One of the biggest and best-known players in the online lending marketplace, LendingClub, is facing a bumpy road amidst allegations of loan falsifications. However, the rough road doesn’t stop there. For the industry as a whole, participants in marketplace lending are preparing for a new wave of regulations that many believe will lead to new rules and eventual consolidation.
Marketplace lending, also known as peer-to-peer lending, was popularized during the 2008 financial crisis, as it aims to remove middlemen from transactions and also gets loans approved quickly and with few restrictions. Yet, there are still big concerns for the large marketplace lenders; recently, the Consumer Financial Protection Bureau announced that they plan to regulate these lenders similarly to banks as early as 2017.
Any changes are expected to increase the cost of doing business for online direct lenders, but how exactly those costs will be incurred remains a major question. “One of the things regulation absolutely does is legitimize what you are doing,” said iBorrow Co-Executive Chairman Harlan Peltz. Questions still remain regarding how a regulatory body will be able to implement effective rules, and how each company will be affected.