California Leads the Way in Alternative Lending

Alternative lenders made $15.9 billion in U.S. loans in 2014, with California transactions increasing by 936% since 2010.
Katie Kuehner-HebertApril 8, 2016

More than a dozen alternative lenders made $15.91 billion in U.S. loans in 2014, up 700% from 2010, with business growing at a faster pace in California than the rest of the country, according to a new report by a California consumer-protection agency.

The lenders’ total dollar amount of transactions in California increased at a 936% clip over the four-year period, from $222.19 million to $2.3 billion, the California Department of Business Oversight said.

The agency surveyed 13 firms as part of an inquiry into the alternative lending sector. The firms were asked to provide five years’ worth of data, including information about their loan volume, annual percentage rates, delinquent loans and investor bases.

A Better Way to Do Ecommerce

A Better Way to Do Ecommerce

Learn how Precision Medical leveraged OneWorld to cut the cost of billing in half and added $2.5M in annual revenue.

“These companies are providing needed access to financing,” DBO Commissioner Jan Lynn Owen said in a news release. “But we want to make sure our regulatory structure adequately protects the interests of our consumers and small businesses, and works effectively for industry.”

For the 13 firms, consumer lending accounted for 82% of the total loan volume in 2014, and small-business financing accounted for the remaining 18%. The highest median annual percentage rate among consumer lenders was 34.01%, and one lender had a median APR of 51.8% in the first half of 2015.

California’s increased market share was due in large part to growth on the consumer financing side. The transaction dollar amount from 2010 to 2014 grew by 981.9%, to $1.85 billion.

At the end of the first half of 2015, the firms’ number of delinquent consumer financing transactions in the U.S. as a share of total outstanding transactions ranged from 0.03% to 17.94%. Delinquent small business financings ranged from 0.36% to 8.96%.

“California officials appear to be interested in whether online lenders should be required to get state licenses; some of the sector’s largest participants have chosen not to do so, and have gotten around state interest rate caps by partnering with banks that issue their loans,” American Banker said.