CFPB Begins Fielding Marketplace Lending Complaints

Today, the Consumer Financial Protection Bureau began accepting complaints regarding online marketplace lending.

While no official regulations have yet been placed on online marketplace lending or investors, many industry watchers suspect this move is a prelude to the introduction of formal regulation in the online marketplace lending sector.

Complaints received by the CFPB are often used to identify the trouble spots in financial services. Director Richard Cordray commented on the move in the bulletin, released today:

When consumers shop for a loan online we want them to be informed and to understand what they are signing up for […] All lenders, from online startups to large banks, must follow consumer financial protection laws. By accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn when they encounter problems.

Online marketplace lending, formerly better known as peer-to-peer (P2P lending) inevitably involves collecting personal data. The custody of such data has caused problems for many non-bank fintech providers, including, most recently, the payments firm Dwolla.

According to Moira Vahey, a spokeswoman for the CFPB who spoke to Bank Innovation today, enacting this service is what the agency exists to offer. Before today’s action from the CFPB, consumers wanting to voice concerns about marketplace lenders would likely turn to the Federal Trade Commission. However, the FTC has a reputation for being slow to take action, which may mean the more active CFPB is better suited for a fast-moving industry such as online lending.

Last week’s $100,000 CFPB fine of Dwolla for allegedly deceiving customers about its data security policies has caused some fintech pundits to suspect the agency of targeting fintech startups, and today’s announcement won’t change that impression. Fintech startups have so far largely avoided the regulatory yoke, to the consternation of banks, but it is also widely accepted that situation will change sooner or later.

When asked whether this change in CFPB policy was spurred by banks complaining about fintech startups being more lightly regulated, Moira reiterated the general background of what it is CFPB does — having begun with the regulation of credit cards, the agency has adapted to regulate different market sectors in a rapidly evolving, dynamic economy. 

Vahey also noted that just a few months ago, the CFPB began accepting complaints on virtual currency products such as bitcoin. This closely followed CFPB attention to such prosaic instruments as prepaid cards and payday loans. The agency, in other words, is not targeting any particular segment, nor does it seem to be following a particular system, but is simply confronting a complex industry piece by piece.

So while the imposition of regulations on online marketplace loans may be inevitable, there is little evidence to think them imminent.

Companies are expected address complaints within 60 days, the agency noted.