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Loan services / factoring / loan broking / finetrading
FinTechs belonging to this category act as a loan creditor (even short and very short-term loans), are broking loans or receivables or conduct factoring of loans, which were given to private or business customers. In this business area you also find “peer-to-peer” (P2P) services, in which FinTechs enable a multitude of users to give loans (and brokered by the FinTech-platform) to other users or companies.

Finetrading is hereby a financial service of FinTechs, where they buy due receivables and grant the debtor an extension of payment time. 

As an ancillary service some FinTechs offer alternative credit assessment services to check the solvency of a borrower.


Attitude of the country towards loan-giving-, factoring-, brokerage-, finetrading- and ancillary services

For the most part factoring and loans in a commercial setting is not regulated in the United States. The United States make a strong differentiation between securities which are regulated by the SEC and may only be sold if registered or exempt and other loans or crypto currencies that are not securities. All equities and generally any fractionised interest is a security. FinTech platforms that facilitate the trading of securities generally would need to be regulated as broker-dealers. See “Financial advisory and brokerage services, including robo-advisory and auto-trading.”

Most loan products (other than debt securities) are not considered to be a security and thus are not regulated by the SEC. As such, the market for corporate loans, factoring and brokerage of such products is for the most part unregulated when they are not issued by a bank. Banks are subject to several regulations, including truth in lending laws under OCC jurisdiction. 

Peer-to-peer loans generally are considered to be debt securities and thus these platforms typically are regulated, and the making of these loans often is registered under the Securities Act. 

Online mortgage brokerage, consumer loan brokerage and auto loan financing have exploded in popularity in recent years. Applications and websites that facilitate finding the least expensive loan alternatives have also proliferated. 

For products dealing with consumers, the CFPB is responsible for consumer protection in the financial sector. The CFPB has jurisdiction over banks, credit unions, securities firms, payday lenders, mortgage-servicing operations, debt collectors, and other financial companies operating in the United States and dealing directly with consumers. The FTC is also responsible for oversight of a number of regulations that may affect consumer-facing non-bank lenders.

Receivables trading may or may not be regulated, depending on how they are structured and the nature of the underlying assets. For example, repurchase agreements or “repos” could be regulated as securities, commodity interests or not at all, depending on the nature of the underlying assets.  

Legal affairs  

Obligations and requirements to provide loan-giving-, factoring-, brokerage-, finetrading, and ancillary services described above

As mentioned above, for non-consumer facing products and services the market is generally not regulated in the United States. Many loan-making and factoring companies, however, are members of non-governmental industry originations and provide standards and/or form documents. The consumer-facing market may be subject to regulations that frequently relate to customer disclosures.

Additional comments regarding the legal situation for loan-giving-, factoring-, brokerage, finetrading-, and ancillary services or what FinTech’s must be aware of in this business area

Given the litigious nature of United States regulatory agencies as well as the cost of ligation and the gen
eral practice that each party bears its own costs, those engaging in any financial services need to be prepared and protect themselves from potential litigation. 

While the loan brokerage market itself generally is not subject to significant regulation, there may be additional regulations pertinent to the underlying assets if the loans relate to mortgages or automobiles. 

Crypto currency lending is also under the microscope. Crypto loans must be structured carefully to ensure that the lender is not an investment company, and generally would be considered securities 

Economic conditions

Market size for loan-giving-, factoring-, brokerage-, finetrading- and ancillary services and biggest companies in this business area

While reliable numbers on the online loan brokerage business do not exist, the volume of online loan brokerage services appears to have exploded based on the rapid increase in securitisations of loans originated by FinTechs. Major market players in the digital-only mortgage brokerage space include Rocket Mortgage, loanDepot and Guaranteed Rate. Major online consumer lenders include Quicken, SoFi, Betterment, Ally Financial, Prosper and UpStart. Automobile loans are frequently originated through apps of auto sales companies such as Autotrader, LightStream and Carvana. This is all in addition to traditional brick-and-mortar lenders, many of whom have developed their own apps and websites to facilitate loan origination.

The factoring business in the United States is estimated to more than $120 billion per year in receivables factoring, although it is unclear whether a significant portion of this market is conducted by FinTechs. To our knowledge, there is no active finetrading market in the United States.

Peer-to-peer lending is still fairly nascent and has not become popular in large part due to a very high regulatory burden relative to the small size of the loans. The largest market participants include Upstart, Prosper, LendingClub and Kiva. While crypto lending has exploded in popularity, no reliable information is available regarding its market leaders, and it is questionable whether most crypto lending will remain legal in the near future. 

Additional comments regarding the economic situation for loan-giving-, factoring-, brokerage-, finetrading- and ancillary services or what FinTech’s must be aware of in this business area

Other than peer-to-peer lending, which has a fairly small market due to burdensome regulatory requirements, these activities are still dominated by traditional brick and mortar operations with very little penetration by FinTechs.



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