Marketplace Lending and San Bernardino

By Brian S. Korn

Reports show that the San Bernardino shooter took out an online marketplace loan a few weeks prior to the attacks. Despite the terrorists resorting to marketplace lending, I do not believe there is anything that could have prevented this tragedy. The platforms and partner banks screen for AML/OFAC and validate identity. They also screen for someone volunteering that they intend to commit a criminal act in the "Other" field. Despite the tech gloss that these originators bathe themselves in, marketplace loans are made by banks that are highly regulated. Short of drawing racist arbitrary lines, there is nothing that existing or new regulations could solve for here. One could argue that but for MPL the shooter wouldn't have had the cash (assuming it was used for the attack). But that's a ludicrous assertion, similar to blaming his job for paying him a salary, the car rental facility for renting him a car and the gas station for selling him gas.

My quote in this Wall Street Journal article was somewhat truncated in that my point was that consumer MPLs by and large do not police use of proceeds to ensure the loan is used for its stated purpose. This is no different from offline discretionary lending. Use of proceeds is not a real underwriting criterion—we are an industry that looks at credit and payment history as a predictor of repayment, not what the borrower plans to do with the funds. Actions are more important than words.

I do not believe that any additional reasonable regulations would have resulted in a different outcome, as the systems are already in place to catch known terrorists. The real question for all of us is how do we catch the ones that have not yet shown their cards?