Small Business Fintech Lending: The Need for Comprehensive Regulation
29 Pages Posted: 26 Jun 2018
Date Written: March 10, 2018
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
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