Recent developments underscore the need for hedge funds and other non-bank entities engaged in marketplace lending to implement proactive policies and procedures to address the risk that their marketplace lending activities will draw the scrutiny of the Consumer Financial Protection Bureau (the “CFPB”) and other regulators in connection with consumer protection laws and regulations.
While the CFPB does not currently regulate non-bank entities engaged in marketplace lending, the recent growth of marketplace lending platforms has resulted in hedge funds and other non-bank entities engaging in activities that more closely resemble consumer lending transactions.
Hedge funds and other non-bank entities should anticipate that, as their marketplace lending activities migrate closer to consumer lending, these activities will be subject to scrutiny by the CFPB and other regulators in connection with consumer protection laws and regulations.
In this memorandum, "Will the Real Marketplace Lender Please Stand Up? Understanding the Hidden Consumer Regulatory Risk for Hedge Funds," Richards Kibbe & Orbe partner Michael Mann outlines the potential risks and theories of regulation for non-bank entities engaged in marketplace lending and suggest several areas where proactive policies and procedures would benefit hedge funds and other non-banks engaged, directly or indirectly, in the fast evolving marketplace lending industry.