Category: Marketplace Lending

1
ASIC Continues to Monitor “Unfair Contract Terms”
2
New Report on UK Alternative Finance
3
“True Lender” litigation heats up: small business sues marketplace lender and partner bank, alleging conspiracy to evade usury laws
4
Marketplace lender seeking fair lending guidance receives CFPB’s first no-action letter
5
Proposed APRA powers over non-bank lenders
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Fintech credit report shows potential and risks
7
UK P2P lending platform to launch Innovative Finance ISA
8
Adapt or die, the reality for retail banks during a digital revolution
9
Financial Inclusion and Robust Regulation Are on the Table as OCC Pushes Ahead With Fintech Charter
10
Lendit Conference 2017

ASIC Continues to Monitor “Unfair Contract Terms”

By Jim Bulling and Elise Hamblin

Fintech lenders must continue to take into consideration the unfair contract terms laws that have applied since 12 November 2016.  As set out in a recent ASIC Report 565 “Unfair Contract Terms and Small Business Loans”, unfair contract terms are currently areas of concern for ASIC.  To date, ASIC has found that eight lenders have failed to take sufficient steps to comply with their obligations under the unfair contract terms laws.

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New Report on UK Alternative Finance

By Jonathan Lawrence

The Cambridge Centre for Alternative Finance sits within the University of Cambridge Judge Business School and has recently published its 4th UK Alternative Finance Industry Report entitled “Entrenching Innovation”.  The Centre defines alternative finance as financial channels and instruments that emerge outside of the traditional financial system (i.e. regulated banks and capital markets).

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“True Lender” litigation heats up: small business sues marketplace lender and partner bank, alleging conspiracy to evade usury laws

By David D. Christensen and Jennifer Janeira Nagle

Over the last several years, a number of U.S. state and federal government enforcement actions have challenged the viability of the bank partnership model that many marketplace lenders have used to fund consumer and small business loans.  Specifically, regulators have argued that, in partnerships where the non-bank entity controls much of the funding process or the bank has little-to-no risk of loss, the non-bank entity is the “true lender.”

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Marketplace lender seeking fair lending guidance receives CFPB’s first no-action letter

By David D. Christensen, Jennifer Janeira Nagle and Brandon R. Dillman

The U.S. Consumer Financial Protection Bureau (CFPB) recently issued its first no-action letter, pursuant to a policy designed to encourage innovation in the fintech marketplace by creating a testing ground for new technologies. If received, a no-action letter simply indicates that the CFPB “has no present intention to recommend initiation of an enforcement or supervisory action” against the applicant with respect to the specific product and regulatory concerns at issue.

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Proposed APRA powers over non-bank lenders

By Michelle Chasser and Daniel Knight

The Australian Treasury has released for consultation, draft legislation which would give the Australian Prudential Regulatory Authority (APRA) prudential regulatory powers in relation to non-bank lenders including marketplace lenders. Non-bank lenders are corporations:

  • whose business activities in Australia include the provision of finance such as:
    • the lending of money;
    • carrying out activities, whether directly or indirectly (such as through a trust), which result in the funding or originating of loans;
    • letting or hire-purchase of goods; or
    • acquiring debts dues to another person, bills of exchange or promissory notes; and
  • with more than $50 million in loan principal amounts outstanding or debts due to it resulting from transactions entered into in the course of providing finance.

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Fintech credit report shows potential and risks

By Jim Bulling and Michelle Chasser

On 22 May 2017, the Committee on the Global Financial System (CGFS) and the Financial Stability Board (FSB) released a report titled ‘FinTech credit’. FinTech credit is credit activity facilitated by electronic platforms, such as marketplace lenders. This usually involves borrowers being matched directly with investors, although some platforms use their own balance sheet to lend.

The report examines FinTech credit markets and how they will affect the nature of credit provision and the traditional banking sector. The report is also aimed at assisting policymakers understand current FinTech credit markets, and the associated challenges in monitoring and regulating such activity. It also assesses the potential microfinancial benefits and risks of these activities, and considers the possible implications for financial stability in the event that FinTech credit should grow to account for a significant share of overall credit.

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UK P2P lending platform to launch Innovative Finance ISA

By Jacob Ghanty and John Van Deventer

RateSetter, a UK P2P lending platform, has raised £13 million in its latest round of fundraising as it prepares to launch its “innovative finance” ISA (IF-ISA).  The IF-ISA allows investors, or lenders, to earn interest free of income tax.  Before a P2P platform can offer its own ISA, it must be fully authorised by the Financial Conduct Authority (FCA).

This comes at a time of increased regulatory scrutiny of the P2P lending sector.  There is growing frustration in the industry at the prolonged regulatory approval process for IF-ISAs.  This is a function of high numbers of applications before the FCA and a high level of regulatory scepticism over this type of product.

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Adapt or die, the reality for retail banks during a digital revolution

By Cameron Abbott and Giles Whittaker

Traditional banking is a thing of the past, at least according to 203 senior retail banking executives surveyed by the Economist Intelligence Unit.

According to an Economist Intelligence Unit report for Temenos, the EU’s Second Payment Services Directive (PSD2), which will force banks to provide interfaces, APIs and data to third parties, is set to “tip the scales between banks and FinTechs for customer loyalty.” More than half of financial transactions will be made through FinTech companies rather than traditional retail banks by 2020, as the latest EU payments directive unleashes competition.

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Financial Inclusion and Robust Regulation Are on the Table as OCC Pushes Ahead With Fintech Charter

By Anthony Nolan, Judith Rinearson, Jeremy McLaughlin, and Eric Love

On March 15, 2017, the U.S. OCC issued a Draft Supplement to its Licensing Manual (Supplement) to progress its proposal to roll out a special purpose national bank (SPNB) charter for fintech companies.

The Supplement outlines the process by which a fintech company may apply for a SPNB charter, and the considerations the OCC will take into account when evaluating such applications. In addition, the Supplement reiterates the OCC’s determination that the SPNB charter would be “in the public interest” because it would provide “uniform standards and supervision,” “support[] the dual banking system,” promote “growth, modernization, and competition” in the financial system, and encourage fintech companies to “promote financial inclusion.”  It also makes clear the OCC’s determination to promote financial inclusion and to rebut criticisms that the SPNB charter would represent a light touch regulatory regime.  The SPNB is not a ‘bank-lite’ charter; an “applicant that receives OCC approval for a charter becomes a national bank subject to the laws, regulations, and federal supervision that apply to all national banks.”

Comments on the Supplement are due by April 14, 2017. Because the Supplement represents a significant step forward in the OCC’s push for a fintech charter, we expect that there will be many commenters.  Even before the OCC’s issuance of the Supplement, the proposed charter garnered substantial interest from key Members of Congress, state regulators, industry groups, and other stakeholders.  For a more detailed analysis of the Supplement, see our Legal Insight here.

Lendit Conference 2017

By Ed Dartley and Anthony Nolan

K&L Gates sponsored and attended Lendit again this year.  For this year’s conference, we added a Monday afternoon cocktail hour to our exhibitor’s booth, and were able to meet a number of old and new friends in the process.  In attendance were K&L attorneys Ed Dartley, Tony Nolan, Sasha Burstein, Linda Odom, John ReVeal, and Joe Valenti.  Tony participated in a panel discussion entitled “True Lender and Madden Case: Impact on Industry-2 Years In.”  The panel addressed several recent court cases and legislative developments that affect the availability of federal preemption to marketplace loans originated or purchased by non-bank lenders.

We found this year’s conference to be something of a coming of age for the marketplace lending industry.  There was a sense that the industry is maturing, and that was reflected in the panel discussions and the networking of attendees.  We found the conference to be as valuable for the re-connecting with existing associates and business colleagues as for the introductions to new ones.

As we continue to work with clients in virtually every aspect of marketplace lending, we find Lendit and other conferences to be a unique opportunity to interface with industry participants on cutting-edge developments, catch up with clients, and generally stay abreast of this fast-moving industry.  Finally, please join us for Altfi Europe Summit 2017 in London on March 30, where we will be sponsoring and speaking at that marketplace lending event.

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