Online and alternative lending have opened up credit to a wide range of individuals and businesses who may not meet the traditional definitions of creditworthiness laid out by banks and traditional lenders. They have also brought valuable innovation and new efficiencies to an area of finance that had stayed very close to its face-to-face, paper-based history, even as other banking services modernized.
Fintech innovators are known for pushing boundaries. Their ability to think out-of-the-box is considered a major success factor. However, when it comes to regulatory rules there’s a point where an adman’s creative license can turn into a compliance infraction. LendingClub learned this lesson the hard way when the FTC filed a complaint against them for deceptive advertising claims.
Big banks like Chase are taking advantage of white label or “buy it” opportunities, by entering into licensing agreements with LaaS (lending-as-a-service) providers like OnDeck. This type of licensing arrangement provides substantial advantages to a big bank, but there can be substantial disadvantages for the technology partner.
In many ways small business borrowers look and behave more like consumers than corporations, but small businesses don’t enjoy the compliance protections afforded to consumers. Protections like the Truth In Lending Act.
