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The Cleveland Fed Peer-to-Peer Lending Study is Dead(?)
Remember the controversial study by researchers at the Cleveland Fed that claimed to find evidence that peer-to-peer (P2P) loans were…
Remember the controversial study by researchers at the Cleveland Fed that claimed to find evidence that peer-to-peer (P2P) loans were similar to “predatory loans”? Remember how after questions arose about how the researchers defined “peer-to-peer” and exactly what loans and lenders were included, the study was taken down for revision? Well, it sounds like we won’t be seeing a new version. (h/t Colin Wilhelm at Politico Pro for the scoop.)
The Cleveland Fed released the P2P study right before the House Financial Services Committee was planning to markup legislation aimed at fixing the fallout from the Madden decision. Opponents of the legislation cited to the study to argue against the legislation, and the working paper was not removed until after the vote occurred. On December 4th Representative Patrick McHenry, one of the sponsors of the legislation, wrote Cleveland Fed President and CEO Loretta J. Mester. In the letter, Rep. McHenry expressed concern over both the substance of the study and the possibility that the Fed timed the release and withdrawal of the study to influence the fate of the bill. Rep. McHenry also asked Pres. Mester to explain how the paper satisfied the Cleveland Fed’s publication process, how the Fed then decided that withdrawing the paper was necessary, and why the paper was “rushed to release” immediately after the legislation was publicly noticed for markup.
On December 7th Pres. Mester responded to Rep. McHenry with a letter of her own. Pres. Mester seeks to assure Rep. McHenry that the decisions to publish the working paper close to the markup and remove it after were not driven by politics. Rather, the publication date was driven by blackout periods around Federal Open Market Committee meetings and author and staff availability. The decision to remove the paper was driven by the receipt of “serious questions” about the study and a realization that the internal review process “had not operated as intended.”
Apparently the full internal review process was not followed for this paper. Pres. Mester goes on to say that this experience has shown that the internal processes at the Cleveland Fed need to be improved. Among other things, authors need stronger guidance regarding “[the Cleveland Fed] publication standards, including the importance of carefully considering the body of extant literature, of not overstating conclusions, and of fully understanding the scope and limitations of the data used in any study.”
Additionally, while there had been talk of the paper being revised Pres. Mester says that the authors are reconsidering the viability of doing so because the data set includes more than just P2P loans. So we may not see a new version. However, if it turns out that the study is only “mostly dead,” we will update when a new version is released.