"This type of business is not that large, but it has the potential to be disruptive and could be very large going forward." These are usually always great things to hear about your business model----unless it comes from the Federal Reserve, of course. It appears the online lenders have now caught the attention of even more powerful regulators as they have expanded their partnerships with community banks and larger financial institutions. Federal Reserve Bank President James Bullard wants to learn as much as possible about the p2p lending industry to ensure that the regulator's actions are not inappropriately providing a competitive advantage to any one group of lenders.
A court decision in May could potentially hurt startups like Lending Club, as well as the investors that own the loans they originated. They are now facing a long battle in a New York appeals court to overturn a decision that could scare hedge funds and other institutional investors away from their supposedly-safe securities. Gade feels concerns over the consumer loans originated by startups are overblown. "They're a drop in the bucket," he said. "Even if they fail, nothing is going to happen to the economy."