NEW YORK (Reuters) - The U.S. Treasury Department on Tuesday called for greater protections for small businesses that borrow, but stopped short of suggesting other new regulations for an industry rattled by a scandal at its biggest player, Lending Club Corp.
Treasury also suggested that the online lenders support more transparency in their transactions and suggested that the government should create an interagency working group to help identify existing regulations that apply to the lenders.
Treasury's recommendations were the result of a nearly year-long examination of the fast-growing online marketplace lending industry.
Marketplace lenders sell their loans on to investors. While they make up only a tiny portion of the total lending market, Treasury estimates that loan origination by the online lenders could reach $90 billion by 2020.
Antonio Weiss, counselor to the Secretary of the Treasury, noted that there is some evidence that default rates and charge offs are increasing at these lenders, and investors are demanding higher interest rates in return.
"This industry remains untested through a complete credit cycle," Weiss said, speaking on a conference call with reporters. "The new business models were developed in a period of low interest rates, declining unemployment and relatively strong overall credit conditions."
Online lenders may be facing their toughest test yet as scrutiny by regulators and investors increases.
Lending Club's founder and Chief Executive Renaud Laplanche resigned on Friday due to irregularities surrounding $22 million in loans the company sold in March and April.
Several platforms have also reported slowing investment in their loans, and Prosper Marketplace - the second-largest marketplace lender behind Lending Club - cut more than a quarter of its staff last week.