Based on its lofty 146-year history of catering to the privileged, most people wouldn’t confuse Wall Street powerhouse Goldman Sachs with a typical consumer-lending institution.
But that disconnect will soon come to an end as Goldman Sachs will reportedly offer loans online to both consumers and to small businesses, looking for a piece of a fast-evolving marketplace worth nearly $850 billion.
That’s a big change — and possibly controversial one — for Goldman, which normally services high-net-worth clients.
Why is there potential for controversy? After the financial crisis, Goldman was accused of profiting while homeowners lost their properties to foreclosure. Goldman allegedly took short positions against mortgage securities, the equivalent of betting against these products backed by subprime loans. Those loans would be later plagued by foreclosures.
The New York Times puts it this way: “If the bank is too hard on its borrowers — suing a struggling family for unpaid debts, for example — it could revive a popular image as a bank that earns profits at the expense of ordinary people.”
Adding consumer lending gives Goldman Sachs a spot in a growing field of competitors. Along with traditional bank lenders such as Wells Fargo, JPMorgan Chase and smaller banks, websites like Lending Club, Prosper, On Deck and even PayPal are offering small loans — some in the peer-to-peer lending business.
Goldman can legally set up a consumer lending business because it converted from being an investment bank into a bank holding company during the financial crisis. It made this move to better protect itself against the federal government. The move also gave Goldman the chance to interact more directly with consumers.