Recently, there have been increasing concerns about the rise in online lenders targeting small businesses. Adding to these concerns, Reuters reported that the U.S. Treasury Department "Called for greater protections for small businesses that borrow, but stopped short of suggesting other new regulations for an industry rattled by a scandal at its biggest player, Lending Club Corp.”
Among the concerns mentioned by the Treasury Department were lack of transparency as well as increasing default rates and charge-offs. Online marketplace lenders sell their loans to investors and these investors are demanding a higher interest rate. Small businesses are potentially at risk if they borrow online through these platforms and methods.
Treasury's recommendations were the result of a nearly year-long examination of the fast-growing online marketplace lending industry.
Marketplace lenders sell their loans on to investors. While they make up only a tiny portion of the total lending market, Treasury estimates that loan origination by the online lenders could reach $90 billion by 2020.
Antonio Weiss, counselor to the Secretary of the Treasury, noted that there is some evidence that default rates and charge offs are increasing at these lenders, and investors are demanding higher interest rates in return.
Antonio Weiss, counselor to the Secretary of the Treasury, said:
"This industry remains untested through a complete credit cycle. The new business models were developed in a period of low interest rates, declining unemployment and relatively strong overall credit conditions."