leading to fewer delinquencies and write-offs. They argue that using more comprehensive data could also allow marketplace lenders to make credit assessments on potential borrowers with little or no traditional credit history.\nOther observers warn about the uncertainty surrounding the industry and the potential risks marketplace lending poses to borrowers, loan investors, and the financial system. The industry only began to become prevalent during the current economic expansion and low-interest-rate environment, so little is known about how it will perform in other economic environments. Many marketplace lenders do not hold the loans they make themselves and earn much of their revenue through origination and servicing fees, which potentially creates incentives for weak underwriting standards. Finally, some observers argue that lack of oversight may allow marketplace lenders to engage in unsafe or unfair lending practices.\nMarketplace lenders are subject to existing federal and state regulations related to lending and security issuance, and some observers assert that the existing system is appropriate for regulating this lending. However, because existing regulations were developed and implemented largely prior to the emergence of marketplace lending, some argue that regulatory gaps and weaknesses exist and should be addressed.\nThe evolution of the regulatory environment facing marketplace lenders is just one development that will likely occur in coming years. Traditional lenders will continue to adapt to the new technology, market entrants, and market conditions. Marketplace lending has not been through an entire economic cycle, and rising interest rates or the onset of a recession will reveal strengths and weaknesses of marketplace lending. \nCongress may have to consider the issues surrounding marketplace lending, because as the industry grows and develops, it will likely require attention from policymakers, regulators, and financial institutions.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R44614", "sha1": "165bb9812cff9b5acdbaad096a9952c825f6cc02", "filename": "files/20160906_R44614_165bb9812cff9b5acdbaad096a9952c825f6cc02.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R44614", "sha1": "df16eaab168267390150f1cf8740dd21e083f95f", "filename": "files/20160906_R44614_df16eaab168267390150f1cf8740dd21e083f95f.pdf", "images": null } ], "topics": [] } ], "topics": [ "Economic Policy" ] }