| NEW YORK
NEW YORK Oct 18 New York's brick-and-mortar
banks should pursue business opportunities in online lending, an
industry now dominated by many out-of-state startup companies,
the head of the state's financial regulator said on Tuesday.
"Your competitors are, and will, be embracing fintech in all
of its various forms," said Maria Vullo, New York State
Department of Financial Services (NYDFS) superintendent,
referring to new types of financial services technology.
"Don't be left behind," she said at a New York Bankers
The NYDFS, which oversees New York's state-chartered banks,
has held discussions with several banks that are considering
online lending. The niche could help serve lower-income New
Yorkers who have little or no access to banking, Vullo said.
Her remarks follow last week's launch of an online lending
business by Goldman Sachs Group Inc that targets
borrowers saddled with credit card debt.
The business, Marcus by Goldman Sachs, will offer
uncollateralized personal loans of up to $30,000 to so-called
prime borrowers who want to manage their credit card debt. The
loans can be paid off in two to six years. This type of
borrowers typically has a credit score of at least 640.
The online lending industry has been dominated by a slew of
lesser-known startup companies. Their business model has raised
novel questions for banking regulators. That is because online
lenders have shunned a traditional banking model that uses
deposits to make loans, bypassing state regulations.
Instead, online lenders either connect borrowers directly
with retail investors who want to fund loans, or they extend
credit to borrowers, then quickly bundle the loans into
securities that are sold to investors.
In May, NYDFS launched an investigation into the business
practices of Lending Club Corp including the interest
rates it charges consumers and its relationships with banks.
In June, the regulator requested information about
online lending activities from 28 companies.
"We shouldn't permit marketplace lenders to evade state
regulation," Vullo said in the speech to bankers.
The group's largest members include units of the Bank of New
York Mellon Corp, Deutsche Bank and Citigroup
Inc. Numerous community banks are also state-chartered.
By encouraging traditional banks in New York to cultivate
online lending businesses, New York can expand an industry that
is "protective of consumers," Vullo said in an interview after
"Some people are creating these businesses from their homes
across the country and doing it horribly in a predatory way,"
(Editing by Matthew Lewis)