Marketplace Lending Leaders Create Small Business Borrowers’ Bill of Rights

Small Business loan application

A press release this morning outlined Small Business Borrowers’ Bill of Rights created by small business advocates and both online and offline lenders. This included many top names that readers will be familiar with including Fundera, Funding Circle and Lending Club. This comes a short time after the Treasury sent an RFI notice to participants in our industry. It seems as though we are at a turning point for our industry with government involvement and this new coalition.

I spoke to Jared Hecht (Co-founder & CEO) and Brayden McCarthy (Head of Policy & Advocacy) of Fundera to learn more about the newly created group. The major players in this industry have been talking internally for a long time about what responsible lending would mean for this space and what principles might be included. Fundera was the company that first put it in the public eye and Lending Club and Funding Circle quickly joined on. It has now grown to include Accion, Aspen Institute, MultiFunding, Opportunity Fund & Small Business Majority.

Since February of this year they have been working on this bill of rights to define what aspects should be a part of it and have come up with an aligned response. The goal of this new coalition is twofold. First, to highlight among the players that are responsible and secondly to showcase what they are doing in the lending space and how they are living by these rights.

The six key rights the Responsible Business Lending Coalition believes all small business borrowers deserve are:

1.      The Right to Transparent Pricing and Terms, including a right to see an annualized interest rate and all fees

2.     The Right to Non-Abusive Products, so that borrowers don’t get trapped in a vicious cycle of expensive re-borrowing

3.     The Right to Responsible Underwriting, so that borrowers are not placed in loans they are unable to repay

4.     The Right to Fair Treatment from Brokers, so that borrowers are not steered into the most expensive loans

5.     The Right to Inclusive Credit Access, without discrimination

6.     The Right to Fair Collection Practices, to prevent harassment and unfair treatment

The Fundera team believes that in order to grow responsibly, we need to have rules of the road for every broker and lender to respect rights of borrowers. This is especially important in the small business market. There is a distinct difference to the consumer market where there are borrower protections around truth in lending, APR etc. and these simply don’t exist in small business space. They believe this is a big problem and will continue to be unless we are more vocal.

We also touched on regulation and they believed there is unlikely to be any significant interaction any time soon at the federal level. On the state level, they pointed out that Illinois is working to release their own bill as to what responsible lending would mean. Details are lacking, but transparency in pricing will be an essential part of this.

Everyone is beginning to think about online lending and there have been some negative pieces written about this industry. The new group wants to make sure that a few bad apples do not ruin the promise that this industry holds. This is why they are being proactive with the call to action.

When I asked about what the real plans are for this group, they mentioned that the purpose is to first start the conversation. They eventually hope this becomes the gold standard and encourage other lenders to sign on. Executives of these lenders and brokers can join on by confirming they value these principles and that their current business abides by these rules. This new coalition will operate as a self-policing body.

Today at the event, Karen Mills, the former head of the U.S. Small Business Administration talked about the promise of the industry and the genuine innovation that is happening. She discussed borrower acquisition and how new data channels can result in better underwriting. Other members of the coalition sat on a panel discussion. In addition, we heard a story from one small business that was a victim of a lender that was not transparent and failed to disclose pricing and terms, something this group is looking to prevent. Fortunately, Opportunity Fund was able to step in and provide assistance, but the story showed that transparency around lending is a real problem for small businesses.

It’s nice to see the players in this industry coming together in hopes to better protect small business lenders.  This is good news for the industry and should help consumers and regulators make distinctions between the transparent lenders and those who are only in business to take advantage of borrowers.

You can view the full press release here.

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Observer
Observer
Aug. 6, 2015 9:29 am

Nice to see transparency and disclosure getting some air time. So…how about Lending Club Small Business, Funding Circle USA, Fundera and others disclose 1) their monthly volumes 2) their average APR/pricing 3) their loss rates 4) the % of their volume that comes from brokers.

observer2
observer2
Aug. 7, 2015 9:49 am
Reply to  Observer

Very well said. Blowing hot air to increase their own business doesn’t help anyone. Shades of marketing. Do what is mentioned above; that’s true transparency

Observer
Observer
Aug. 13, 2015 3:54 pm
Reply to  observer2

Best part of this charade is that the main participants (LC, FC, Fundera, Smartbiz) don’t actually lend money to small businesses. Scalp their ~5% origination fee and move on. (And Fundera is no different than a broker…and they send a lot of their volume to MCA companies!)

Evan Baehr
Jan. 13, 2016 3:41 pm
Reply to  Observer

Able absolutely stands for transparency and fair practices in lending to small businesses, and I’m proud to say that my co-founder Will just signed this Bill of Rights.

We too were shocked that only 2 of the 40+ signatories were national, for-profit lenders providing loans over 50K (3 now, including us).

We actually just published a post on this, calling out major lenders for not signing. Thought you all would appreciate- https://ablelend.co/1J3DMXS.

-Evan, co-founder