Do FinTech Lenders Fairly Allocate Loans Among Investors? Quid Pro Quo and Regulatory Scrutiny in Marketplace Lending

72 Pages Posted: 8 Nov 2018 Last revised: 7 Jan 2020

See all articles by Liting Chiu

Liting Chiu

University at Buffalo, SUNY

Brian Wolfe

University of Texas at San Antonio

Woongsun Yoo

Central Michigan University

Date Written: September 30, 2018

Abstract

Marketplace lending platforms select which investors will have the opportunity to fund loans. Platforms claim to fairly allocate loans between retail and institutional investors, but we provide evidence that contradicts this claim. Institutional investors are allocated loans with lower default rates after controlling for interest rates, consistent with a quid pro quo exchange for volume commitments. However, when regulators are most likely to monitor the platform, we find that institutional-investor favor wanes, and platforms redirect lower default rate loans to retail investors. The evidence suggests platforms adjust allocation behavior to avoid costly regulatory intervention.

Keywords: Financial Intermediation, FinTech, IPO, Financial Regulation, Retail Investors

JEL Classification: G21, G23, G28, L81

Suggested Citation

Chiu, Liting and Wolfe, Brian and Yoo, Woongsun, Do FinTech Lenders Fairly Allocate Loans Among Investors? Quid Pro Quo and Regulatory Scrutiny in Marketplace Lending (September 30, 2018). Available at SSRN: https://ssrn.com/abstract=3281358 or http://dx.doi.org/10.2139/ssrn.3281358

Liting Chiu

University at Buffalo, SUNY ( email )

12 Capen Hall
Buffalo, NY 14260
United States

Brian Wolfe (Contact Author)

University of Texas at San Antonio ( email )

San Antonio, TX 78249
United States

HOME PAGE: http://https://sites.google.com/site/swimwolfe/

Woongsun Yoo

Central Michigan University ( email )

Mount Pleasant, MI 48859
United States

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