California State regulators have launched an inquiry into a number of online lenders, according to a Wall Street Journal report.
The California Department of Business Oversight, a state agency which regulates securities and lending in the state, asked 14 online lending companies for more information about their investors, lending policies, and business models. Online lending companies currently involved in the industry include SoFi, Prosper Marketplace, Avant, Kabbage, and On Deck Capital (ONDK).
The inquiry follows recent reports that Prosper facilitated a $28,500 loan to Syed Farook, just weeks before he and his wife Tashfeen Malik killed 14 people during an ISIS-inspired shooting spree in San Bernadino. In July, the U.S. Treasury Department announced it would be opening an investigation into the growing online industry.
Loans issued through online lenders have increased rapidly over the past year, calling into question whether the industry needs to be regulated more heavily. According to Morgan Stanley, online lenders issued $14 billion worth of loans in 2014.
According to WSJ, the information provided to the California Department of Business Oversight by the companies could be used to determine whether the agency needs to consider new rules and regulations for the lenders.
It’s worth noting that the inquiry was planned before officials discovered that Prosper issued a loan to the terrorists involved in the San Bernadino tragedies.
But many believe that it’s only a matter of time before online lenders face increased scrutiny and regulation. Arthur Levitt, the longest-serving chairman of the U.S. Securities and Exchange Commission and an advisor to SoFi, toldFortune earlier in the year that the industry would likely face increased regulation. But perhaps that’s not such a bad thing for these companies.
Levitt explained, “[r]egulation is the good housekeeping seal of approval. If you are known early on by key players the U.S. House of Representatives, U.S. Senate and SEC, it places you ages ahead of competitors.”
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