Marketplace Loans Set to Catch Fire, but What About Autos?

MIAMI – Marketplace lending is poised to grow rapidly over the next two years, according to a panel of experts at the ABS East conference yesterday.

However, it’s a bit early to tell the extent to which that would include auto loans.

Exactly half of audience members polled during a session entitled Marketplace Lending 101 predicted U.S. originations could reach $37 billion in 2016 for all categories generated through marketplace lending platforms. That’s up from $12 billion in 2014.

The audience was spot on, according to panel host Matthew Joseph, partner at Morgan, Lewis & Bockius. He said company research determined U.S. marketplace loans would reach $37 billion by the end of next year.

There are more than 300 marketplace lenders operating today, according to panel guest Paul Stockamore, head of capital markets at LendingHome. Marketplace loans are generally broken into four different categories: small business, student, real estate, and consumer loans. Companies like Prosper Marketplace include auto loans in the consumer loan category.

Could the marketplace model also revolutionize the auto finance industry?

Notably, Sierra Auto Finance launched DriverUp in February. DriverUp offers a twist on the marketplace model deployed by companies like Prosper, Lending Club, and Funding Circle in that dealers can use DriverUp to post loan applications to Sierra. Accredited investors — hedge funds, endowments, etc. — can pick and choose loans in which they want to invest, according to Sam Ellis, Sierra’s chief executive.

LendingTree, one of the leading marketplace lenders in the industry also reported 22% year-over-year auto loan growth in the first quarter.

It’s probably too early to tell just how much impact marketplace lending will have on the traditional auto finance lending model, but the two industries may have one more thing in common in the future: regulators.

The Consumer Financial Protection Bureau has begun focusing on vehicle title loans and payday lenders, Matthew Hays, partner at Kirkland & Ellis LLP said during the panel. The bureau could look to marketplace lending next, he said.  “We’ll have to see how it plays out.”

For more content like this, check out the upcoming Auto Finance Summit, October 21-23 at Wynn Las Vegas. Visit www.AutoFinanceSummit.com for more information.