Online Lenders Working to Find Advocacy Footing in Washington
The online lending industry has started to build up its association presence in the past year, out of a desire to set the agenda around regulations in a growing space. The efforts come in the form of self-regulation, along with an eye toward advocacy.
Like many fairly young sectors, online lending is one defined by its lack of regulations—as well as pressure to put new ones in place.
As a result, trade groups quickly cropped up in spring 2016, each hoping to define the online lending marketplace before federal regulators, particularly at the the Consumer Financial Protection Bureau, had the chance to do the same.
During that same time, another event brought even more scrutiny to online lenders: the ouster of LendingClub’s founder and CEO, Renaud Laplanche, after concerns about the firm’s lending practices arose.
The saga was clearly a stumble, but LendingClub and other firms in the industry are working to move past the issue with the Marketplace Lending Association, which also has the backing of Prosper Marketplace and Funding Circle. In August, MLA named its first executive director, Nat Hoopes, who came to his role from the more traditional Financial Services Forum.
In comments to The New York Times, Hoopes noted that the group planned “to create an association in Washington that represents online lenders that are consumer-friendly and that adhere to the highest possible standards of disclosure, transparency and fair pricing.”
An Early Regulatory Battle
One factor around the online lending industry’s advocacy push, as highlighted by Politico last month, is the complicated process for receiving a charter in individual states. As “fintech” firms, as they’re called in some circles, they’re designed to operate nationally. But regulation has yet to catch up to the innovation the industry represents, leading to situations where firms are required to team with a larger partner to get the charter they need. Online lending firms are looking to change that by pushing for a new national charter designed for fintech companies. As a result, a chasm has emerged between online lenders and traditional banks.
The Independent Community Bankers of America has been one association to raise concerns.
“The last thing we want to see is a charter that has all the privileges of a commercial bank charter without the supervision and regulation that comes with a community bank,” Chris Cole, ICBA’s executive vice president and senior regulatory counsel, told Politico.
Setting High Standards
The online lending industry faces a number of challenges as it finds its advocacy footing in Washington. But one place where new groups like MLA and the Innovative Lending Platform Association hope to make their mark is by setting high standards for membership and best practices for the industry as a whole.
Of course, encouraging a soft regulatory touch is still part of the equation—something that MLA’s Hoopes argued for in a recent op-ed for The Hill.
“Regulators rightly want to make sure consumers are adequately protected, while also ensuring that new opportunities for those same people are not snuffed out by bureaucratic inertia or inflexibility,” Hoopes wrote last month. “For that to be the case, there must be sufficient room for ‘responsible innovation’ in America’s regulatory framework.”