All Things FinReg


The California Department of Business Oversight (DBO) has launched an inquiry into the increasingly popular marketplace lending industry. The stated purpose of the inquiry is “to assess the effectiveness and proper scope of [the DBO’s] licensing and regulatory structure as it relates to [marketplace] lenders.”

The DBO sent its online survey to 14 marketplace lenders and requested a variety of information, including the volume of business, types of loans, APR, delinquency rates, and investor funding or sale data. The survey requests data from January 1, 2010 through June 30, 2015. Responses to the survey are due by March 9, 2016. Although the DBO has not identified the 14 marketplace lenders that received the survey, reports confirm that the inquiry includes both consumer lenders and commercial and small business lenders.

The DBO’s inquiry follows the Department of the Treasury’s request for information earlier this year seeking public comments on marketplace lending. Given the growing popularity of marketplace lending platforms among consumers and small businesses, further regulatory interest and possible future regulatory action are likely.

Historically, state and federal regulatory agencies have lagged behind new technologies, and it takes a fair amount of time for the regulatory agencies to develop a coordinated or structured regulatory approach. Recent examples of regulatory action that has lagged behind financial technology innovation include mobile payments, gift cards, and virtual currencies. Unfortunately, the process has involved trying to adapt existing laws and regulations to these new technologies, which results in a “square peg in a round hole” regulatory approach. Further, coordinated state, or state/federal, regulatory actions in the face of new financial technologies have generally been absent, leading to divergent approaches at the state and/or federal levels. All too often, the result has been increased compliance challenges (and costs) for providers and users of these emerging technologies.

Marketplace lending will likely follow a similar regulatory roadmap. Providers and users of, or investors in, marketplace lending should anticipate continued scrutiny of these business models as well as the possible increased compliance costs for marketplace lenders.