Marketplace Lending – CFPB Involvement is Good News For Fintech
The Consumer Financial Protection Bureau (CFPB), the government agency responsible for consumer protection in the financial sector, recently announced that borrowers can now file formal complaints against marketplace lenders directly with the agency. What does this mean for the fast growing Fintech industry?Many see this initial “opening of doors” to marketplace consumer borrowers as a signal that the CFPB plans to get more involved and will likely look into the future regulation of marketplace lending industry. It has been expected that CFPB will get involved in the online lending industry, and I have seen their representatives in many online lending conferences recently as they gather information and get to know us.This is good news for the Fintech industry as a whole. Smart AltFi organizations have proactively invested in having compliance controls in place in anticipation of more regulation. This is just good business, as it helps grow their marketshare since borrowers have more confidence in these online lenders than those not making responsible investments in their future.This move is further validation that the impact of online lending is being recognized by the traditional financial industry. According to this recent article in Bloomberg BusinessWeek, “Fintech was every banker’s buzzword at the World Economic Forum, as leaders of the world’s largest financial companies both touted the potential of new innovations and leaned on regulators to control the startups threatening parts of their business.”It appears that regulators are listening to what the traditional financial institutions have to say and are focused on bringing regulation to the online commercial lending space. It is important to note that marketplace lenders are not unregulated – they currently operate and are regulated under many of the same laws as lenders and traditional banks. We at Cloud Lending Solutions see the need for marketplace industry regulations that deal with financial crisis, similar to the traditional lending market.It is also clear that the CFPB is trying to balance the activity in such a way to not have a “chilling effect” on Fintech innovation. They recently released a new No–Action Letter policy that is designed to encourage innovation in financial services. This policy gives companies an opportunity to approach the CFPB to request a no action letter that, if provided, says that the CFPB has no intention to initiate enforcement or supervisory actions based on a new product in question.This gives AltFi a great opportunity to check new lending products for compliance concerns before launching them. This both allows online lenders to protect their investment in new products, and assures customers that their online lender is acting as responsibly as a traditional lender would.We see our clients already adopting controls in their businesses that will help them easily adapt when regulation comes to our industry. This has put them in a good position to continue growing quickly. Our market is only getting more competitive, as new alternative finance companies are being created everyday, and we are also seeing the traditional banks changing their infrastructure so they can become more nimble and efficient. As I said earlier, all of this is good business and good news for both lenders and borrowers.