Propose a penalty that is sufficient to deter unscrupulous behavior but not so excessive as to cause lenders to flee the market entirely. If the penalty can be considered the cost of doing business, it is ineffective for its purpose. This is no different than applying KYC and a customer identification program to lending operations.
> Propose a penalty that is sufficient to deter unscrupulous behavior but not so excessive as to cause lenders to flee the market entirely
Treat it as you suggest: a KYC/AML failure. Public reporting requirements. Liability to the injured (for actual damages). And, if a pattern emerges, license restriction and eventually revocation.
A $1mm mandatory penalty will force lenders to settle. (Nobody will spend $100k proving they properly made a $25k loan with a $1mm penalty if they’re wrong or unconvincing.) When customers know that, you get adverse selection. That would shut down the market.
I concede that this is an excellent start to resolving the overarching issue, and prefer the revocation of licensing for repeat offenders versus potentially unreasonable (depending on size of the org) monetary penalties. Appreciate you pointing out my suboptimal initial proposal to solve the problem. I had the usual suspects on my mind when writing that comment (too big to fail finance who buys their way out of every single attempt at accountability). Thank you.
