Challenges To Marketplace Lending Structures May Ultimately Impact Securitizations

The U.S. Court of Appeals for the Second Circuit's recent decision in Madden v. Midland Funding, LLC, which limits a non-bank's ability to enforce interest rates charged by an assigning national bank, has already given rise to class action lawsuits against online marketplace lenders, but the ripple effect of the decision only stands to grow as attention is focused on the enforceability of loans issued through certain marketplace lenders. As recently recognized by Moody's Investors Service, challenges to enforceability may ultimately impact cash flows to asset-backed securities (ABS) collateralized by such loans. Any impairment of cash flows, in turn, may precipitate a rise in litigation by or on behalf of investors in such securitizations.