What’s Behind the Rise of Online Lending Associations?

With the Consumer Financial Protection Bureau increasingly focused on the online lending sector, a number of new industry coalitions and associations have cropped up, each with its own approach to transparency and consumer safety. Here's what you should know about the trend.

Based on the sudden surge of association interest, the online lending sector is a happening place.

Since the end of March 2016, three separate industry groups have launched—the Coalition for Responsible Business Finance (CRBF), the Marketplace Lending Association (MLA), and the newest, the Innovative Lending Platform Association (ILPA). Each has a similar focus on online lending for small businesses.

(And that isn’t all: The Responsible Business Lending Coalition, a fourth group in the same space, got its start last year. And the Online Lenders Alliance has been around for years.)

So what’s driving the sudden interest? Basically, it’s the Consumer Financial Protection Bureau (CFPB), the watchdog federal agency brought to life by the Dodd-Frank act in 2010. Last month, the bureau hired its first assistant director for the Office of Small Business Lending Markets, and the month before that, it began taking consumer complaints about online lenders.

In a statement, CFPB Director Richard Cordray emphasized the need for transparency in the online-lending sector.

“When consumers shop for a loan online, we want them to be informed and to understand what they are signing up for,” Cordray said. “All lenders, from online startups to large banks, must follow consumer financial protection laws. By accepting these consumer complaints, we are giving people a greater voice in these markets and a place to turn to when they encounter problems.”

Concerns about online lending aren’t new. In 2014, for example, two online lenders were shut down by the CFPB and the Federal Trade Commission, according to the Wall Street Journal.

Transparency, But Light Regulation

Each of the new industry groups appears to be cognizant of the concerns associated with the industry.

The Coalition for Responsible Business Finance, for example, says it supports transparency and plans to introduce standards of excellence for the industry. But it wants to ensure a light approach to regulation. Last week on its website, the coalition highlighted a letter sent by members of Congress to Treasury Secretary Jack Lew, urging regulatory balance.

“Given the impact online marketplace lenders have had on small business lending, and given that the industry is still in early stages of development, we urge the department to encourage the evolution of this market without dampening or delaying innovation,” the letter stated [PDF].

The CRBF is backed by the National Federation of Independent Business and other small-business trade groups.

Industry Operating Standards

The Marketplace Lending Association—whose founding members include Funding Circle, Lending Club, and Prosper Marketplace—announced its launch with a set of operating standards for the lending marketplace, which include goals of investor transparency, responsible lending, and industry safety.

“The launch of this association reflects our industry’s commitment to the highest standards of transparency and customer protection, while also delivering innovative new ways to provide better value and experiences for consumers, small businesses, and investors,” Sam Hodges, co-ounder and U.S. managing director of Funding Circle, said in a news release.

Keeping Things Straightforward

The Innovative Lending Platform Association, the newest of the bunch, is working to make the metrics that the industry shares with customers a little less confusing.

ILPA—which counts OnDeck, Kabbage, and CAN Capital as its primary backers, with the Association for Enterprise Opportunity (AEO) as a partner organization—announced its launch in tandem with the SMART (Straightforward Metrics Around Rate and Total Cost) Box Initiative, a way for small businesses to easily compare prices among different online lenders.

AEO President and CEO Connie Evans said the approach could help small-business owners wade through the process of choosing a loan more transparently.

“The SMART Box Initiative could be a game changer in driving small business ownership through greater inclusion to capital access,” Evans said in a news release. “We are proud to be part of a collective cross-sector effort to bring creative solutions to the complex issue of improving capital access to Main Street. It should go far in helping business owners, particularly those in underserved communities, navigate the new frontier of lending options.”


Ernie Smith

By Ernie Smith

Ernie Smith is a former senior editor for Associations Now. MORE

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