Peer-to-peer lending – also called marketplace lending – is relatively new. A marketplace lender connects borrowers with investors willing to fund the loan. Often, investors can lend amounts as little as $25 on each loan they select. The lending platform generally handles the underwriting and transfers ownership of the loan to investors while continuing to handle the loan servicing.
Marketplace lenders offer an array of financial products, from mortgages to auto loans to student loans. Online marketplace lending platforms usually offer both new loans and loans to consolidate or refinance existing debt.
But peer-to-peer lending has drawn criticism in the past for the relatively high risk to investors, and for the fact that some P2P lenders don’t always verify borrower income or debts. P2P lenders also came under scrutiny late last year, when it was revealed that one of the San Bernardino shooters may have used a P2P loan
to finance weapons purchases.
CFPB Director Richard Cordray said that by accepting consumer complaints about the industry, the CFPB is giving borrowers an option when the process goes awry.
“When consumers shop for a loan online we want them to be informed and to understand what they are signing up for,” Cordray said. “All lenders, from online startups to large banks, must follow consumer financial protection laws. By accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn to when they encounter problems.”
The CFPB also released a consumer bulletin to educate borrowers about potential P2P pitfalls.
“While some marketplace lenders may advertise lower interest rates, in some cases consumers could lose important loan-specific protections by refinancing an existing debt,” the CFPB warned. “Specifically, consumers should know that they may sign away certain federal benefits, such as income-driven repayment for federal student loans or servicemember benefits related to debt incurred prior to entering active duty.”
The Consumer Financial Protection Bureau has started accepting consumer complaints about online peer-to-peer lenders.