5 Questions and Answers About the New Congress’s Impact on Fintech Lending
We sat down with Richard Neiman, Head of Regulatory and Government Affairs at LendingClub, and Armen Meyer, VP for Regulatory Strategy and Public Policy at LendingClub, to discuss the impact of the U.S. midterm elections on the fintech industry. Read on for their assessment of the post-election landscape.
The Democrats now control the House of Representatives for the first time in eight years. What can we expect?
In an uncommon twist, while Democrats took over the House, the Senate became more Republican, which will likely mean even more gridlock in Congress. We especially think the odds of getting a consensus on big-ticket items under consideration such as a middle-class tax cut and an infrastructure bill are pretty low.
What legislative impacts might we see?
Due to the divided legislature, Democrats’ impact will be felt more in launching investigations and holding hearings, not passing legislation. Within the financial services industry, we expect their focus to be on the Consumer Financial Protection Board (CFPB) and large customer-facing banks, given perceptions of customer mistreatment. Credit bureaus may also see more scrutiny.
Legislative optimism for marketplace lenders is most applicable to the IRS API bill that passed the House last year, which would allow platforms to access borrowers’ tax data with consent in order to more efficiently underwrite. We expect it to have momentum in the new Congress. Also, while Democrats and some Republicans will want to take up data privacy legislation, this is a wild card. With states (e.g. CA) acting on their own though, the two sides might be forced to agree on something despite the gridlock.
Maxine Waters is the new Chair of the House Financial Services Committee. What can we expect from her?
Chair Waters is progressive. We expect her early public statements to be more critical of the impact of deregulation, especially perceived rollbacks at the CFPB as well as on big banks and credit bureaus, rather than focusing on marketplace lending specifically. She is pragmatic and knows how to balance the issues. While she has expressed the view that marketplace lending can expand access to credit to underserved populations, she and other progressives will keep an eye on applicants for the Office of the Comptroller of the Currency’s fintech charter and associated financial inclusion plans.
What changes should we anticipate from the shifting political landscape on marketplace lenders?
In Congress, marketplace lenders will remain engaged with Chair Waters’ office as she lays out her priorities. Chair Waters has already interacted with our industry group, the Marketplace Lending Association (MLA), which distinguishes itself from the high-priced products and aggressive practices that most concern progressives.
LendingClub and the other MLA members have committed to offer the most transparent products, including voluntary caps on APRs, no balloon payments, and fixed installments.
Additionally, in the small business lending segment, an area of focus for Chair Waters and other Congressional progressives who appreciate its potential to revive communities, LendingClub has five times the representation of minority-owned firms, and four times the representation of women-owned firms versus bank conventional lending, by dollar amount1.
How do regulators view LendingClub and marketplace lending generally?
The U.S. Treasury issued a major report last summer that indicated that marketplace lending is good for the economy and helps expand access to credit. It also recognized the value of the industry’s model of partnering with originating banks. Since the report, key Treasury officials have often spoken about fintech’s benefits. These are all positive signs since Treasury helps set the tone among federal regulators.
Also, two new studies by Philadelphia Federal Reserve Bank researchers and one by a Philadelphia Fed researcher and Rutgers University, using LendingClub data as a proxy, find that marketplace lenders price risk better2,3 and expand access to credit4. Treasury, citing one of these studies, singled out LendingClub as an example of a marketplace lender expanding credit access and pricing risks better than credit card companies do.
1. LendingClub’s small business program from 2015 to 2017, demographics estimated using BISG analysis, compared by dollar with bank conventional loan programs cited in 21st Century Barriers to Women’s Entrepreneurship by the U.S. Senate Committee on Small Business and Entrepreneurship (July 2014) and Competitive and Special Competitive Opportunity Gap Analysis of the 7(a) and 504 Programs by Kenneth Temkin, et al, of the Urban Institute (January 2008).
2. Jagitani, J. and C. Lemieux, Federal Reserve Bank of Philadelphia, Working Paper 18-15. April 2018. https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2018/wp18-15.pdf
3. Hughes, Joseph P., Jagtiani, Julapa, and Moon, Choon-Geol, Consumer Lending Efficiency: Commercial Banks Versus A Fintech Lender, (October 2018). https://philadelphiafed.org/-/media/bank-resources/supervision-and-regulation/events/2018/fintech/resources/paper%203_hughes_jagtiani_moom_lending_club_and_bank_lending_efficiency.pdf?la=en
4. Jagitani, J. and C. Lemieux, Federal Reserve Bank of Philadelphia, Working Paper 18-13. March 2018. https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2018/wp18-13.pdf