Telis Demos and Peter Rudegeair reported in Monday’s Wall Street Journal that, “Federal and state regulators are increasingly scrutinizing partnerships between banks and online lenders, reducing some uncertainty about the rules in an area where the startups have thrived.
“Financial-technology upstarts such as LendingClub Corp., Avant Inc. and Prosper Marketplace Inc. have raised hundreds of millions of dollars in funding partly on the premise that they can offer borrowers better terms than banks, which must shoulder larger compliance burdens.
“The startups’ regulatory advantage may be fleeting. Last month, the Federal Deposit Insurance Corp. proposed guidelines, including one that banks that partner with third-party firms to make loans ‘will generally receive increased supervisory attention.'”
Yesterday’s Journal article noted that, “That may enable increased scrutiny of online lenders even though they aren’t banks.
“The proposed change adds to a flurry of legal activity and state regulatory moves to curtail the ability of the young firms to bypass state laws. The scrutiny also aligns with a broader effort by U.S. watchdogs to focus on risks of banks using outside partners.
“Though the FDIC has had guidelines for relationships between banks and outside vendors, the new proposal focuses specifically on lending partners, including proposing yearly examinations rather than every 18 months. It also recommends that banks should set ‘performance standards for third parties’ and ‘require access to data.'”
The Journal writers added that, “The FDIC is seeking comment on the proposal.”
