The Marketplace Lending Association (MLA) has announced that it is backing the “Guidelines for Investing in Responsible Digital Financial Services.” These guidelines are the creation of the International Finance Corporation (IFC) which is part of the World Bank Group.
The MLA represents some of the most prominent online lenders in the US. Names like Prosper, LendingClub, and SoFi are members. These platforms have sought to differentiate their services from some platforms that do not provide risk-based pricing for borrowers and amortizing loans.
The Ten Guidelines established by the IFC are as follows:
- Promote Responsible Investment in Digital Finance
- Manage Risks Comprehensively with Growth of Digital Inclusion
- Foster a Proportionate Legal and Regulatory Framework
- Facilitate Interoperability and Infrastructures for DFS Ecosystems
- Establish Customer Identity, Data Privacy and Security Standard
- Promote Fair and Transparent Pricing
- Improve Disclosure of Terms and Conditions for Customers
- Enhance Customer Services For Problem Resolution and Product Innovation
- Prevent Over-Indebtedness, Strengthen Digital Literacy and Financial Awareness
- Track Progress to Mitigate Risks and Expand DFS Opportunities
“In California, we’ve seen how voluntary industry standards can play a crucial role in seeding sound public policy ideas in the area of disclosure. Here, the MLA is signing onto investment guidelines that seek to ensure that investors – both large and small — are evaluating digital financial services companies through a lens of both responsibility and innovation.”
Jacob Haar, Managing Partner of Community Investment Management and the Chair of MLA’s Investor Council added that digital financial services have the potential to be transformative solutions to increase financial health and inclusion globally.
“As the leading investor group funding responsible innovation in lending, we believe that it is incumbent on us to support best practices in the industry to protect customers and create alignment among all stakeholders.”
According to Martin Holtmann, IFC’s Manager of Digital Finance and Microfinance, opportunities for digital finance, or Fintech, have increased but so have the risk – particularly for lower income individuals.
“The Guidelines focus on embedding consumer protection into digital financial services and incorporate IFC’s due diligence practices for digital users and customers into investments. The guidelines will benefit digital financial service providers and their customers by helping investors to better evaluate and manage risks associated with digital transformation and we welcome MLA as a signatory and their commitment to our shared goals.”
The online lending industry in the US remains fragmented largely due to operational standards. Some Merchant Cash Advance platforms (MCAs) have been criticized for their lending services and potential for creating debt traps for borrowers. Of course, there is the PayDay lending segment which provides a valuable service but has also been lambasted by some as charging exceptionally high interest rates.