Patrick McHenryChairman

Washington, July 12, 2016 -

WASHINGTON – Today, the Subcommittee on Financial Institutions and Consumer Credit held a hearing to examine the opportunities and challenges related to Financial Technology (FinTech), particularly the development of online marketplace lending.

Online marketplace lenders use online lending platforms and underwriting algorithms to provide affordable and broad access to credit.  Over the last year, several federal regulatory agencies have turned their attention to this marketplace to better understand the opportunities they present and examine the existing regulatory structure.

Subcommittee Chairman Neugebauer (R-TX) said, “Online marketplace lending, sometimes referred to as peer-to-peer lending, has developed rapidly over the last decade.  Leveraging technology, new lending platforms and underwriting algorithms, marketplace lenders have provided expanded avenues of credit for consumers and small businesses alike.”

Key Takeaway from the Hearing:

• Online marketplace lending is expanding access to credit in some segments by providing loans to certain borrowers who might not otherwise have received capital. These new credit models present an opportunity to leverage technology to expand access to credit further into underserved markets.

Topline Quotes from Witnesses:

“We believe marketplace lending brings significant value to both borrowers and investors,and that it will play an increasingly important part in the financial industry in the years to come. I want to thank you for this opportunity to provide an overview of our business and industry…” –Sachin Adarkar, General Counsel and Chief Compliance Officer Prosper Marketplace

“The cornerstone on which marketplace lending businesses are built is the marketplace lender’s online platform, which should be designed to facilitate efficient matching of borrowers and investors. The typical lifecycle of a marketplace loan is as follows: First, a borrower applies for a loan on the lender’s online platform, a secure website where prospective borrowers can provide information about: (1) the size of the loan requested; (2) how the borrower intends to use the funds; and (3) the borrower’s current finances. Using an automated algorithm, the lender then determines whether the loan request satisfies the criteria of the platform and, if so, the payable interest rate and fees of each loan, based on information such as (but not necessarily) the borrower’s FICO score, the size of the loan, the borrower’s debt-to-income ratio, the borrower’s self-reported income, and the borrower’s employment history and trajectory.” –Bimal Patel, Partner, O’Melveny & Myer

“Innovation in financial services has the ability to benefit consumers across the country and drive growth in our economy. New technologies allow financial service firms to connect with customers in new ways and offer them products that may better fit their needs. It can lower the cost of financial services, making more affordable options available to consumers across the country. It provides added convenience and efficiency, giving customers the ability to manage their finances day or night from the palm of their hand. Technology can also lower the fixed costs for providing credit to small businesses, leading to greater capital access that spurs economic growth. As part of all of these innovations, banks continue to assure that customer information is protected.” –Rob Nichols, Chief Executive Officer, American Bankers Association

“For various reasons stated above, traditional small business loan programs are not able to adequately serve the capital needs of our nation’s small businesses. This is especially true when small businesses need $100,000 or less, which accounts for 90% of small business loans. Companies like CAN Capital and other ETA member companies have been able to address this unmet need by developing data-driven risk and underwriting models and user-friendly technology platforms to quickly and effectively provide small businesses with access to the capital they need to grow their businesses and, in turn, help propel the U.S. economy.” –Parris Sanz, Chief Legal Officer, CAN Capital, Inc.

###