Could a terrorist organization have funneled money to the San Bernardino shooters through an online lending platform?
That question arose Tuesday after Bloomberg and others reported that Syed Farook received a $28,500 loan from San Francisco online lender Prosper Marketplace just weeks before he and his wife killed more than a dozen victims.
Prosper doesn't make loans directly, but rather acts as a middle man, matching up borrowers with investors who want to lend. It's part of a new and fast-growing corner of the online finance world that's made billions of dollars in loans over the past few years.
For borrowers, who often use the loans for home improvements or to consolidate debt, these so-called peer-to-peer loans are usually faster, more generous and carry lower interest rates than credit cards.
But the firms' practice of lining up borrowers with investors online has led to speculation that Islamic State or another group might have been able to use the platform to finance Farook and Tashfeen Malik's rampage.
People familiar with the industry say it's exceedingly unlikely that Prosper or similar platforms, such as Lending Club, could be used in that way.
To understand why, it helps to understand how the platforms and their online application process work.
As they would for most types of loans, Prosper borrowers must provide personal information and indicate how much they'd like to borrow as well as what they plan to use the money for. Farook said he planned to consolidate and refinance debt, according to unnamed sources cited by Bloomberg.
The loans are aimed at typical American borrowers who have jobs, decent credit and bank accounts, a profile Farook presumably met given his long employment as a San Bernardino County health inspector.
In addition to a standard credit check, the company -- like traditional banks -- runs applicants' names through a federal database of terrorists, drug traffickers and others who are prohibited from conducting business in the U.S., according to Prosper spokeswoman Sarah Cain.
If the applicant passes that process, the company will offer the loan to investors, which include both big institutions, such as hedge funds, and to individual investors. Both types of investors are checked against the terrorist database before being allowed to fund loans, she said.
And even if suspected terrorist evaded detection, experts say it would be difficult to impossible to funnel money to a specific individual.
Prosper hides a borrower's name, address and other personal information from investors. Also, the loans open for investment are randomly offered to either institutions or pools of private investors, both of which have been eager to snap up the debt.
"They'd be competing with all these funds to get that loan, and they'd 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.
In any case, he said, terrorist groups would have no need to funnel cash through an online platform such as Prosper since the borrower could get the money without its help.
"As long as the loan passes the check on the platform, there's going to be an institution interested in purchasing that loan," he said. "There's great appetite for that."
The money is ultimately transferred into borrowers' bank accounts by WebBank in Salt Lake City. It's 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 a peer-to-peer is likely to heighten scrutiny of the lenders, which have boomed and given consumers easier access to unsecured personal loans.
In this year's third quarter alone, Prosper originated $1.1 billion in loans, more than double its originations in the same period last year. Rival firm Lending Club, also in San Francisco, also nearly doubled its originations, jumping to $2.2 billion in the quarter.
Prosper wires loans into borrowers' bank accounts in as little as two days after loans are funded, which could be less than a week after they applied.
Credit cards usually takes about two weeks to arrive once a borrower is approved, according to credit card data tracker NerdWallet.
And compared with a typical credit card account, a loan from the online platforms can provide access to much more cash. Prosper will lend as much as $35,000 at a time. The average credit card has a limit of less than $5,000, according to NerdWallet and credit bureau Experian.
That means Farook, who apparently borrowed $28,500, would have had to open more than five average-sized credit card accounts to match the amount he received from Prosper.
Although online lenders must comply with many of the same consumer-lending regulations that apply to more established firms, there's little industry-specific regulation.
But more federal rules could be coming.
This summer, the U.S. Treasury Department issued what's known as a request for information about the online lending market, a move that could be a first step toward more regulation of the industry.
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