Marketplace lenders are getting together — well, three of them, anyway.
Marketplace lenders Funding Circle, Lending Club and Prosper announced Wednesday the formation of the Marketplace Lending Association, a nonprofit organization that will “promote responsible business practices and sound public policy to benefit borrowers and investors.”
It’s a move likely influenced by the inevitable approach of more organized regulatory oversight, industry experts told Bank Innovation. With the Consumer Financial Protection Bureau now accepting complaints related to marketplace lending, regulation can’t be far off.
Alternative lending, though still a tiny sliver of the overall lending landscape, has seen originations double every year since 2010, according to a release from the new group. Originations are expected to reach $122 billion by 2020, according to Morgan Stanley, the investment bank.
The MLA has already established a set of operating standards to address issues with transparency, responsible lending, and risk management for the industry. Membership will be open to marketplace lenders that meet the membership criteria and commit to the operating standards, which can be found here.
Marketplace lending watchers were positive about the move. Emmanuel Marot, CEO of LendingRobot, a tool for managing marketplace lending investments, was effusive. “It’s excellent news for the industry!” he replied to an email inquiry. “An industry-wide effort makes a lot of sense and one that I personally wished for … for a long time. It can bring clarity and help define meaningful regulations. The United Kingdom version (the Peer to Peer Finance Association) has demonstrated its value already, and there’s no reason to think the MLA won’t do the same.”
Hyung Kim, co-founder and CEO of Ldger, a secondary platform for marketplace lending assets, called the move a positive one for the industry, comparing it to the Small Business Borrowers’ Bill of Rights. Ldger conducted its first whole loan trading auction on April 6, with a portfolio of of Prosper loans being sold to the winning bidder, an offshore institutional investor.
Matt Harris, managing director at Bain Capital Ventures and seed-round investor in OnDeck Capital, called the formation of the MLA a “classic ‘circle the wagons and self-regulate’ approach to threatened regulation.” Harris’s recent post, “The Short History and Long Future of the Online Lending Industry,” has become a sort of classic of its own. It’s a good primer on how investors are looking at one of the hottest spaces in fintech.Like This Post