online lending – Consumer Financial Services Watch

Certain Compliance Risks in Marketplace/Peer-to-Peer/Online Lending

Feb 10 2016

The tragic terrorist shootings in San Bernardino on December 2, 2015 shed light on serious risks associated with online marketplace lending. The attackers obtained $28,500 from an online marketplace lender under a pretext, but then allegedly used the funds to reimburse their arms dealer. This apparent link between the money lent and the mass murders led public officials to re-examine the risks associated with this new and increasingly popular method of lending.

Online marketplace lending represents a chance for investors to realize greater returns and for borrowers to refinance expensive debt and pay less interest, as technology and peer-to-peer matching/evaluation greatly reduces the overhead of the business model. Given both the widespread interest in and the potential for the misuse of such online lending platforms, federal and state lawmakers and regulators are increasing scrutiny of the industry.

New York Campaign Against Out-of-State Online Lenders Survives a Battle in the SDNY

Nov 01 2013

By: David L. Beam, Christopher Shelton*
*Mr. Shelton is a law clerk and not admitted to the practice of law.

The Internet has been with us for about two decades, and financial service companies have been offering products over the Internet for nearly as long. One would have thought that there would be final resolution by now on the question of whether, and under what circumstances, a state may regulate an online lender with no physical presence in the state. However, this issue continues to be a thorny one.

A recent decision by the United States District Court for the Southern District of New York touches on this issue. In Otoe-Missouria Tribe of Indians v. New York State Department of Financial Services, 2013 U.S. Dist. LEXIS 144656, 2013 WL 5460185 (S.D.N.Y. Sep. 30, 2013), the State of New York successfully argued that it can regulate online loans made by Native American tribes to New York residents. The case primarily involved the question of whether a state could regulate an enterprise owned by a Native American tribe located in another state. But the decision potentially has implications for other situations where a company offers financial services over the Internet. Moreover, it is part of a wider campaign by New York authorities to target online lenders for alleged usury.

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