TheMarketplaceLendingOperatingStandards

Marketplacelendingisloweringthecostofcredit,increasingaccesstocapital,providingopportunities
toinvestorsofallsorts,andcontributingtoastrongerfinancialsystem.Thegrowthofmarketplace
lending,andthebenefitsitprovides,dependonmarketplacelendingplatformoperators
(marketplaces)upholdingoperatingstandardsthatprotectborrowersandinvestors.Topromote
responsiblepracticesindustrywide,membersoftheMarketplaceLendingAssociation(MLA)committo
followingtheseOperatingStandards.
TheMLArecommendsthattheseOperatingStandardsbeadoptedbyallcreditmarketplaces,whichwe
defineasplatformsthatmatchatleast75%ofloans,bydollar,withcommitmentsforfundingfrom
investors,beforetheloansareissued.
1) InvestorTransparencyandFairness
Themarketplacelendingmodelcanprovideahigherleveloftransparencytoinvestorsthanmany
traditionalinvestments,throughdetailedloanleveldataandinvestmentinspecificloans.MLA
membersprovideinvestorswithhighlytransparentdataandfairaccesstoloanswithinthemarketplace
investmentprogramstheyparticipatein.

InvestorDisclosureStandards
o Loanlevelhistoricaldata
Provideinvestorsaccesstodetailedloanleveldataonallloanspreviouslyissued
throughthemarketplacethatarerelevanttotheinvestmentprogrambeing
considered.Thisdatashouldincludeloanperformanceandapplicablecreditdata,
enablinginvestorstodevelopaninformedunderstandingofthehistorical
performanceofloansissuedthroughthemarketplace.
o Overallmarketplaceperformancedata
Provideinvestorsaccesstooverallperformancedataforinvestmentsinallloans
previouslyissuedthroughthemarketplacethatarerelevanttotheinvestment
programbeingconsidered,exceptwherenotpermittedbyregulators.Thisdatamay
besegmentedbycriteriasuchasproduct,vintage,orinvestortypewhere
appropriate.
o Investmentselectiondata
Forinvestmentprogramswhereinvestorsacquireinterestsinindividualloansona
discretionaryoractiveselectionbasis,providethoseinvestorsaccesstodetailed,
loanleveldataoneachloanavailableforinvestment.
Forinvestmentprogramswhereinvestorselecttoacquireinterestsinindividual
loansonanautomatedselectionbasis,providethoseinvestorswiththeabilityto
determinethecriteriaforloansinwhichtheywillinvest.
Forinvestmentprogramswhereaccreditedorinstitutionalinvestorsacquire
interestsinaportfolioofloans(e.g.,aninvestmentfund,etc.),oronapassive
selectionbasis,providethoseinvestorswithaclearexplanationofwhatloansmay
beselectedforinvestmentandhowsuchloanswillbeselected.
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Investorportfoliodata
Provideinvestorswithaccesstoregularlyupdated,loanlevelperformancedataon
theloansinwhichtheyhaveinvested.
AdditionalStandardsforNonAccreditedInvestors
o Theseadditionalstandardsareapplicabletomarketplacesthatacceptinvestmentfromnon
accreditedinvestorstotheextentoftheirinteractionswithsuchnonaccreditedinvestors.
Suchmarketplacesshouldprovidenonaccreditedinvestorsthefollowinginformation:
Expectedreturnsnetoffeesandlosses,wherepermitted
Anexplanationofhowthoseexpectedreturnsarecalculated
Anyfeesorchargesthatmaybeassessedtotheinvestor
ClearindicationthattheseinvestmentsarenotFDICinsured
Disclosureoftherisksofmarketplacelending
Descriptionoftheloanproductavailableforinvestment
Descriptionofanyautomatedinvestingprogramthemarketplaceoffersthatmaybe
availabletotheinvestor
Noticeofpotentialdelaysthatmayoccurindeployingmoneyallocatedtothe
marketplaceandresultincashdrag
Theprocessforwithdrawingmoneyorliquidatinginvestments,ifapplicable
Generaldescriptionofhowcreditworthinessisevaluated,includinghowloanpricing
isdetermined
Anyrequirementsforinvestment,includingeligibilityandminimuminvestment
amounts
Informationonarrangementsintheeventofthemarketplaceceasingoperations

FairLoanSelection
o Ifthemarketplacesbusinessstrategyinvolvesretaininganinterestinameaningfulportion
oftheloansthatarerelevanttoaspecificinvestmentprogram,suchas10%ormoreofthe
loanswithinagivenloanproduct,disclosetoinvestorsconsideringinvestinginthesame
investmentprogramhowthemarketplaceselectswhichinterestsinloansitretainsand
whichinterestsareofferedtoinvestors,andtheoverallperformanceforthoseinterestsin
loansthemarketplaceretains.
o Maintainapolicywithrespecttoemployeesinvestinginloansissuedthroughthe
marketplace,toaddresspotentialconflictsoruseofnonpublicinformation.
o Treatdifferentcategoriesofinvestorsfairly.Ifaninvestmentprogramisavailabletonon
accreditedaswellasaccreditedinvestors,maintainallocationpoliciestoensurethateach
classofinvestorsisprovidedfairaccesstoloans.

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2) ResponsibleLending
MLAmembersprovideaccesstoresponsible,borrowerfriendlyloanproducts.

Transparency
o Disclosetransparentpricestoallborrowers,includingtheAPRforconsumerloansand
annualizedinterestrateorAPRforcommercialloans,andanyfeesorscheduledchargesfor
aloanincludinganyeffectiveprepaymentpenalty.DisclosethisinformationinplainEnglish
terms,inwriting,whentheloanofferispresentedtotheapplicant.
ResponsibleProducts
o Ensure,incooperationwithanyoriginatingbankifapplicable,thatallloansofferedthrough
themarketplacearemadewithhighconfidencethattheborrowercanrepaytheirentire
debtburdenwithoutdefaultingorreborrowing.
o Donotissuepaydayorhighcostinstallmentloans,asdefinedbyCFPB,throughthe
marketplace.
o Topreventdebttraps,extendnewcredit,incooperationwithanyoriginatingbankif
applicable,toaborrowerwhoisunabletomaketheirloanpaymentsonlyifduediligence
indicatesthattheborrowerssituationhaschanged,enablingthemtorepaytheir
outstandingandnewdebts.
o Reportloanrepaymentinformationtomajorcreditbureausandensurethattheborrowers
creditdataisconsultedintheloanunderwritingprocess.
NonDiscrimination
o Donotdiscriminateonthebasisofrace,color,religion,nationalorigin,sex,maritalstatus,
age,sexualorientationoridentity,oranyotherprotectedclass.Lesbian,Gay,Bisexualand
Transgender(LGBT)customersshouldbeaffordedthesameprotection,eventhoughnotyet
coveredundermostfairlendinglaws.
o Ifonlinealternativedata(e.g.,socialmedia)isusedaspartofcreditapprovalorpricing
decisions,consider,incooperationwithanyoriginatingbankifapplicable,theunique
challengesposedbysuchonlinealternativedataandtakestepsdesigned,asnecessaryor
advisable,topreventunintentionaldiscriminationandaddressotherlegalconcerns,
includingquantitativetestingwhereappropriate.
CollectionsandDebtSale
o Protecttherightsofborrowersinacollectionsprocess.Complywithrelevantregulationsas
wellasbythespiritoftheFairDebtCollectionPracticesActwhenworkingonloanssuchas
smallbusinessloanswherethislawmaynotdirectlyapply.Requirethatcollectionsvendors
anddebtbuyersadheretothisstandardforloansissuedthroughthemarketplace,and
conductappropriatemonitoringandduediligence.

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3) SafetyandSoundness
Themarketplacelendingmodeloffersadvantagesoffinancialstabilityandresiliency,relativeto
traditionallendingmodels.Nonetheless,MLAmembersmustmaintainstronginternalpoliciesthat
ensuretheirreliabilityforthebenefitofborrowersandinvestorsalike.

OperatingLiquidity
o Topreservestabilityiffacedwithunexpectedpressures,maintainacashoperatingreserve
(liquidcashandshorttermassets)inanamountsufficienttocontinuenecessaryand
contractualoperationsforatleastsixmonths.
BusinessContinuityPlan
o Maintainaplanthatadequatelyaddressespossibleriskstothebusiness,designedtoenable
themarketplacetoresumereasonableoperationswithoutmaterialdisruptiontoinvestors
orborrowers.
OrderlyWindDown
o Ensureinvestorshaveaccesstoabackuploanservicer,iftheychoose,abletoassumefull
servicingresponsibilityforexistingloansissuedthroughthemarketplacewithoutmaterial
disruptionintheeventthatthemarketplaceisunabletocontinueperformingservicing
functions.

4) GovernanceandControls
MLAmembersmustdevelopandmaintainstronginternalcontrolsthatensurecompliancewithlaws,as
wellastheintegrityoftheirinvestmentprogramsandthemarketplacesfinancialtransactions.

ComplianceManagement
o Demonstratecompliancewithregulatoryrequirements.Maintainacomplianceframework
inaccordwithexpectationsrelevantregulatorshaveforthesizeandriskprofileofthe
marketplace.Designateoneormoreexecutivesresponsibleforoverseeingcompliance(e.g.,
achiefcomplianceofficer).
ClientMoneyManagement
o Appropriatelyseparateinvestorfundsfromcompanyoperatingfunds.Takeappropriate
stepstoprotectinvestorassetsfrompossiblebusinessdisruptionstothemarketplace(e.g.,
bankruptcyremotestructures).
AuditStandards
o Undergoafinancialstatementauditconductedbyanindependentaccountingfirmatleast
annually.
BusinessInformation
o Makepubliclyavailable,onthemarketplaceswebsite,detailsoftheexecutiveleadershipof
themarketplaceandthelocationofitsheadquarters.
RegulatoryResponsiveness
o Respondinatimelymannertoinquiriesaddressedtothemarketplacebyanydomesticor
foreigngovernmentalorregulatoryauthority.

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ComplaintResolution
o Maintainacomplaintresolutionsystemthattrackscomplaintsandprovides,where
appropriate,fastandreasonableresolutiontoanyinvestorsorborrowerswhocomplain.
o Participateinregulatorsponsoredcomplaintportalsthatareapplicabletothe
marketplacesbusinessandoperations.

5) RiskManagement
Managingriskisacorefunctionofthemarketplacelendingmodel.MLAmembersmustmaintainrobust
programstomanagetheriskstheyface.

ModelRiskGovernance
o Marketplacesandbanksthatoriginateloansthroughmarketplacesgenerallyutilize
sophisticatedriskmodelstoprovideinvestorsandborrowerswithsoundunderwriting.
Marketplaces,incooperationwithoriginatingbanksifapplicable,shouldmaintainan
effectivemodelgovernanceprogramincludingperiodicallymonitoringandvalidatingcredit
riskandfraudriskmodels,andusingrecentandappropriatedatainmodeldevelopment.
Whendevelopingandevaluatingriskmodels,conductappropriateanalysistoconsiderthe
potentialimpactofeconomiccyclesonloanperformance.
CustomerAuthentication,FraudDetection,andMoneyLaunderingPrevention
o Maintainarobustcustomeridentificationprogramtoprotectinvestors,borrowers,
originatingbanksandunaffiliatedconsumersfromfraudandidentitytheft.
o Establishandfollowarigorousantimoneylaundering(AML)complianceprogram,in
cooperationwithoriginatingbanksifapplicable.Identifyandreportsuspiciousactivities.
Conducttrainingasnecessarytoensurecompliance.
o Monitorforterrorismfinancingandcomplywithgovernmentsanctionsprogramsby
monitoringwatchlists(e.g.,OFAC).
EnterpriseRiskManagement
o Maintainagovernanceframeworkformanagingenterpriseriskappropriatetothesizeand
riskprofileofthemarketplace.
InformationSecurity
o Protectprivatecustomerinformationbymaintainingpropersecuritycontrols,including
recurringpenetrationtestsandremediationwithinareasonableperiod.
o Whensharinganonymizeddata,ensurethatthedataisfullydeidentifiedanddoesnot
includepersonallyidentifiableinformation.
Privacy
o Clearlydiscloseprivacypracticestoallcustomersbyprovidingaprivacypolicyatalltimeson
themarketplaceswebsite.Honorcustomerprivacybycomplyingwithallapplicableprivacy
laws.Donotshareacustomerspersonallyidentifiableinformationwiththirdparties,
exceptasrelatedtoprovidingrequestedservicestoacustomer,withacustomersconsent
orafterprovidingacustomeracleardisclosure,andanopportunitytooptout,ofsuch
sharing.

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VendorManagement
o Maintainavendormanagementprogramthatidentifiesandaddressesvendorrisks.
o Performappropriateduediligenceandoversightofthirdpartyserviceproviders.
o Ifworkingwithcollectionsvendorsanddebtbuyers,transmitaccurate,current,and
completeinformationabouttherelevantloans.

6) OperatingStandardsManagement
Revision
o TheseOperatingStandardsaresubjecttoreviewandrevisionbytheboardofdirectorsof
theMLAfromtimetotime.

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