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Federal Regulators Consider Strengthening Borrower Protection Requirements For Online Small Business Loans

Last year, online banking companies provided over $1.9 billion in small business loans. With the market booming, federal regulators are now examining the type of oversight that the industry needs.

According to the Wall Street Journal, online loans for small businesses have increased by 60% since 2014. Many of these loans are very small, and are used to help mom-and-pop businesses get off the ground.

This means that a large percentage of these loans are really personal or consumer loans. A loan may be provided to an individual entrepreneur may need a few thousand dollars to start a website, buy inventory or supplies, or do the hundred other tasks that come with starting a business.

Since not all of these entrepreneurs will ultimately be successful, the chances are good that the borrower may not be able to pay off the loan. This becomes especially concerning when the Wall Street Journal found that the interest rates on these loans range from 7% to 98%.

As a result, many in the federal Treasury Department and the Federal Reserve are noting that consumers are often not prepared for the requirements of the business loans. The Truth in Lending Act (TILA) which normally governs the rules for consumer loans does not apply to business loans. This means that online business loan lenders are not required to show borrowers the cost of the loan or the annual percentage rate. Additionally, online lending companies often offer nontraditional loans with varying terms, which can get confusing. Finally, regulators are also concerned that online lenders may be assessing a borrower’s creditworthiness using unapproved methods, which may not be fair to borrowers.

It remains to be seen if federal regulators will take active steps to manage the online small business loan marketplace. For now, consumers who take out these business loans are not protected by traditional consumer loan safeguards. However, hopefully these loans will become more transparent and safer for small business owners to use in the near future.

If you have had problems paying off your debts, Loan Lawyers can help. Our attorneys will review your financial situation and help you come up with options that work best for your long-term goals. To schedule your free consultation, contact our office today by calling (888) FIGHT-13 (344-4813).