Monthly Archives: May 2016

Marketplace 2.0

Online marketplace lending platforms are offering compelling new ways for consumers and businesses to obtain loans. Driven by innovations in financial technology (FinTech) that have created dramatic efficiencies, these platforms have changed the face of financial services. According to a KPMG report, the U.S. online alternative finance industry originated $36.4 billion in loans in 2015, up from $11.6 billion in 2014. This segment of the finance industry has obviously been expanding rapidly and we anticipate this expansion will continue. Just as FinTech has created new online lending models, crowdfunding has created new models for equity investing, donations, and rewards. A …

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SCOTUS’ Spokeo Decision Limits Consumer Credit Class Actions

Last week, the U.S. Supreme Court handed a temporary victory to a “people search” website, when it remanded a closely watched case to the Ninth Circuit for further proceedings. The case, Spokeo, Inc. v. Robins, is a consumer credit protection class action brought under the federal Fair Credit Reporting Act (FCRA). The case is of interest to the marketplace lending industry, which is subject to the multitude of federal consumer credit protection laws, such as the FCRA. Spokeo is a people search engine that organizes people’s online information into data profiles for various users, including “employers who want to evaluate …

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OCC Signals Support for FinTech Innovations

The federal banking agency that supervises national banks and federal savings associations – the Office of the Comptroller of the Currency (“OCC”) – has formally taken up financial technology (“FinTech”) as an important regulatory issue. In a white paper released on March 30th, the OCC outlines principles that the OCC will follow in its approach to regulating FinTech. The white paper reflects the OCC’s desire to work with banks and FinTech firms to foster the responsible development of FinTech innovations. The white paper seeks public comment on issues raised in the paper by May 31st.

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Online Lender Fined for Requiring Repayment by AutoPay

In a March 16th decision, a federal magistrate judge in California ordered a lender to pay $500,000 in statutory damages under the Electronic Funds Transfer Act (“EFTA”) for conditioning online loans on borrowers’ agreements to repay such loans through automatic electronic funds transfers. Under the EFTA (15 U.S.C. §1693k), a lender may not condition an extension of credit on a consumer’s repayment by means of preauthorized electronic fund transfers (“EFTs”). The opinion in the case, Kempley v. Cashcall, Inc., notes that this is apparently the first court since the EFTA’s enactment to apply the EFTA’s civil damages provision in connection …

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SCOTUS Raises the Stakes in Madden v. Midland Funding

The Supreme Court recently “raised the stakes” concerning its potential review of a significant ruling of the Second Circuit by asking the Obama Administration whether the Supreme Court should review the case. The Obama Administration’s recommendation could potentially nudge the Court into reviewing the significant case that could permanently alter the national marketplace lending industry moving forward by jeopardizing a prevalent funding model used in the industry. The matter, Madden v. Midland Funding, concerns the current bank-partnership model that many marketplace or alternative lenders use to avoid compliance with individual states’ usury laws and interest-rate caps. The Second Circuit, in …

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The Perils of Success: Recent Regulatory Focus Heightens Potential For Future Risk

Two recent regulatory actions – one by the Consumer Financial Protection Bureau, the other by the California Department of Business Oversight – highlight the increased scrutiny facing marketplace lenders from a consumer protection perspective. Companies involved in the marketplace lending industry will likely face additional regulatory inquiries and heightened scrutiny throughout the remainder of 2016, as the industry’s relationship with government regulators on all levels continues to evolve. As marketplace lenders continue to generate greater interest from both consumers and traditional financial services companies, so too will these lenders face rising regulatory risks. CFPB Inquiry Earlier this month, the CFPB …

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Crowdfunding 101

The concept of “crowdfunding” offers a new option to startups and small businesses for raising capital, although it is a greatly misunderstood and misused term. It refers to the pooling of money from a crowd for the funding of a project or venture, whether utilizing a donation model, reward model, royalty model, debt model or equity model. Securities laws apply when equity or debt securities are offered. Title III of the JOBS Act added a new Section 4(a)(6) to the Securities Act, which provides an exemption from the registration of such securities provided the issuer complies with certain rules and …

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