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San Bernardino shooter took out P2P loan

Susan Ladika

San Bernardino shooter Syed Farook took out a $28,500 personal loan shortly before he and his wife, Tashfeen Malik, opened fire at his workplace holiday party, killing 14 and injuring 21 more.

The money came from Prosper Marketplace Inc., an online peer-to-peer lender, according to news media reports.

But that doesn’t mean terrorists will be flocking to online lenders, trying to borrow money to finance their plots, or that organizations such as ISIS are using P2P sites to channel money to their followers.

Even though the loan applications are made online, would-be borrowers go through a thorough vetting process, which includes such things as checking employment status, credit history and credit score.

Personal loans are one of the fastest-growing sources of credit, and offers are pouring into consumers’ mailboxes from Prosper and other lenders.

Lenders follow various models. Some are offered by traditional banks and credit unions. Others come from companies that conduct their business online. Some, such as Prosper and Lending Club, use P2P lending.

From my own personal experience with another online lender, the loans aren’t handed out willy-nilly. I was offered a rate that was far lower than you’d get with a typical credit card, and decided to check it out further.

However, because I’m self-employed, I would have had to submit several years of complete tax returns in order to verify my income. For me, it wasn’t worth the hassle to upload 100 pages worth of documents in order to borrow a few thousand dollars.

But for someone like Farook, who worked for the San Bernardino County Department of Health, it would have been much easier to have his income verified, probably just supplying a copy of his pay stub or W-2.

With P2P lending, companies match up borrowers with investors. At Prosper, borrowers state how much they want to borrow, what they plan to use the money for, and post a listing online. Investors decide which listings they want to invest in.

After the loan is arranged, the borrower pays a fixed amount each month, and part of the payment goes directly to the investors.

Borrowers with sterling credit can get a loan from Prosper for as little as 5.99 percent APR, with rates ranging up to 36 percent.

Prosper loans top out at $35,000, and the company says it has made more than $5 billion in loans.

Farook reportedly said he wanted the money for debt consolidation. Now authorities are looking into whether some of it was used to purchase guns used in the shooting rampage.

A Prosper spokeswoman told the Los Angeles Times that applicants’ names are run through a federal database of terrorists and others prohibited from carrying out business in the United States. At the same time, investors’ are checked against the terrorist database. Investors consist of both individuals and institutions, such as hedge funds.

And a borrower’s name and other personal information isn’t released to investors, so terrorists wouldn’t be able to channel money to a specific individual.

Prosper’s borrowers receive their funds from Utah-based WebBank, and in a statement told Fox News that the bank complied with anti-terrorism and anti-money laundering requirements.

No one has criticized Prosper or WebBank for doing anything improper, but the San Bernardino killings may put online lenders under the microscope. In fact, the U.S. Treasury Department recently finished collecting comment on the online lending industry, and are looking at developing a regulatory framework for the industry.

In comments filed to the Treasury Department by the American Bankers Association and Consumer Bankers Association in September, nonbank lenders, and particularly Lending Club, are cited for their lax following of rules. “Increased regulatory engagement will benefit all participants in online marketplace lending. This engagement will ensure that the rules are being followed and enforced so that borrowers receive their legal protections, regardless of the lender. In fact, lack of compliance is one of the largest risks identified by these nonbank lenders. In their annual report Lending Club addresses this uncertainty by noting: ‘We may not always have been, and may not always be, in compliance with all of these laws. Compliance with these laws is also costly, time consuming and limits our operational flexibility.’ ”

It will be interesting to see what happens with compliance in the months and years ahead.

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