Marketplace Lending Association Archives

Congress Passes New Law to Mandate IRS Modernization

The Taxpayer First Act of 2019 will create a real time API-based process for income verification

June 17, 2019 By Peter Renton Leave a Comment

When LendingClub’s founder and then CEO Renaud Laplanche testified before congress in December 2013 he was asked what the federal government could do to help facilitate more access to capital. Renaud answered that easy access to IRS data would really help move the needle for a company like LendingClub. Nothing happened.

Four years later, in December 2017, then head of Funding Circle USA, Sam Hodges, penned an op-ed in Techcrunch arguing for pretty much the same thing. By that stage there was a bipartisan bill before Congress, co-sponsored by Rep. Patrick McHenry (R-NC) and Senator Cory Booker (D-NJ), called the IRS Data Verification Modernization Act of 2017. Nothing became of that bill in the previous Congress.

Fast forward to last week and movement has finally been made. That previous bill has become part of the Taxpayer First Act which was quietly passed by the U.S. House and Senate last week and it now heads to the President’s desk for his signature which may happen as early as this week. This is a bipartisan bill with 28 co-sponsors from both parties.

The Taxpayer First Act does many things to help modernize the IRS but the most important for the lending community is the mandate for IRS information. In particular this bill “requires the IRS to implement a fully automated program for disclosing taxpayer information for third-party income verification using the Internet”.

What this means is that lenders will have API access to taxpayer information rather than the archaic system today that relies on paper and fax processing. The existing system is pretty much unusable for online lenders who must rely on other sources of data. The new system will be a consent-based system obviously, with the borrower providing consent for a third party to request IRS information in real time.

Nat Hoopes, the head of the Marketplace Lending Association has been working on this with various parties on Capitol Hill for a long time. Here is what he had to say about the passage of this new bill:

Congress is taking a big leap forward in requiring the IRS to upgrade its systems for income verification in the context of online loan applications and credit decisions. The MLA has had a couple of top legislative priorities on Capitol Hill since our Association launched back in 2016, and this is one of them. If it’s implemented properly, an API-based process for income verification can help reduce fraud, cut out unnecessary middleman costs, and help get more tailored products into the hands of both small businesses and consumers. It’s still going to take some time for that promise to be realized, but there’s potentially a lot to be excited about.

The key for this to actually be useful will be in the implementation as Nat points out. Oversight will be needed to make sure this new process meets the needs of industry and is widely available. But don’t hold your breath. Nothing moves quickly in government and the IRS is notorious for running on outdated IT systems. The bill contains a three-year deadline to implement this new system.

As they say the best time to have started this was many years ago, the second best time is today.

The Cleveland Fed Retracts Their Report on “P2P Lending”

After much criticism the Cleveland Fed agrees that more work is needed on their report and they have pulled it from their website

November 20, 2017 By Peter Renton Leave a Comment

A week ago I wrote about the Cleveland Fed report on “p2p lending”. I use that term in quotes because as I said in the article, in reality it was not about p2p lending at all. Over the weekend the Cleveland Fed decided to pull the report and now they have this statement on the report’s webpage:

Since working paper no. 17-18 and related commentary on peer-to-peer lending were posted on our website on November 9, the authors have received several questions about the composition of the underlying data set they used in their analysis. In light of the comments received, the authors are currently revising their paper to further clarify the data sample they used in the study. Their revised paper will be posted as soon as it is completed.

This followed not just my article but also this highly critical op-ed in American Banker by Nat Hoopes, the Executive Director of the Marketplace Lending Association. He openly called for the Cleveland Fed to retract their report which is exactly what they did over the weekend.

The shame of all this is that all the sensational headlines have already been written and confirmed in many people’s minds the supposed shady nature of our industry. It would have been far better for everyone if the authors of this report had done their homework and produced a thoroughly researched report in the first place.

Now, having said all that, the report did bring up some interesting points. As Todd Baker pointed out, “we really should know which online lenders are adding to consumer financial health and which ones are detracting from it.” The P2P lending industry has been built on the premise that it is good for consumers and the recent study by the Philadelphia and Chicago Feds confirmed this to be the case. But that was just based on Lending Club data.

I am not so one-eyed that I will only believe positive studies on this industry. We need to understand consumer behavior better and every company should be able to answer definitively how and whether their products are benefiting consumers. That was what the Cleveland Fed study was trying to do but unfortunately they fell short. Maybe the revised study will provide more insight.

Congress is Trying to Get the IRS to Modernize

A new bill introduced in Congress will mandate the IRS to make their data available via API

October 4, 2017 By Peter Renton 5 Comments

Most lenders like to request tax return information from a borrower during the loan application process. It is the most reliable way to verify a borrower’s income. To allow this a borrower must fill out and sign a form known as IRS 4506-T: Request for Transcript of Tax Return. This is a manual process still today and one that can slow down the loan approval process.

Back in December 2013 Renaud Laplanche testified on Capitol Hill on small business lending. He was CEO of Lending Club back then and when a Congressman asked Laplanche a question as to how the government can best help he said to make IRS data more easily accessible to online lenders.

Fast forward four years and there appears to finally be some movement on this. Last week Congressman Patrick McHenry (R-NC) along with Senator Cory Booker (D-NJ) introduced a bill that would help the IRS move into the modern age and allow the automated retrieval of tax information through an API.

The IRS Data Verification Modernization Act of 2017 as it is called will require the IRS to create an API that will allow lenders to verify income in real time. Here is what Congressman McHenry had to say about this new bill:

Innovation in financial services has created more convenient and secure ways to meet the demands of American consumers. For financial innovation to succeed, however, Washington must update its information technology infrastructure to keep up with the growth and creativity in the private sector. Our federal government needs to do a better job in updating and securing its technology to make lending more accessible for all Americans. In light of the recent SEC and Equifax breaches, now is the time for Congress to take a leading role in creating a more safe and affordable process so that consumers are protected. This bill takes a small but important step in that direction by modernizing one of the most important processes in the financial system: income verification.

[Read more…]

The Marketplace Lending Association Adds 11 New Members

With 14 members the Marketplace Lending Association now represents a broad cross section of the online lending industry.

January 12, 2017 By Peter Renton Leave a Comment

The leading industry trade group, the Marketplace Lending Association (MLA), announced today that they have added 11 new members. The organization launched in April last year with three members: Lending Club, Prosper and Funding Circle. Today, they now have 14 members including LendIt which has joined as an Associate Member.

Here is the list of new members: Able, Affirm, Avant, Commonbond, Marlette Funding, PeerStreet, ShareStates, StreetShares, Upstart and new Associate Members dv01 and LendIt. So, the MLA has a nice broad cross section of the industry now with consumer, student, small business and real estate business all represented.

This marks a new chapter not just for the MLA but also for the marketplace lending industry. We now have a trade group that is representative of our industry with most of the major industry players that can be a powerful voice for us inside Washington. In 2017 this will be more important than ever with the new OCC Fintech Charter on the table and opposition voices mounting.

My view has always been to support the work of organizations that further the development of the industry. The MLA is clearly doing that and so I have been a supporter of them from day one. Now, that they are getting some traction I am hoping that they will be an effective and unifying voice for our industry.

Here is what Nat Hoopes, the executive director of the MLA, had to say in the official press release:

On behalf of the founding members, I welcome these new members to the Association and I look forward to working with them to advance our mutual public goals both in Washington and in state capitols around the country. As MLA member companies continue to innovate and create new opportunities for borrowers and investors, the MLA will play an important role in sharing data and insights that help educate policy makers on the benefits that these companies bring to consumers, businesses, and our financial system.

Together with this announcement the MLA also sent letters today to the incoming Trump Administration and to the leaders of the new Congress.

The First Marketplace Lending Policy Summit Takes Place in Washington

Industry leaders gathered in Washington DC to engage with lawmakers in a first for marketplace lending.

September 14, 2016 By Peter Renton 2 Comments

Thomas Curry speaking at the Marketplace Lending Policy Summit in Washington on September 13

Yesterday, the first ever Marketplace Lending Policy Summit took place in Washington DC. Even though this was not a LendIt event I fully supported it because I believed in the importance of an event of this nature. We need to raise our profile in Washington and engage with lawmakers, not just one company at a time, but as an industry. I was happy to be there and participate as a speaker.

We heard from several high profile speakers at the MPL Summit. Congressman Patrick McHenry (R-NC) talked about the importance of Fintech and shared a personal story about his father’s small business and the challenge he had obtaining sufficient funding. He talked about his legislative approach and some of the steps he is taking in Congress to try to help the industry. Senator Jeff Merkley (D-OR) also talked about small business funding and the effort it took to get the JOBS Act passed. He believes it is crucial for Congress to help create an environment where small businesses can thrive.

The highlight of the day, at least for me, was the presentation by the Comptroller of the Currency Thomas Curry. He talked about his time overseeing banks and other financial institutions throughout his decades long career. Today, the OCC overseas 1,400 national banks and federal savings associations. He shared his concern that the industry has not been through a full credit cycle yet and that it will be important to find stable funding sources that hold up during a downturn. [Read more…]

Three Industry Titans Launch the Marketplace Lending Association

The time has come for an official association endorsed by the top players in marketplace lending.

April 7, 2016 By Peter Renton 2 Comments

It has been a long time coming. A trade association has been on the minds of many people in the marketplace lending industry, including myself, for quite some time. Today, Funding Circle, Lending Club and Prosper announced the formation of the first association that establishes a business code of conduct across marketplace lending. The association will officially be called the Marketplace Lending Association (MLA) and is a non-profit membership organization.

It is based somewhat on the UK model where the Peer to Peer Finance Association (P2PFA) is the voice of the industry there. Even though the P2PFA has only eight members out of more than 100 platforms, it is a powerful organization that helped formulate regulation in the UK. The three founding members of the MLA have been quietly developing this new organization here for many months and they decided to launch it on the eve of LendIt. Like the P2PFA, it is not an association that is open to everyone, although any platform can apply. But there is a long list of standards that must be in place before a platform can be considered for membership.

The MLA is Open to True Marketplace Lenders

On the MLA website is a six page document that details the operating standards that all members must commit to follow. Membership is only open to true marketplace lenders which is defined as “platforms that match at least 75% of loans, by dollar, with commitments for funding from investors, before the loans are issued.” So, basically balance sheet lenders are not eligible – the majority of a platform’s loan volume must come from their marketplace.

There are five key operating standards: [Read more…]