The loan mis-selling scandal at Lending Club, coming so soon after problems at fellow P2P lenders Prosper and OnDeck, has added further pressure to a sector that’s now facing challenges on multiple fronts.
In May 2016, Lending Club’s CEO suddenly resigned following revelations that the lender mis-sold a $22m package of near-prime loans to an investment bank. Consequently, it’s facing investigations from the Justice Department and the Securities and Exchange Commission. Lending Club’s share price, which stood at over $19 in June 2015, is currently under $4, and it has admitted that institutional investment has dried up to the extent that it may have to start using its own assets to fund further lending.
These problems have tarnished an industry that initially prided itself on bypassing the banks and widening access to credit for underserved consumers. P2P lending is facing calls for increased regulation from the US Treasury, and the former head of the UK’s Financial Services Authority has warned that P2P investors risk huge losses over the next 5-10 years.
The growing crisis of confidence in the sector will dampen both institutional and retail funding. This will restrict future growth and may leave operators vulnerable to takeover by established banks.
Fintech entrants are increasingly having to partner with traditional providers to ensure their viability, and P2P lenders may now have to follow suit. Although the current crisis may not be existential, P2P lenders stand to lose their independence and could become just another channel for credit provision.
– This article is reproduced with kind permission from Verdict Financial. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Photo: Lending Club