$400B+
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Even Staff
2016-01-27
Online Lending Under a Microscope
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 a broader scope. In the fall, the department issued a request for information on a variety of alternative lending companies. Among the topics the Treasury wanted insight on were how customers were marketed to, how the government could help innovation and how each platform managed the credit underwriting process. Over 40 companies responded to the inquiry, ranging from Cross River Bank to OnDeck. Even online payments giant Paypal was included and in a response, the company said it was “well regulated” under existing law. “[A]dditional regulation could stifle the innovation these products bring to the market and the benefits they provide to consumers and small businesses,” Richard Nash, Paypal’s Head of Government Relations wrote at the time. SoFi echoed a similar tone. The alternative student lending platform addressed the notion that it and its competitors are not subject to consumer lending laws and operate without oversight. “This is not correct,” SoFi wrote. “As a private education lender, SoFi is a covered person under Title X of the Dodd Frank Act and is subject to examination by the Consumer Financial Protection Bureau.” Other respondents, like Lending Club, also said consumer protection regulations offer borrowers protection.
Six regulatory themes emerge
The latest update to the inquiry is a response from the Treasury, where officials noted “six themes” that emerged from lenders’ responses. According to legal firm Manatt, Phelps & Phillips, the themes are:
- Alternative lenders could do a better job to address small businesses.
- Existing underwriting models haven’t been tested in a full credit cycle.
- Credit underwriting algorithms are often seen as a black box.
- Loan terms, conditions and warranties need better standardization and transparency.
- Alternative lenders are developing more partnerships with banks and CDFIs.
- Risk retention is a major topic of debate, something journalists have noted before.
It’s possible the Treasury will issue an update in the New Year, but exact details are thus far unknown. An unfortunate comparison Attention from regulators is pushing critics to make unfortunate comparisons between alternative lenders and the mortgage lenders of yesteryear. The process in which industrial banks profit by collecting fees on loans that they then pass along to be packaged as securities gives some onlookers an eerie feeling of déjà vu. Without the appropriate oversight, this type of model can quickly turn into the out-of-control and irresponsible subprime lending culture that was responsible for the 2008 Financial Crisis. During the housing bubble, lenders raked in record profits by lending to anything that moved, knowing that the mortgages would quickly be passed along to Fannie Mae or Freddie Mac for securitization and would not be kept on the books in the long-term.
What’s next?
Despite the growing cloud over the space, regulatory scrutiny could actually serve to boost the public’s confidence in the new industry.
If alternative lenders continue to uphold a fair and honest level of practice, government inquiries and investigations will churn up an environment that consumers can continue to trust. Rules, regulations and oversight are simply part of the game in the world of finance to prevent fraud and criminality and protect the interests of consumers. If anything, this type of attention serves as a further indication that alternative lending is making a major disruptive impact on the financial world.
Disclamer: The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the suitability of any Even Financial product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional. Any information or statistical data sourced by Even Financial through hyperlinks, from third-party websites, are provided for informational purposes only. Although we promote products and services form our partners, our opinions are our own.
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Goldman Sachs-backed Even Financial, a digital matchmaker between banks and customers, just bought an insurance startup as life insurers are seeing policy applications boom
Even Financial has acquired LeapLife, a leading insurtech platform. The addition of LeapLife allows Even to immediately commence its insurance capabilities, aimed at simplifying and enhancing the way consumers search, compare, and get matched with insurance policies (LeapLife’s existing platform will continue to operate from leaplife.com). Business Insider wrote an article about it, interviewing our CEO and Founder Phill Rosen.
Even Financial Launches Insurance Offerings With Strategic Acquisition of LeapLife, a Leading Insurtech Platform
Pioneering B2B Fintech Expands its Industry-Leading Financial Services Monetization Platform to Help Insurance Carriers Find and Connect with Consumers New York, New York – April 22, 2020 – Even Financial (Even), the leading API for financial services search, acquisition, and monetization, announced today that it will be launching services for the insurance industry through the acquisition of LeapLife, an insurtech platform and digital life insurance agency. The addition of LeapLife allows Even to immediately commence its insurance capabilities, aimed at simplifying and enhancing the way consumers search, compare, and get matched with insurance policies (LeapLife’s existing platform will continue to operate from leaplife.com). Even and LeapLife now offer the only full end-to-end, multi-carrier digital life insurance marketplace experience. Over the coming weeks, Even will further integrate LeapLife’s technology and insurance offering into its industry-leading API, making turnkey insurance marketplaces programmatically available to a vast network of channel partners — when and where their consumers are most in need — while also enabling the company to expand to other insurance sectors, including homeowners, renters and auto insurance. This adds to Even’s peerless breadth of real-time, personalized financial product offers — an expansive suite that already includes loans, savings, credit cards, and more. “Even’s goal to evolve how financial institutions find and connect with consumers is not limited to loans or credit cards, but applicable to all financial products and services, including insurance,” said Phill Rosen, Even Founder and CEO. “Despite its importance, purchasing life insurance is often an overwhelming and inconvenient experience. With more than $600 billion in premiums paid each year, and only 6% of policies sold completely online, we see tremendous opportunities to help modernize the life insurance industry and offer solutions that solve challenges for consumers and carriers alike.” LeapLife is an established insurtech platform and digital life insurance agency that utilizes data science, deep underwriting knowledge, and proprietary technology, enabling consumers to apply for instant-decision life insurance policies with real-time quotes. LeapLife works with many best-in-class insurance carriers to offer consumers a seamless experience from beginning to end. This approach made Even and Leaplife a perfect match. As a digital insurance broker, LeapLife offers personalized life insurance recommendations based on a consumer’s unique needs. Paired with the Even API, which enables customer acquisition for insurance to be native and programmatic, consumers benefit from a more streamlined, transparent, and highly personalized experience when shopping for life insurance. Just as Even’s 2018 acquisition of Birch (the award-winning credit card rewards app) allowed the company to accelerate its expansion into credit cards, the addition of LeapLife will similarly put Even at the forefront of consumer insurance offerings. Charles Svirk of MassMutual Ventures, an investor in Even, said “The Even and LeapLife teams share a vision that the future of insurance acquisition will rely on the power of data-driven, programmatic distribution. We are thrilled to support them as their industry experience, impressive technology, and trusted relationships will help scale Even’s insurance offering and build partnerships to provide these critical innovations in insurance acquisition.” The Even API and platform solve significant, long-standing pain points in financial services acquisition by seamlessly connecting supply and demand. Even has continued its rapid growth trajectory in 2020, surpassing over $1.5 billion in credit issued through its API and expanding its platform to over 400 partners. Even has secured over $55 million in funding from major financial institutions, venture capital firms, and fintechs to back its goal to evolve the financial services acquisition ecosystem. About Even Financial Founded in 2015, Even Financial is a B2B fintech company that is transforming the way financial institutions find and connect with consumers. By seamlessly bridging financial institutions (including American Express, Goldman Sachs, and SoFi) and channel partners (such as TransUnion and The Penny Hoarder) via its industry-leading API, Even turns any consumer touchpoint into an ROI-driven, fully customizable, programmatic acquisition source for financial product offers with full compliance, security, and scale across loans, savings, credit cards, insurance, and more. Even is backed by leading financial services firms and VCs including American Express Ventures, Canaan Partners, Citi Ventures, F-Prime Capital (Fidelity), Greatpoint Ventures, Goldman Sachs, LendingClub, and MassMutual Ventures. Even is the leading search, comparison, and recommendation engine for financial services. Media Contact: media@evenfinancial.com
Even CEO/Founder Phill Rosen quoted in Protocol Braintrust Newsletter
Our CEO and Founder Phillip Rosen was included in the most recent Protocol Braintrust newsletter along with answers from some thought leaders from Plaid, Slack, and DuckDuckGo!