Potential Risk Retention Requirements for Online Marketplace Lenders

The Treasury Department (“Treasury”) is currently seeking public input on the growing online marketplace lending industry in order to “…allow policymakers to study the various business models and products offered by online marketplace lenders, the potential for online marketplace lending to expand access to credit to historically underserved borrowers, and how the financial regulatory framework should evolve to support the safe growth of this industry.”

Some important questions that Treasury is asking pertain to whether online marketplace lenders should have risk retention requirements:

To what extent, if any, should platform or 'peer-to-peer' lenders be required to have 'skin in the game' for the loans they originate or underwrite in order to align interests with investors who have acquired debt of the marketplace lenders through the platforms?
How would the concept of risk retention apply in a non-securitization context for the different entities in the distribution chain, including those in which there is no pooling of loans?
Should this concept of 'risk retention' be the same for other types of syndicated or participated loans?

A recent American Banker article noted that risk retention requirements would likely prove problematic for online marketplace lenders. Jo Ann Barefoot, a former official at the Office of the Comptroller of the Currency and now a consultant to consumer finance companies, noted that “[p]art of the strength of [marketplace lending] now is the ability to run very light and lean and match up borrowers and investors.”

The comment period for public comments opened on July 20th and will remain open for 45 days.

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