Cleveland Fed withdraws online lending study after doubts arise

The Federal Reserve Bank of Cleveland has removed from its website a study critical of the online lending industry that came under fire for its methodology.

A spokesman for the regional Fed bank said Saturday that the research was taken down after its authors received questions about the composition of the data set they used.

“In light of the comments received, the authors are currently revising their paper to further clarify the data sample they used in the study,” Cleveland Fed spokesman Tim Dewald said in an email. “Their revised paper will be posted as soon as it is completed.”

The study, titled “Three Myths About Peer-to-Peer Loans,” ignited controversy shortly after it was published on Nov. 9.

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The Cleveland Fed researchers purported to show that consumers who turn to peer-to-peer loans — sometimes known as marketplace loans, fintech loans or online loans — have worse financial outcomes than similarly situated consumers who do not take out those loans.

The study found, for example, that the online borrowers ended up with more debt and lower credit scores than their peers who abstained.

But questions soon arose about the data that the researchers used to obtain their findings.

The data, which came from the credit bureau TransUnion, was purportedly used to identify roughly 90,000 individuals who took out an online loan between 2007 and 2012.

But a TransUnion executive said Wednesday that none of the data the firm provided to the Cleveland Fed distinguished between peer-to-peer loans, fintech loans and traditional personal loans.

“We have no understanding of how the Federal Reserve Bank of Cleveland could have used our data to reach the conclusions they did,” said Ezra Becker, a senior vice president at TransUnion.

The Cleveland Fed study claimed that there were nearly $60 billion in peer-to-peer loan balances in 2009, even though the nascent sector’s two largest firms had originated only a tiny fraction of that amount, and other companies that have since emerged as sizable competitors had yet to be founded.

The Marketplace Lending Association, an industry trade group, had demanded that the Cleveland Fed retract the study.

“The Cleveland Fed did the right thing by withdrawing this report,” Nathaniel Hoopes, the group’s executive director, said in an email Monday.

"If given the opportunity, the MLA and its members are willing to work with the researchers to provide information on our industry and help address the problems in the report. This type of outreach and work with different stakeholders has helped the regional reserve banks earn a reputation for accuracy in their research."

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