79 Pages Posted: 10 Apr 2017 Last revised: 15 Jul 2017
Date Written: April 9, 2017
The digital economy is changing everything, including how we borrow money. In the wake of the 2008 crisis, banks pulled back in their lending and, as a result, many consumers and small businesses found themselves unable to access credit. In the space left vacant by these traditional financial institutions has come a wave of online firms called marketplace lenders. These platforms are fast making antiques out of many mainstream lending practices, such as face-to-face interviews with loan officers and long paper applications. Instead, through underwriting by automation — utilizing big data (including social media data) and machine learning — loan processing that once took weeks can now be done overnight. The result of these fintech advances has been quicker access to capital, more economic efficiencies, and even greater prospects for access to credit for the unbanked and underbanked. “Click here” is the new “sign on the dotted line.”
But there is a lot still to learn about marketplace lending. How do these firms work and what kinds of products do they offer? Moreover, what role will they play in the future of American debt and credit markets? This Article explores these questions and assesses current government responses to the nascent industry. It also surveys the current consumer protection landscape for marketplace lenders and analyzes a multi-year dataset of complaints submitted to the CFPB relative to products offered by these firms. The Article concludes by offering several observations and policy considerations for how consumers navigate this new world of bitcredit.
Keywords: bit credit, digital, lending, banking, consumers, small businesses, fintech, non-banks, lenders, mortgages, CFPB, consumer protection, SEC, Consumer Financial Protection Bureau, credit, access, unbanked, underbanked, machine-learning, loans, underwriting, consumer complaints, privacy, commerce
Suggested Citation: Suggested Citation
Odinet, Christopher K., Consumer Bitcredit and Marketplace Lending (April 9, 2017). Alabama Law Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2949456