Last month a group of concerned small business advocates, lenders and brokers introduced a small business borrower’s bill of rights to the Treasury Department, as an incentive to regulate the alternative lending industry. Some in the industry are leery of regulations, but others believe that a few rules will ensure the protection of borrowers. John Arensmeyer, Chief Executive of the Small Business Majority, supports federal regulators taking the lead on alternative lending regulations. As it stands, the industry has left it up to the states to regulate lenders. This has led to a murky patchwork of regulations that wildly differ from state to state. Below are a few of the concerns addressed during the Treasury’s comment period on online marketplace lenders.
Disclosure. Small-business borrowers must see and understand the financial details of alternative lending contracts before signing. Currently, some lenders provide critical information like APRs online, while others do not. Fees must also be readily disclosed or apparent so borrowers know who’s being paid what, when, and how those numbers compare with other lenders.
Cohesive Predatory Lending Regulations. Every state has their own usury caps to prevent predatory lending, but many online lenders can divert the rules by avoiding loan structuring. Advocates are calling for more safeguards against abusive and maligned contract strategies, without penalizing businesses by making subprime financing harder to get.
Hard Sales Tactics. A growing amount of lenders and brokers are using old high-pressure tactics to get businesses to sign. Jared Hecht, chief executive of Fundera, notes that some lenders are utilizing pushy sales tactics, customer manipulation, term suppression and other nefarious methods to add loans to their portfolios.
Unethical Collection Efforts. The New York Times recently documented a few cases where borrowers had declared bankruptcy, but still had payments taken automatically from their accounts. However, the bankruptcy process is designed specifically to not let this happen. It is unknown how often this type of blatant disregard for consumer safety occurs, but advocates believe that more should be done to keep collection efforts from becoming the primary source of lender repayment.
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