California regulators have opened an inquiry into a number of online lenders, a move that could lead to increased regulation of the fast-growing industry.
The California Department of Business Oversight, which oversees securities and lending activity in that state, said Friday it had sent requests to 14 companies for details about their lending practices, investors and business models.
“These online lenders are filling a need in today’s economy, and we have no desire to squelch the industry or innovation,” DBO Commissioner Jan Lynn Owen said in a news release. “We have a duty, however, to protect California consumers and businesses, and they have more and more at stake as this industry grows.”
“We want to assess the effectiveness and proper scope of our licensing and regulatory structure as it relates to these lenders,” she added.
Loans issued through online lenders have increased rapidly over the past year, “calling into question whether the industry needs to be regulated more heavily,” Fortune reports. According to Morgan Stanley, online lenders issued $14 billion worth of loans in 2014.
The industry had come under scrutiny even before before law enforcement authorities discovered that one of the shooters in last week’s San Bernardino, Calif., mass shooting took out a loan from Prosper, the San Francisco-based online lending platform.
The U.S. Treasury Department this summer requested comments on the benefits and risks associated with new online lending platforms. Regulators are concerned over whether some business owners and consumers may not fully understand the terms of the loans they receive.
“Unlike the Treasury study, the California inquiry asks for specifics about the lenders’ operations, both in the state and nationally,” the Wall Street Journal noted.
The DBO gave the lenders until March 9 to respond. “We welcome the opportunity to engage with regulators to ensure that small businesses have access to the products and services they need to grow,” said Rob Frohwein, chief executive of Kabbage.