Regulation

Fed Regulators Eye SMB Lending

The online lending landscape may get rockier as federal regulators are eyeing whether to bolster their oversight on loans extended to small businesses.

The Wall Street Journal reported on Wednesday (June 22) that John Williams, president of the Federal Reserve Bank of San Francisco, said in an interview: “These are basically mom-and-pop operations getting, you know, very small loans. What’s the borrower protection … and what’s the right way to think about it?”

The focus of these lenders has been to extend capital to small businesses and startups, and those players have maintained that more regulations could hurt business.

The market is a large one, as the biggest players in the field have extended as much as $1.9 billion in small business loans as of the past year. That number, as estimated by the Treasury Department, is up 60 percent from the previous year.

The key is whether the borrowers are able to understand, and are presented with, the nuances of their lending agreements. The models can be wildly different, as loans can take the shape of more conventional loans marked by predictable monthly interest payments, as well as more exotic and complex options.

In another interview, Comptroller of the Currency Thomas Curry told WSJ that his agency is exploring whether fair lending rules could be extended to these loans, such as those that apply to women and minorities and that typically are seen in consumer contracts. The comptroller’s office could apply those rules, as they extend to what are defined as “unfair or deceptive acts or practices,” on behalf of small business lenders, and those lenders would have to be partnered with a bank regulated by the comptroller.

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