What the Future Looks Like for Online Lending

What the Future Looks Like for Online Lending

Online lending and alternative lending companies are sprouting like weeds. Regulations, though well-intentioned, are in a patchwork stage of sorts.

Sunday’s Money 20/20 seminar, The Implications of Regulation and Self Regulation for Online and Marketplace Lenders, addressed the issues of regulation, trends and a wish list of sorts from an expert panel from the likes of the Small Business Administration, Federal Trade Commission (FTC), Consumer Finance Protection Bureau as well as online lenders Lending Club and CommonBond.

Why is Online Lending Such a Popular Industry?

Merchants are shunning banks and turning to online lenders because they are willing to trade fast approvals for higher interest rates.

We know a merchant whose online business was gaining traction, but he needed a significant upgrade in software. Looking to expand, he applied for a loan from a bank. Fed up of waiting — he waited patiently for about six weeks — he withdrew his application and decided to pursue a popular alternative lending company. Despite higher interest rates, he received his approval and loan within a week.

What’s Different About Online Lenders?

Online lending companies are going to follow best practices — there will be little alternative since all things lending are under the watch of the CFPB. In fact, one of the most repeated lines of the seminar was, ‘The Consumer Finance Protection Bureau is not going away.’

Additionally, online and alternative lenders are upholding a trend that emphasizes a far more customer-centric approach. Said David Klein, CEO of CommonBond: “We want to create an environment where the consumer wins, and create conditions for innovation in lending.”

CommonBond, which specializes in student loans, charges an average interest rate of about 7 percent, said Mr. Klein — far less than most lenders.

It is the Era of Responsible Lending

We’ve been blogging about lenders extensively over the last few years. Those in the lending space — that includes payday lenders — need to prepare for the era of responsible lending.

Toward the end of the seminar, each panelist was offered a wish list of sorts. Among the responses:

  • Small businesses need more protections.
  • Develop and API for small businesses and consumers to protect data. Instead of wading through the lending regulations of 50 states, one panelist emphasized the need for one central federal legislative body.
  • Develop and API for small businesses and consumers to protect data.

Speaking of regulations, more are coming. And it is vital  online lending merchants know them.

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