The impending regulatory crackdown of alternative lenders may have spooked some industry players and their investors. The Treasury Department has launched an inquiry into the sector, asking lenders and platforms to provide information on the way they operate, and some analysts believe that the Consumer Finance Protection Bureau will emerge as a top threat to the growth of alternative finance.
But so far, alternative lending platforms have not clashed with authorities, and on Thursday (Aug. 6), many of the top players in the industry made an effort to get one step ahead of any incoming crackdown.
That effort comes in the form of the Small Business Borrowers’ Bill of Rights, a voluntary code created by Funding Circle, Lending Club, Fundera and others. The Bill of Rights includes six best practices to be followed by alternative lenders to ensure the protection of SME borrowers and investors. These practices include:
- The Right to Transparent Pricing
- The Right to Non-Abusive Products
- The Right to Responsible Underwriting
- The Right to Fair Treatment from Brokers
- The Right to Inclusive Credit Access
- The Right to Fair Collection Practices
A closer look at each of these rights reveals that the alt-lenders are focusing on issues like presenting loan terms in plain English and cutting out hidden fees and hidden penalties, as well as adhering to the Fair Debt Collection Practices Act and non-discrimination rules.
“We’re very conscious of the fact that this is a new ecosystem,” said Fundera CEO and Cofounder Jared Hecht to Yahoo News. “A few bad actors could ruin everything.”
He added that the Bill of Rights is “really just rooted in common sense.”
Some analysts are applauding the efforts of these alternative lenders. “Increased regulation is near the top of the list of investors’ concerns about the space, so it made sense for online small business lenders to get out in front of the issue,” said BTIG Research Analyst Mark Palmer to the publication.
The guidelines were revealed at the National Press Club in Washington, D.C., reports said.