Online lenders, Lending Club and Prosper among them, have grown significantly over the last few years, lending billions to small business owners and consumers, who can quickly get approved and funded without meeting anyone face-to-face.
With the growth of online lending comes tighter regulation by state and federal officials.
The U.S. Consumer Financial Protection Bureau made it known to borrowers this week that the agency is accepting complaints related to the online lending marketplace.
“When consumers shop for a loan online we want them to be informed and to understand what they are signing up for,” said CFPB Director Richard Cordray. “All lenders, from online startups to large banks, must follow consumer financial protection laws.”
Cordray added that the CFPB is “giving people a greater voice in these markets and a place to turn to when they encounter problems.”
Millions of consumers take out personal loans online. Marketplace lending — often referred to as “peer-to-peer” or “platform” lending — is a relatively new borrowing arena.
A marketplace lender most often using its online interface to connect consumers or businesses seeking to borrow money with investors willing to buy or invest in the loan.
Generally, the marketplace lending platform handles all underwriting and customer service interactions with the borrower. Once a loan is originated, the company generally makes arrangements to transfer ownership to the investors while it continues to service the loan.
The consumer bulletin from the CFPB also highlights general steps consumers should take when shopping for a loan, including a loan from a marketplace lender. Key tips include:
Look at income and spending: Before taking out a loan, consumers should evaluate how much they can afford and really need to borrow. Consumers should understand the total cost of the loan as well as what the total monthly cost will be each month.
Check credit reports: Consumers should check their credit report to make sure there are no errors that could keep them from getting credit or getting the best available terms on a loan. Consumers should be sure the information in the report is accurate and up-to-date.
Shop around: Consumers who consider interest rates offered by multiple lenders or brokers may see substantial differences in the rates. Consumers should compare the costs and terms of loans to find the deal that is best for them.