Top Lawmakers Request Information About Online Small Business Lending
In the past two weeks, four ranking members of Congress have sent letters to the Treasury Department, SBA, SEC and CFPB requesting information about alternative small business lending. On November 3, Senators Jeff Merkley (D-OR), Sherrod Brown (D-OH) and Jeanne Shaheen (D-NH) sent a letter to the Treasury Department and the SBA requesting information about the impact of marketplace lending on small businesses. The Senators serve, respectively, as the ranking member of the Senate Subcommittee on Financial Institutions and Consumer Protection, the ranking member of the Senate Banking Committee, and the ranking member of the Senate Small Business Committee.
In their letter, the Senators cited concerns of some observers about the regulatory framework governing the space:
Observers have questioned what the appropriate role of federal regulators should be in supervising non-bank companies providing small business capital. Government agencies such as the federal financial regulators, Small Business Administration (SBA), or the Federal Trade Commission may have a role to play, as well as state regulators. However, it is possible that ‘the current online marketplace for small business loans falls between the cracks for Federal regulators.’ As we saw during the crisis, financial markets that fall between the cracks may result in predatory lending, consumer abuse, or systemic issues.
And last Thursday, Nydia Velazquez (D-NY), ranking member on the House Committee on Small Business, sent a letter to the SEC and CFPB inquiring about small business lending marketplaces. Rep. Velazquez cited a 2011 GAO report discussing early developments in P2P lending. Rep. Velazquez noted that in the report the GAO had proposed two approaches for federal regulation of online lending: one SEC-centered and the other CFPB-centered. Rep. Velazquez requested the agencies to provide her with more information concerning their regulation of online lending marketplaces for small business borrowers.
The lawmakers also posed a number of specific questions to the agencies, such as:
- What are the most significant risks in the market?
- What authority exists for federal agencies to supervise and examine companies offering online small business loans?
- What impact is the market having on community banks?
- How do online business lenders fit in the broader financial regulatory framework?
- What disclosures are required in small business lending?
- What resources have your agencies devoted to the regulation of the online lending marketplaces?
- Do you believe that your agencies possess the necessary legal authorities to protect small business borrowers and retail investors as it relates to the online lending marketplace?
And most interesting:
8. What statutory changes, additional legal authorities, and resources are necessary to support your agencies’ role in the regulation of online lending as it relates to small business loans and extensions of credit?
The recent congressional interest is likely a result of the RFI issued by the Treasury Department regarding marketplace lending. It seems Capitol Hill is also interested in learning more about the topic and, specifically, how alternative small business finance products are currently being regulated.Last modified: November 16, 2015
Patrick Siegfried is the author of usurylawblog.com and smallbusinessfinancelaw.com. Patrick is a practicing attorney in Bethesda, Maryland. Patrick’s work focuses on issues regarding alternative small business financing. He can be reached at firstname.lastname@example.org