Fintech professionals and observers say the founding of a professional organization to promote responsible business practices among marketplace lenders is a landmark for the industry, which grew from infancy in 2006 to $12 billion in 2014, and is expected to reach $122 billion in origination volume by 2020.
Nick Clements, founder of price comparison website MagnifyMoney.com and a regular commentator for Forbes, told Tradestreaming that the formation of the Marketplace Lending Association (MLA) on April 6 will give the sector an important voice, as federal and state regulators start to look more closely at the sector.
“There is not a lack of regulation in the U.S.,” Clements explained. “In fact, there is a lot of regulation from varying agencies and states. But what is missing is a clear regulatory framework,” he said.
In an email exchange on April 12 from the Lendit 2016 conference, Clements said most CEOs at the gathering spoke about welcoming regulation, and added that there is an overall feeling in the marketplace lending sector that the industry is inherently consumer-friendly. Most felt their businesses would benefit (with investors, for example) by having regulatory clarity.
“There is ambiguity in a number of places, and that needs to be addressed,” he said. “For example, Madden vs Midland Funding raises questions about the maximum rate that can be charged (and portability of rate) for a typical marketplace structure. Or take the issue of a national lending license for non-depository institutions. This went away with Dodd-Frank and would help marketplace lenders avoid having to get licensed and audited by 50 different state regulators.”
The MLA was founded by credit marketplaces Funding Circle, Lending Club (NYSE: LC) and Prosper. Officials for the Association said the group will also lobby for sound public policy to benefit borrowers and investors. The group’s Marketplace Lending Operating Standards outlines fair lending practices, provides guidelines for appropriate risk management models and especially calls for transparency for all parties involved in marketplace lending, including investors, borrowers and regulators.
The Association is governed by a Board of Directors, which will initially consist of one Director nominated by each founding member. As more marketplace lending companies join the MLA, additional directors will be elected based on a vote of the full membership. The MLA intends to hire an executive director and staff as it continues to expand.
"The launch of this Association reflects our industry's commitment to the highest standards of transparency and customer protection, while also delivering innovative new ways to provide better value and experiences for consumers, small businesses and investors,” said Funding Circle Co-Founder and U.S. Managing Director Sam Hodges in a prepared statement. “In the fast-growing marketplace lending sector, we want to continue to act as a thought leader and thought partner to the appropriate bodies in Washington to ensure continued innovation and responsible growth in the sector.”
The group says it aims to bolster the growth of the marketplace lending industry, as well as to ensure transparency and efficiency throughout the sector. To accomplish that goal, the group has published a professional code of ethics, the Marketplace Lending Operating Standards, to address issues including transparency, responsible lending practices, governance and controls, and risk management.