When a market experiences the type of explosive growth that alternative lending has experienced in recent years, it’s only a matter of time before it draws scrutiny from regulators and lawmakers.
What regulators are doing in Utah
A recent article by the Wall Street Journal revealed that regulators are looking into lending standards of leading alternative platforms such as Prosper and LendingClub. Of particular focus is the use of WebBank and other Utah-based banks for lending.
Banks like WebBank make loans to borrowers and back the loans temporarily until an investor on an alternative platform ultimately takes over responsibility for the loan, usually within two days.
Utah has no state usury limit, meaning that WebBank and others have no interest rate cap on their loans. In addition, WebBank’s legal status as an “industrial bank” in Utah means that it has not been subject to oversight by the Federal Reserve, which regulates the majority of state-chartered banks and bank holding companies.
Critics of the current system argue that the partnership between banks like WebBank and alternative lenders means that the two entities are collectively acting as a bank and should be regulated as such.
U.S Treasury
The U.S. Treasury department is taking…
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