San Bernardino shooter loan draws attention to online lending industry

A single bad loan would hardly concern most lenders – but not if the recipient is a suspected terrorist who killed 14 Americans.

That’s the awkward position Prosper Marketplace found itself this week after it was revealed that San Bernardino shooter Syed Rizwan Farook borrowed $ 28,500 from the San Francisco online lender weeks before the Dec. 2 rampage. .

Federal officials told The Times that the loan may have helped shooters pay for ammunition, homemade bomb components, and target practice at local ranges.

Now, this unique loan has prompted closer regulatory scrutiny of the rapidly growing online lending business.

A bipartisan task force set up in March by the House financial services committee to broadly investigate terrorist financing expects to examine whether new regulations are needed after the San Bernardino shooting, the spokesperson said. word of the committee, Jeff Emerson.

The idea is to improve the nation’s ability “to deprive terrorists of the money they need to carry out their attacks,” he said.

Financial Services Committee Chairman Jeb Hensarling (R-Texas) said this week that he had previously worked on a terrorist financing bill that may need to be adjusted to reflect issues raised by the shooting of San Bernardino. He said “everything is on the table” regarding the growing control of online lenders, according to Bloomberg.

Then on Friday, the California Department of Business Surveillance announced it was conducting an investigation into the industry. 14 lenders are required to provide detailed information about their lending activities in California and nationwide.

The ministry would not name the lenders under investigation, but Prosper admitted to receiving an investigation.

The Lending Club of San Francisco, Prosper’s main rival, declined to comment, but sources said he was also part of the investigation.

State regulators have requested information on loan volumes, interest rates and loan financing by investors.

Tom Dresslar, a spokesperson for the department, said the investigation into growing multibillion-dollar online lending activity has been underway for months.

But the shooting suddenly put the industry in the spotlight – and raised concerns among lenders of regulatory overreaction.

Online loans give customers quick access to large sums of money. While credit cards can take weeks to arrive and offer an average line of credit of around $ 5,000, an online loan from Prosper can cost as much as $ 35,000 – and borrowers can get their money back in days and hours. no in a few weeks.

Some online loans may offer significantly lower rates than credit cards, but others may have rates above 100%.

The credit facility offered by lenders has raised concerns among some consumer advocates that borrowers will find themselves trapped in unaffordable loans taken out in desperation.

This summer, the US Treasury Department invited lenders and the public to provide comments as part of a preliminary industry study, which could be a first step towards new regulations.

Meanwhile, the state’s investigation began with a request for records from consumer and small business lenders, including Avant, Social Finance and Kabbage, who confirmed their involvement. Business lender OnDeck Capital and payment companies PayPal and Square, both of which offer small business loans, have also reportedly received applications but have not commented.

Industry experts are worried about the investigation as it appears the loan to Farook – a county health inspector who earned around $ 52,000 a year – has been exploited.

“You have a borrower who has no known ties to terrorist organizations and who presumably has a good credit history,” said Brian Korn, an attorney with the Manatt Phelps & Phillips law firm who represents loan companies in Canada. line. “I don’t think new regulations, unless they allowed outright racial or ethnic discrimination, would have produced a different result.”

What also seems unlikely is that ISIS or some other group could have used Prosper to funnel funds directly to Farook.

The company, like Lending Club, operates as a peer-to-peer lender, connecting borrowers and investors who want to fund their loans. But this process is anonymous and, according to experts, would be almost impossible to handle. In addition, there is so much demand from investors to purchase the loans that it would not be necessary to do so.

There are also rules built into the financial system that aim to prevent money laundering and keep money out of the hands of terrorists and other criminals, rules Prosper said he already follows.

Banks and other lenders must maintain the names of their customers in a federal database of terrorists and other known criminals. Financial institutions should also report any suspicious activity to the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

The House Financial Services Committee has asked the Treasury Department if any suspicious activity reports have been filed on the financial activities of Farook or his wife, Tashfeen Malik. But it is likely that neither the loan itself nor any of Farook’s activities after receiving the loan would have been considered suspect.

Loans from Prosper are disbursed directly to bank accounts by WebBank, a federally regulated institution in Salt Lake City.

And while a $ 28,500 deposit is a lot of money, the deposit itself would not have been suspect, said a former federal law enforcement official familiar with financial regulation.

“It could be from an insurance settlement or something else owed to them,” the former official said.

Banks are also required to file reports if customers make cash deposits or withdrawals of $ 10,000 or more, but Farook would not have needed to pay cash for the attack items.

Rep. Brad Sherman (D-Sherman Oaks), a member of the House Financial Services Committee, said he didn’t think the loan itself would have been a revelation.

He also believes that Farook and Malik would have found a way to carry out their attack even without Prosper’s loan.

“I never evaluated the price of a homemade bomb, but I don’t think you need $ 28,000 to get one,” Sherman said. “They seemed determined to kill a lot of people.”

He said the committee should be concerned that the money is ending up in the hands of terrorists and consider further regulation of online lenders, but those are two separate issues.

“We shouldn’t look at consumer protection for middle-class families through the prism of outrage and tragedy in San Bernardino,” Sherman said.

[email protected] | Twitter: @jrkoren

[email protected] | Twitter: @JimPuzzanghera


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