Nat Hoopes is the executive director of the Marketplace Lending Association (MLA) where he is responsible for overseeing the strategic direction and day-to-day operations of the MLA, as well as communicating with the public and policy makers to educate them about > marketplace lending. The MLA was founded in 2016 by The Prosper, Funding Circle and Lending Club. Since its inception, Hoopes has established a D.C. office and expanded the membership base to include other U.S. lending platforms that are committed to responsible innovation.
Prior to working at the MLA, he was the Executive Director at the Financial Services Forum in Washington D.C., where he worked on key policy issues affecting the nation’s largest financial firms. He has spent more than a decade working in financial services and public policy, and played a key policy role on Capitol Hill in the wake of the financial crisis, including in the development and bipartisan negotiation of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Hoopes also worked on developing legislation to expand opportunities for small businesses and startups through equity crowdfunding as part of the Jumpstart-our-Business-Start-Ups (JOBS) Act.
We caught up with Mr. Hoopes at the recent Consumer Credit Summit at Card Forum, and heard about the latest in marketplace lending…
The MLA has been growing with new members lately, including SoFi, PWC, LendingPoint and more. What does your organization’s growth have to say about the industry itself?
The industry is incredibly innovative, but it’s also maturing. While they are still fierce competitors, I think many of these companies are now focused on working together wherever possible to achieve some core public policy objectives. The MLA also sets high standards and best practices, and provides resources for policymakers on behalf of the whole industry. Some of the more mature companies like PWC and Experian who are MLA Associate Members are bringing perspective from a certain vantage point in the marketplace lending ecosystem and can share insights with some of these lending companies. Overall, I’ve been impressed with how the industry has dealt with both the ups and the downs, and has continued to grow and is delivering great products to borrowers and new opportunities to investors.
Since marketplace lending is a relatively young industry, how are you approaching the work of the Association?
The key challenge for a young industry dealing with Washington and state capitals is to be both nimble and to be transparent. You can’t achieve any kind of policy change if the decision-makers don’t know who you are and what you are trying to achieve. First, we’ve really worked hard to build trust with policymakers by demonstrating how our loans are helping people. We can show how our borrowers save money via lower interest rates, how borrowers save when they consolidate and get on top of their credit card debt, how important it is to get access to capital to expand a small business or to to pay for higher education. Overall, the biggest obstacle the industry faces in the regulatory sphere is the overlapping state/federal framework that introduces a lot of challenges for young companies. The MLA is helping members attack that challenge in a number of ways, but the key is to continue to make the case for a level playing field with the incumbents to promote healthy competition.
What is the current industry breakdown of loans that are acquired via marketplace lending (i.e., mortgage, student, small business, point-of-sale etc.)? And do you see any trends in marketplace lending in these loan categories?
It’s sometimes a bit hard to get a precise estimate on the various categories, but in the consumer space, you can look at the growth in deal activity to get some hard numbers. For the established platforms, such as Lending Club, SoFi and Prosper, we see a consistent issuance of securitizations every year. Looking at data from the data tracker dv01, it’s clear that investor appetite for these securitizations has grown, leading to an increase in the total securitized balance. Prior to 2015, there were few players in the space, and only a handful of consumer unsecured securitizations. 2015 and 2016 saw several new issuers enter the space, including Avant and Marlette. 2017 was the highest yet, reaching $13.6 billion of securitized consumer unsecured loans, across a number of platforms. According to PeerIQ, seven marketplace lending securitizations priced in the first quarter of 2018, totaling $4.3 billion, the 2nd highest level of quarterly issuance, representing 34% growth YoY. To date, cumulative issuance equals $33.4 billion across 114 deals. Earlier this year, there were roughly $25 billion in marketplace unsecured consumer loans outstanding. We are also really seeing the growth of the point-of-sale category with companies like Affirm and small business lenders like Funding Circle who have an international footprint.
How does marketplace lending capitalize on loan opportunities that traditional banks cannot?
It really depends – in small business lending, a lot of banks have a hard time serving small loan sizes because of the expense of the branch underwriting process. Small business owners often want to borrow quickly, they don’t want to waste a lot of time at a branch trying to get a loan, only to wait for a decision and find out they got rejected and now need to start over. On the consumer side, sometimes borrowers have many options for credit where a marketplace lender might simply be offering faster execution and a better interest rate in a personal loan than they had on a credit card. Then there are tens of millions of “thin-file” borrowers who have never defaulted on a loan but are still struggling to break into what we think of as prime credit categories of loan products. Marketplace lending platforms often use more data and more risk based pricing to bring good products to responsible people who just don’t have much of a credit history. In student loan refinancing, it’s an entirely new market that was created five or six years ago by marketplace lending firms who saw a space that traditional banks were not serving.
What is on the regulatory and/or legislative agenda for the MLA?
First, because of the many partnerships between banks and marketplace lending platforms, the MLA has helped organize an approach to a huge range of government bodies, from the federal banking regulators – OCC, the Fed, the FDIC, to the SEC, to the CFPB and the state banking supervisors (CSBS). We’ve spent a good deal of time working through the Madden v Midland fallout — a court case that did not involve marketplace lending. We’ve done some work around the potential federal bank charter options, looked at areas for recalibration on certain regulations, and responding to state level licensing and reporting proposals. We are working on legislation to promote IRS data access modernization, so that applicants for loans can seamlessly share verified annual income information if they choose to. Another initiative that our industry is starting work on is promoting high speed internet access for underserved rural and urban communities.