Marketplace lending industry comes under scrutiny in California

A state regulator has opened an inquiry into the marketplace lending industry, which has planted roots in the North Bay while blossoming into a multi-billion-dollar market that is challenging traditional banks.

The state Department of Business Oversight said Friday it has sent online surveys to 14 marketplace lenders requesting trend data over a five-year period on their loan and investor funding programs. One of those lenders, SoFi, has a large satellite office in Healdsburg that employs 200 people.

“These online lenders are filling a need in today’s economy, and we have no desire to squelch the industry or innovation,” Business Oversight Commissioner Jan Lynn Owen said. “We have a duty, however, to protect California consumers and businesses, and they have more and more at stake as this industry grows. We want to assess the effectiveness and proper scope of our licensing and regulatory structure as it relates to these lenders.”

The department said it wants to gather basic facts on the industry so it can better understand its loan and investor funding, which will allow it to assess how well state laws provide oversight of these new entrants.

The companies are classified as non-bank lenders, meaning they do not have deposit accounts insured by the FDIC nor regulation by entities such as the Federal Reserve and the Office of the Comptroller of the Currency. Instead, they are overseen by state banking regulators and the federal Consumer Financial Protection Bureau, whose architect was Sen. Elizabeth Warren, D-Mass.

They conduct business digitally and focus much of their efforts on recruiting millennials who are more accustomed to using apps rather than bank branches. The overall market stood at $12 billion in loans in 2014, but Morgan Stanley estimates that by 2020 the volume will grow to $122 billion.

SoFi, which is headquartered in San Francisco, received the state survey and will respond to the agency before its March 9 deadline, spokeswoman Debra Jack said.

“At SoFi, fairness and transparency are critical factors in our partnership with our members, and we strive to have an equally transparent approach with regulators,” Jack said.

While some consumer groups have welcomed the additional competition, they have also sounded the alarm that “fintech” firms such as SoFi should not have any special treatment or safe harbor from fair lending or credit laws. Those groups and others weighed in on a Treasury Department request for information on the industry that was conducted earlier this year.

“Any marketplace efficiencies they obtain should not be at the expense of treating consumers fairly,” wrote the U.S. Public Interest Research Group and the Center for Digital Democracy.

You can reach Staff Writer Bill Swindell at 521-5223 or bill.swindell@pressdem ocrat.com. On Twitter ?@BillSwindell.