14 Dec 2015
The regulation of the online lending industry has come under heavy scrutiny following news that a loan issued by San Francisco-based online peer-to-peer lender, Prosper Marketplace, could have been instrumental in funding the recent San Bernardino terrorist attack.
A loan of $28,500 was taken out by Syed Rizwan Farook, who went on to attack the San Bernardino County Department of Public Health with his wife, Tashfeen Malik, on 2nd December 2015, killing 14 and injuring 22 others.
Farook took out the loan with Prosper Marketplace “just weeks” before, and it is thought that the money may have been used to pay for ammunition, pipe bombs and target practice in preparation for the terrorist attack.
The release of this information has raised fears over the quick and easy access to large sums of money that online loans can provide and has prompted a call for new, more stringent regulation of the industry to block the financial means to carry out a terrorist attack.
Incidentally, Jeb Hensarling, Chairman of the U.S. House Financial Services Committee, suggested that a new bill on terrorism financing was already underway prior to the attack and that it may now need to be revised to reflect the issues raised by the San Bernardino shootings, including the scrutiny surrounding online lenders.
Following the news, the California Department of Business Oversight has announced that it will be investigating 14 online lenders and obtaining detailed information on loans. The full list of the organisations that are being inspected has not been released to the public; however, the Prosper Marketplace has stated that it received an inquiry.
Some online lenders have spoken out about the scrutiny and are concerned that the sensitivity of the situation may cause a regulatory overreaction. Further to this, industry experts are claiming that Farook’s loan would not have been flagged as being suspicious, as he was a county health inspector who made $52,000 a year, had good credit records and no known ties with terrorist organisations.
The case highlights both the notorious difficulty of detecting funds, which may be used for the financing of terrorism, and the relatively light regulatory touch that peer-to-peer lenders have enjoyed until now. For financial institutions that provide services to P2P operators, the San Bernardino attack is a wakeup call, not least because regulators worldwide are increasingly ruling that your customer’s customer is your customer too.
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