Small Business Fintech Lending: The Need for Comprehensive Regulation

29 Pages Posted: 26 Jun 2018

See all articles by Lenore Palladino

Lenore Palladino

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics; Franklin & Eleanor Roosevelt Institute

Date Written: March 10, 2018

Abstract

The 28.7 million small businesses in the United States--99 percent of all American businesses---are the backbone of the American economy. Historically, small businesses relied on community banks for their credit needs. Over the last decade, small businesses increasingly have turned to "fintech" lenders--nonbank lenders that are largely unregulated. Nonbank consumer lending is governed by consumer protection statutes, but nonbank small business lending is outside of any clear regulatory framework that would protect borrowers from potentially predatory practices.

I argue for updates to consumer protection statutes so that they afford the same protection to small business borrowers as to consumers for loans below a certain dollar threshold. I then show that state regulation, combined with placing the small business lending market under the jurisdiction of the Consumer Financial Protection Bureau, is the best approach for nonbank fintech entities. Finally, I demonstrated why the proposed 'Special Purpose Bank Charter' as proposed by the Office of the Comptroller of the Currency is an optimal approach to regulating the non-bank small business lending market.

Keywords: Small Business, Fintech, Consumer Financial Protection Bureau

Suggested Citation

Palladino, Lenore, Small Business Fintech Lending: The Need for Comprehensive Regulation (March 10, 2018). Available at SSRN: https://ssrn.com/abstract=3194694 or http://dx.doi.org/10.2139/ssrn.3194694

Lenore Palladino (Contact Author)

University of Massachusetts at Amherst - College of Social and Behavioral Sciences - Department of Economics ( email )

Amherst, MA 01003
United States

Franklin & Eleanor Roosevelt Institute ( email )

4079 Albany Post Rd.
Hyde Park, NY 12538
United States

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