San Bernardino shooter turned to a new kind of online lending

Could a terrorist organization have funneled money to the San Bernardino shooters through an online lending platform?

This question arose on Tuesday after Bloomberg and others reported that Syed Farook received a $ 28,500 loan from San Francisco’s online lender Prosper Marketplace just weeks before he and his wife killed more. a dozen victims.

Prosper does not grant loans directly, but rather acts as an intermediary, connecting borrowers with investors who wish to lend. This is part of a new and rapidly growing sector of the online finance world that has made billions of dollars in loans over the past few years.

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For borrowers, who often use loans to improve their home or to consolidate debt, these so-called peer-to-peer loans are generally faster, more generous, and carry lower interest rates than credit cards.

But the corporate practice of aligning borrowers with online investors has led to believe that ISIS or some other group could have used the platform to fund the rampage of Farook and Tashfeen Malik.

People familiar with the industry say it is extremely unlikely that Prosper or similar platforms, such as Lending Club, could be used in this way.

To understand why, it helps to understand how the platforms work and their online application process.

As with most types of loans, Prosper borrowers must provide personal information and indicate how much they wish to borrow and how they plan to use it. Farook said he plans to consolidate and refinance the debt, according to unnamed sources cited by Bloomberg.

The loans are aimed at typical American borrowers with jobs, decent credit, and bank accounts, a profile Farook has likely encountered given his long employment as a San Bernardino County health inspector.

In addition to a standard credit check, the company – like traditional banks – maintains the names of applicants in a federal database of terrorists, drug dealers, and others banned from doing business in the United States. , according to Prosper spokesperson Sarah Cain.

If the applicant passes this process, the company will offer the loan to investors, which include both large institutions, such as hedge funds, and individual investors. Both types of investors are checked against the Terrorist Database before being allowed to fund loans, she said.

And even if the suspected terrorists escape detection, experts say it would be difficult, if not impossible, to channel money to a particular person.

Prosper hides a borrower’s name, address and other personal information from investors. In addition, open-investment loans are offered at random to institutions or pools of private investors, both eager to collect debt.

“They would be competing with all of these funds to get that loan, and they would have no certainty of who the borrower was,” said Bryce Mason, who has invested in Prosper Loans and is chief investment officer of Direct Lending Investments. , a La Canada-Flintridge Hedge Fund company.

In any case, he said, terrorist groups would not need to funnel money through an online platform such as Prosper because the borrower could get the money without his help. .

“As long as the loan passes control on the platform, there will be an institution interested in purchasing this loan,” he said. “There is a great appetite for that. “

The money is eventually transferred to the borrowers’ bank accounts by WebBank in Salt Lake City. It is a federally regulated bank and therefore not subject to state interest rate limits, which suits Prosper as a nationwide lender.

The disclosure that the couple received a large sum from peer-to-peer is likely to intensify scrutiny from lenders, which have exploded and given consumers easier access to unsecured personal loans.

In the third quarter of this year alone, Prosper granted $ 1.1 billion in loans, more than double its credits from the same period last year. Rival Lending Club, also in San Francisco, also nearly doubled its start-ups to $ 2.2 billion in the quarter.

Prosper transfers loans to borrowers’ bank accounts in as little as two days after the loans are funded, which can be less than a week after their application.

Credit cards typically take around two weeks to arrive once a borrower is approved, according to the NerdWallet credit card data tracker.

And compared to a traditional credit card account, a loan on online platforms can give access to a lot more money. Prosper will lend up to $ 35,000 at a time. The average credit card has a lower limit of $ 5,000, according to NerdWallet and the Experian credit bureau.

This means that Farook, who apparently borrowed $ 28,500, should have opened more than five medium-sized credit card accounts to match the amount he received from Prosper.

While online lenders must comply with many of the same consumer loan regulations that apply to more established businesses, there is little industry-specific regulation.

But more federal rules could arrive.

This summer, the US Treasury Department released a so-called Request for Information on the Online Lending Market, an initiative that could be a first step towards greater regulation of the industry.

Twitter: @jrkoren


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David A. Albanese