After Explosion Of LC, Regulators To Squeeze Online Lenders by PitchBook
It’s been a rough couple of weeks for online lenders. Last week, Prosper laid off roughly 28% of its staff, dropping a total of 171 jobs, and LendingClub (NYSE: LC) fired its CEO amid a scandal that involved the sale of $22 million worth of loans that didn’t meet the buyer’s criteria. The industry has, until this point, grown at a rapid rate without much scrutiny or governmental regulation.
Nearly $5.7 billion of venture capital has been invested in online lending platforms since 2010, according to PitchBook data, including $3.1 billion in 2015 alone. Deal count rose each year during that timeframe from just 15 in 2010 to 111 in 2014. The explosion of investment has also generated six unicorns, and it has been predicted that by 2025 $150 billion in loans will be originated online in the U.S. market alone.
Regulation finally looks to be on the horizon and could have a major impact on the industry. Along with the news of layoffs, missed expectations and shoddy lending practices, the U.S. Treasury Department concluded a year-long investigation into lending platforms this week, finding multiple risk areas and suggesting regulations to be imposed, including borrower protections, marketplace transparency and expansion of government access to company data.
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