The last 12 months has seen a lot of movement on the industry association front. Last year the Small Business Borrowers’ Bill of Rights, while not an association per se, was the first initiative to bring more transparency to small business lending and more recently the Marketplace Lending Association was formed. Yesterday, we learned of a new association that is being born, this time from the leading short term small business lenders OnDeck, Kabbage and CAN Capital in partnership with the Association for Enterprise Opportunity (AEO). Yesterday, we spoke with Noah Breslow, OnDeck’s CEO to learn more about the new association and why they chose to create their own.
The new association is called the Innovative Lending Platform Association (ILPA) and is focused on all business lending, not just short term lenders. Noah stated that there was a need for an industry association to be inclusive of short term lenders and none of the current groups reflected their perspective. He added that they are open to bringing on board other types of credit providers to small businesses such as those providing merchant cash advances.
The association aims to provide transparency using dual disclosure which discloses both total cost and APR to the borrower. Providing the total cost to the borrower can help business owners understand what they will end up paying much easier and in turn will allow them to make an informed financing decision.
The new association set up a period of 90 days for others to join them as well as provide input. The new standards will officially roll out in September, which centers around a new SMART box model. Noah told us that aspects of the new SMART initiative, which stands for Straightforward Metrics Around Rate and Total cost are available in loan documents, but they needed to do more. According to the press release:
The SMART Box will present a small business with a chart of standardized pricing comparison tools and explanations, including various total dollar cost and annual percentage rate metrics that enable a comprehensive pricing comparison of loans of equivalent duration.
With this initiative they will also establish a uniform way of calculating APR across all industry participants. This will result in a level playing field so borrowers can accurately distinguish between each offering. The SMART Box will be similar to the truth in lending disclosure that you receive when taking out a consumer loan such as a mortgage.
When we asked how the new association will work with Washington, Noah said that there will be some public policy work but the new association is more centered around educating and informing the public as opposed to being a lobbying group. We can expect to see more studies which report on the economic impact of these lenders like the one released recently. From the press release Noah stated:
OnDeck is one hundred percent focused on responsibly serving small businesses and we are proud to join other industry leaders in this groundbreaking initiative to establish transparency best-practices that benefit the marketplace. In the days ahead, we look forward to working with other lenders, trade associations, policymakers, and non-profit organizations to create a national model for small business lending disclosure.
Industry associations are something that have received a lot of attention over the last year. It’s great to see these companies coming together to establish themselves as a credible way for borrowers to access credit while providing more transparency to borrowers. As various regulators get more involved it is important that industry associations like the Innovative Lending Platform Association exist to ensure their voice is heard.