Credit Chronometer

MARKETPLACE LENDING

Marketplace lending, in the broadest sense including peer-to-peer and online lending, continues to be shaped by advances in fintech, regulatory uncertainty and major legal decisions regarding “true lender,” “valid when made” concepts and the application of usury laws. A technologically savvy consumer base creates the potential for marketplace lenders to outperform their traditional counterparts and their successes are providing lessons to be learned by traditional lenders. The Credit Chronometer offers analysis and advice for avoiding the pitfalls that have historically led to shorter growth cycles and battles over loss distribution.

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ABOUT THE AUTHOR

Joseph Cioffi is a partner at Davis & Gilbert in New York City where he is Chair of the Insolvency, Creditors’ Rights & Financial Products Practice Group, a multidisciplinary practice spanning corporate, insolvency and litigation. He has a unique perspective afforded by his experience in all stages of credit and market cycles, including in subprime lending investments, operations and litigation. Joseph and his group have been deeply involved in disputes and litigation resulting from the last financial crisis. He has written for or has been quoted by numerous publications, including American Banker, Law360, Asset Securitization Reporter, The Banking Law Journal, The Journal of Bankruptcy Law and Auto Finance News, regarding auto loans, student loans, marketplace lending, subprime residential mortgage-backed securities (RMBS) and PACE (Property Assessed Clean Energy) financing.

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ABOUT THE INSOLVENCY, CREDITORS’ RIGHTS & FINANCIAL PRODUCTS GROUP

Davis & Gilbert’s Insolvency, Creditors’ Rights & Financial Products Practice Group represents clients in a broad range of corporate, insolvency and litigation matters. The group has been actively involved in many of the most notable and highly visible business events in recent years related to the last economic downturn and has vast experience in the area of subprime lending, including the operation of origination platforms, relationships with servicers and defending large-scale asset-backed securities litigation. The broad and diverse experience of their attorneys makes them particularly well-equipped to advise clients in rapidly evolving markets, such as, those for auto loans, student loans, marketplace lending, mortgage loans and PACE (Property Assessed Clean Energy) financing. Additional highlights of the practice include the following:

Litigation: The group regularly prosecutes and defends litigation involving complex financial transactions and instruments and has defended residential mortgage-backed (RMBS) securitization litigation, including fraud and repurchase claims, involving nearly $2 billion in claims.

Bankruptcy: The group guides clients through financially distressed situations and helps formulate and execute creditor enforcement strategies, in particular, in the case of intermediaries facing obligations to third parties. The group has defended nearly $1 billion in fraudulent transfer claims brought by the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC.

Corporate: The group also advises on a full range of financing transactions, including secured revolving and term credit facilities, receivable financing arrangements, intercreditor agreements, warehouse lending facilities and loan purchase agreements.

For more information about the Insolvency, Creditors’ Rights & Financial Products Practice Group, click here.

Marketplace Lending

Marketplace Lending: 60-Second Market Review and Insights

Sep 18, 2017 | By JOSEPH CIOFFI

ABS Issuances, by the Numbers

Nine ABS deals totaling $3 billion closed in Q2 2017, a 76% increase from Q2 2016. Q2 ABS issuances included approximately $2 billion in consumer (up 28% versus Q1 2017) and approximately $1 billion in student (down 5% versus Q1 2017). All deals were rated. Total ABS issuance is expected to be over $11 billion in 2017.

Performance and Practices

Performance continued to weaken as delinquencies and charge-offs increased in Q2 for personal, student, and subprime auto loans. Prime credit card portfolios are showing multi-decade delinquency rate lows. Non-bank lenders have seen increased losses due to loans to borrowers with riskier credit, re-normalization of credit performance, “loan stacking” and re-leveraging of consumers’ balance sheets caused by the increase in available credit.

In response to legal and regulatory uncertainty, platforms are operating in ways to address “true lender” risk as issuers structure ABS transactions to protect against usury law risks.

Looking Ahead

Regulatory uncertainty will continue to be a significant challenge going forward. Practices will be shaped by the standards imposed on fintech and other non-bank entities, which in turn, depends in part on the outcome of the tussle between the Office of the Comptroller of the Currency (OCC), which has begun offering a special purpose national charter, and state regulators who believe they are best suited to protect consumers. The industry may soon also be impacted by legislation introduced recently in the Senate and the House that would overrule the 2^nd Circuit’s Midland v. Madden decision denying purchasers of high-interest loans the benefit of preemption of state usury laws afforded their sellers under federal law. Despite the ongoing debates, there appears to be momentum for more uniform and streamlined laws in the future that will provide greater certainty and, consequently, cost advantages for marketplace lenders.

Massimo Giugliano, an associate in the Insolvency, Creditors’ Rights & Financial Products Practice Group of Davis & Gilbert, contributed to this post.