There are hundreds of products and services offered to consumers in the vast sea of financial industry. One thing that nearly all of the providers of these services and products has in common is that they are potential targets of the Consumer Financial Protection Bureau (CFPB.) Granted the power to police the consumer financial market as part of Dodd-Frank, the CFPB seemingly leaves no stone unturned in their quest to regulate (some say over-regulate) the financial market. Now, it seems as though the CFPB is focusing attention on small business lending. A new position was filled within the bureau for the Office of Small Business Lending. The CFPB has been hinting at this particular move for some time now, and it looks like new regulations are on the horizon for providers in the small business lending sector.
Why is the CFPB interested in regulating the Small Business Sector?
There is probably no single answer to this question. However, if one considers how much the alternative lending industry has grown and changed in recent years, it is easy to understand why the CFPB is beginning to focus more of their resources on policing this portion of the financial industry. Some have complained that some of these alternative lending companies do not adhere to higher standards, and this has likely led to a few bad lending companies that are tarnishing the reputations of legit lenders that are just trying to provide a valuable service to the community of small business owners/operators around the United States. There is also a fine line between small businesses that appear to be an average consumer and one that is established in its industry. Some experts believe that alternative providers of small business loans may be dealing fast and loose with the less established businesses in need of capital to get started or to move to the next level.
What Type of Small Business Regulation Already Exists?
Lending to small businesses has gone on for decades. However, some small business advocate groups have complained that the existing regulations are not strictly enforced. Negative credit data can lead to some small business owners getting turned down for business insurance or being charged a higher rate. Under the Equal Credit Opportunity Act, however, these types of things should not be going on. Small business analysts have suggested that there are just too many loopholes that need to be closed up. The question, however, is whether or not these types of issues should be handled via the CFPB at a federal level, or if better state laws can be created that would help to level the small business playing field a bit.
The precedent for applying consumer-like protection regulations to businesses has already been set. Some small businesses certainly need the kind of stringent protection provided to consumers. Many experts believe that many of the existing problems could be solved by ensuring that small business owners are better educated about what they are getting into, what their rights are and what types of liabilities are related to any loans that they take out to fund their small businesses.
If what we’ve seen from the CFPB in the past is any indication of things to come, lenders that provide loans and other financial services to small businesses had better brace themselves for a bumpy ride before too long. With the Office of Small Business Lending gearing up to make a splash in the industry, small lending companies may soon find that doing business just is not quite as easy or as profitable as it used to be. In fact, some of these lenders may have to overhaul their processes if the CFPB decides to bring down the hammer hard on the small business lending industry.