Marketplace Lending in the Wake of Disaster

ABSTRACT Using natural disasters as exogenous shocks to marketplace lending in the United States, we document a local increase in marketplace loan demand post‐disaster, which is 26% higher in low‐ compared to high‐deposit areas. Interest rates and delinquencies from loans approved during this demand shock are similar to pre‐event levels. Marketplace loans allocated prior to a disaster are more likely to default, but loans granted a hardship delay of payment accommodation exhibit approximately a 50% reduction in default probability, providing relief to borrowers and lower costs to investors. Overall, while regulators are concerned that marketplace lending may be predatory, our findings point to positive benefits of these platforms.