Stacking is a significant challenge for the online lending industry. While most consumers are responsible individuals who only want to borrower what they can afford, there is a segment of society who are challenged to manage their finances. The advent of online lending has made it easier to apply for credit and receive it. If you are determined, you can quickly take out multiple loans from several different platforms and, perhaps, default on some or all. Until now, it has been difficult for online lenders to uncover individuals like this but late last month ID Analytics made an announcement they had partnered with Lending Club, Prosper and Marlette Funding in the launch of the “Online Lending Network”. This new entity is a consortium formed to “enhance responsible lending, help protect consumers and businesses, and address credit and fraud risks”.
ID Analytics is a wholely owned subsidieary of LifeLock – the company known for protecting individuals against identity theft – so they are already in the space of online identification and risk mitigation.
The Online Lending Network will be the epicenter where lenders report when a consumer requests an offer for a loan product, submits a loan application, or when a loan is funded. The lender will receive information on whether that consumer has either requested other loan offers or applied for loans elsewhere in the days, hours or minutes before. ID Analytics calls the process “near real-time” thus countering “high-velocity fraud”. The company also states that its services may have the potential to protect authentic consumers from overextending their credit capacity to facilitate responsible lending.
Last year, the New York Times covered the challenge but ironically appeared to place the blame on platforms and not borrowers. The bizarre report said online “loans are instead worsening some people’s financial troubles”.
Well now there is a solution at hand.
Even better, this is an industry solution. The alternative would be for a government regulator to jump in with guns blazing. A frightening prospect to say the least.
Doug Mihalow, Director of credit risk management for Marlette Funding, explained;
“The Online Lending Network enables us to achieve two simultaneous goals. Protecting consumers from opening more loans than they are able to reasonably repay and reducing the number of fraudulent accounts opened.”
Good for borrowers and good for online lending platforms.