“Such companies do not consider borrower success in their business model,” Mr. Nieman said.
Many panel members acknowledged that new big data sources were very predictive at the macro level but they are less successful at when assessing the individual. That leaves the industry and its customers susceptible to fraud.
One issue the alt-fi industry must address is their insistence that regulators should trust their compliance efforts without knowing what their models are based on, several panel members suggested. Regulators struggle with the secrecy of the black box.
The response may be alto companies to show they have skin in the game, Mr. Lev suggested.
Another tactic is to show how their technology reduces consumer pain points, Mr. Nieman said.
“Technology enables the comparison of multiple lending options (simultaneously).”
And it is not as if disclosure requirements for establishment companies are transparent, several members suggested, citing opaque APR calculations and lengthy disclosure documents on loan and credit applications.
There are also gaps in existing regulations. On the eve of the recession, Countrywide Financial simply reclassified themselves, which allowed them to be supervised by a softer government body, Mr. Calhoun said.
“Many companies complained of enforcement but not of the practices which led to them.”
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