By now everyone knows that the San Bernardino terrorist duo obtained a P2P loan, via a leading online lending platform, just a few weeks prior to the attacks. (Two worthwhile reads on the topic are Ross Kenneth Urken’s “How the San Bernardino Shooters Used the Latest Fintech Tool to Finance Their Terror Attack” and Marketplace Lending and San Bernardino by Manatt Partner, Brian Korn).
Unfortunately, the online lending industry has become another victim of this carnage. But this circumstance does not suggest flaws in marketplace lending. Nor is this a problem contained to online finance. This terror loan could have just as easily been facilitated by an offline creditor. If anything, with a few algorithmic adjustments, fintech will likely prove helpful in preventing future “terrorist lending”.
But I’m not writing this article to defend marketplace lending. Nor is it my objective to critique it. Instead, I am merely trying to examine how this one horrific act could impact lending in the U.S.
Illegal conduct always triggers consequences. Throughout history, even the actions of just a few bad actors, bring about superfluous regulation that affect the innocent majority. 9/11 resulted in new anti-money laundering rules and costly compliance procedures. A few unscrupulous micro-cap issuers, stock promoters and death spiral financiers stirred a regulatory overhaul that virtually eliminated micro-cap stock clearing. The response to mass mortgage defaults was a 2,319 page bill that nearly decimated conventional small business lending, but that inadvertently fueled the growth of marketplace lending.
But because of the terrorists’ religious beliefs, any regulatory aftermath of San Bernardino is likely to be extremely contentious.
As a matter of faith, a Muslim cannot lend money to, or receive money from someone and expect to benefit. Interest (known as riba) is strictly forbidden under Sharia law. As devout Sharia abiding Muslims, it is improbable that the terrorists ever intended to make interest payments – since doing so would have been in clear violation of Sharia law.
This raises broader – more controversial – issues that I believe everyone is afraid to voice (well, except probably, Trump). Given the illegality of interest payments, should Sharia followers be restricted to transacting only with Sharia compliant financial establishments? Should lenders have the right to ask whether an applicant observes Sharia law? Are Muslims a greater credit risk because their religion forbids them from paying interest and honoring loan agreements? Can lenders be held legally accountable for turning down applicants based on their theology?
I, for one, adamantly oppose discriminating against borrowers based on their faith. But can an applicant really cry religious persecution when that same religion may be used as an excuse to default on loan payments? Can the government force lenders to overlook this default risk in their analysis?
I really don’t know the answers. Nor do I foresee San Bernardino culminating in any legislative change. But I do suspect lenders will become much more cautious – resulting in a decrease in loan approvals and an increase in civil-rights lawsuits. In the end, borrowers will lose and, once again, lawyers will win. I guess it’s a good thing I embarked on that legal apprenticeship after all.
But I’m curious to hear what others think. How do you all see San Bernardino impacting the future of lending in the United States?
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