Is the online lending industry growing up? One fintech CEO suggested as much last week at LendIt 2016, the online lending industry’s big annual conference in San Francisco. And that maturity may well rest on the industry’s ability to confront collections and regulation.
Renaud Laplanche is the founder and CEO of Lending Club, one of the largest companies in online lending space and the number one originator of personal loans in the US. In his keynote address, Laplanche told conference goers that the industry in general, and Lending Club in particular, have moved into a maturation stage – and a significant part of that stage involves grappling seriously with collections and regulation.
The conference packs thousands of fintech entrepreneurs and investors into a cramped, downtown conference space. They go for the side-meetings, big-name speakers, bold proclamations and major strategic announcements. (Will, for example, Lending Club enter the Chinese market? Answer: maybe.) But, as Laplanche noted, the industry isn’t all about audacious business plans and venture capital (VC) money anymore. In fact, as VC investment in fintech continues to subside, the biggest players in the online lending industry have to undergo a period of maturation, standardization and consolidation, Laplanche argued. Specifically, Laplanche pointed to collections and regulation as necessary pieces of a larger plan – a way for online lenders to establish themselves as a trusted financial partners.
Laplanche devoted a section of his conference keynote to collections and, specifically, what he and Lending Club have done with the company’s collections function in order to make the company a little less susceptible to delinquency risk.
Lending Club has established what “we consider a best practice,” Leplanche said, a practice that specifically involves a collections and care skill set.
Lending Club has a small in-house collections team and a much larger staff devoted to customer care. The company has started to cross-train customer care staff with the in-house collections team in order to make sure that the larger, care-devoted staff can shift into collections mode if delinquencies start rising fast.
Lending Club plans to “increase collections intensity in the early stages of delinquency, when care and collections are most impactful,” Leplanche said.
Laplanche did not confine his comments to collections, of course. In his wide-ranging comments, he did touch on another subject of interest to the collections space: regulation. His view of regulation was not typical for a financial services executive. In fact, Laplanche called for what he characterized as a healthy, positive engagement with regulation.
The regulatory headlines are not full of good news for financial services, but if you dig a little deeper, you’ll see regulators telling the online lending industry many positive things, Laplanche argued. “They’re encouraging innovation and being consumer friendly. They recognize the positive impact the industry has on consumers, in making credit more widely available and in making transactions more transparent.”
His stance with regard to regulators and regulation might be considered counterintuitive. The industry is of course already subject to a lot of regulation, he noted, but what the online lending industry can use is more engagement and oversight.
“What gets lost in the noise is that the unsecured loans we make to consumers are already subject to consumer lending regulations and other types of regulations, from TILA/RESPA to the FDCPA,” he said. “Regulators have enforcement powers and we’ll see them exercise those powers. But this is welcome. We can use more supervision and more consistent enforcement. We can use more oversight from regulations. This is a good thing. This cooperation [with regulators] will only help us generate more trust.”
The insideARM perspective
There are two major takeaways from Laplanche’s comments from last week.
First, as the online industry continues to mature and consolidate, the major players within it, including Lending Club, may likely see larger portfolios, bigger market share and an increasing need to handle collections skillfully and effectively. Every day, the online lending industry needs collections expertise more and more. And some collections firms have already responded to this need.
Second, the Lending Club CEO suggests that online lending firms may benefit quite a bit by welcoming regulatory engagement and by actively working to meet regulators’ standards for consumer-friendly products and services. This, again, is not a popular sentiment in the more traditional corners of the financial services space, where opinions on regulatory action focus largely on the onerousness and unintended consequences of new regulations and regulatory action.
Could Laplanche’s advice apply to collections firms, too? Absolutely. The line between customer care and collections has been blurred. Consumer friendly customer engagement really is and how it works.
insideARM believes that most reputable players in the ARM industry have already moved in the direction suggested by Laplanche. Regulators in general, and the CFPB in particular, began pushing collections firms to adopt a kinder, consumer-friendlier stance years ago. The ARM industry responded by rethinking and redesigning strategies, hiring, recruiting, training, and compensation plans.
Unfortunately, stories about non-compliant behavior make for more salacious news than a story about compliant, consumer friendly activities. Additionally, stories like last week’s account of the FTC action against Commercial Recovery Systems remind us that not every ARM firm has embraced the consumer friendly approach discussed above. As an industry we need to applaud the right behavior and condemn the bad behavior.