For certain small businesses and the types of traditional financial services institutions that serve them (banks, etc.), the cost and time tied up in particular types of smaller loans have opened the door to a wide range of alternative financing options (collectively called, “online marketplace lending”) for some types of needs and situations (see the links above). On July 16, the U.S. Treasury Department announced it is studying these new marketplaces. 


What is now called “online marketplace lending” started primarily as a “peer-to-peer” model where individuals could lend money to other individuals or small businesses. Today, much of the funds used for such lending comes from large investors that are funneling hundreds of millions of dollars to marketplace lenders.

“Some of the more established companies, like Lending Club and Prosper Marketplace, have been vastly increasing their volume in recent years, while facing an ever-expanding field of upstart competitors. Even Goldman Sachs is starting an online consumer lending operation that mimics some of the marketplace approach. Without the overhead costs of large banks, the online lenders say they can charge lower interest rates and swiftly make a decision on whether to extend credit. Most marketplace lenders only facilitate the loans, which are held by investors.” —

“A fact-finding effort”

The tone of the Treasury Department’s press release and blog post indicates the department’s desire to position its research effort in a non-confrontational context. It is not an investigation, in other words.

“Innovation in financial services is creating new ways for consumers and small businesses to secure credit,” said Antonio Weiss, counselor to the Treasury Secretary. “By soliciting public comments on this relatively new industry, we hope to better understand the potential for online technology to expand access to safe and affordable credit for consumers and small businesses.”

Despite the positive tone, the Treasury Department announcement does indicate its desire to understand how the creditworthiness of borrowers is established and whether lenders should be required to have “skin in the game”—meaning sharing some of the risk in case of borrower default.

How to comment

The Treasury Department is inviting public comment for 45 days, beginning on Monday, July 20. It also plans to hold a series of round-table discussions this summer with input from the $12 billion industry, borrowers and consumer advocates.

A PDF of the Treasury Department’s invitation for public comments, technically called a “Request for Information (RFI),” can be found on its website.

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