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Treasury also suggested that the online lenders support more
transparency in their transactions and suggested that the
government should create an interagency working group to help
identify existing regulations that apply to the lenders.
Treasury's recommendations were the result of a nearly year-long
examination of the fast-growing online marketplace lending
industry.
Marketplace lenders sell their loans on to investors. While they
make up only a tiny portion of the total lending market,
Treasury estimates that loan origination by the online lenders
could reach $90 billion by 2020.
Antonio Weiss, counselor to the Secretary of the Treasury, noted
that there is some evidence that default rates and charge offs
are increasing at these lenders, and investors are demanding
higher interest rates in return.
"This industry remains untested through a complete credit
cycle," Weiss said, speaking on a conference call with
reporters. "The new business models were developed in a period
of low interest rates, declining unemployment and relatively
strong overall credit conditions."
Online lenders may be facing their toughest test yet as scrutiny
by regulators and investors increases.
Lending Club's founder and Chief Executive Renaud Laplanche
resigned on Friday due to irregularities surrounding $22 million
in loans the company sold in March and April.
Several platforms have also reported slowing investment in their
loans, and Prosper Marketplace - the second-largest marketplace
lender behind Lending Club - cut more than a quarter of its
staff last week.
(Reporting by Michael Erman; Editing by Nick Zieminski)
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