How Online Lenders Operate is Regulated Different in Each State

There has been a boom in the growth of online lending in the recent years due to the lack of regulation by the local government. Online lending is not governed by the same strict regulation rules as the bank. However, this may change in the near future because the US Treasury Department has decided to take actions against it. They have recently submitted a Request for Information to obtain detailed information about online lending because of the criticism about the high APRs of online loans. In many states, lenders can charge any amount of interest they want because there is no regulation on the limit of the APR.

The US Treasury Department has submitted the Request for Information is to learn about the business models that are utilized by the online lenders. For example, peer to peer lending is a type of online lending that rely on individual investors to supply the money for the loans although banks and financial institutions also involved in this type of loan. They are concern about the interest rates of loans made to consumer and small business especially the type of loans with interest rates higher than the bank. They want to issue new rules to protect the borrowers.

The US Treasury Department want to learn more about how the loans are issued and the performance of the loans. They want to understand about the type of loan products they offer as well as their extension of the loans to people with bad credit. There are hundreds of companies that have provided feedback on the proposal of the regulation of online lending. Some approve the regulation while others do not approve it.

In the meantime, the Consumer Financial Protection Bureau has started to accept complaints about online lending beginning in March. According to the CFPB, many consumers have submitted several complaints about the bad practices about online lending. CFPB was established in 2011 to issue regulations that have do with various kinds of loan products in the USA.

US Supreme Court has asked for the permission of Obama administration to cap the interest rate that the online lender can charge. It is going to take more than 1 year if they want to compose the laws to regulate the online lending industry. This is because it takes a lot of time for the lawmakers to comprehend about the online lending. If the regulation is approved, the states and cities will be the first to implement the regulation. It will take a longer time for the regulation to be implemented at federal level.

Faster regulation of the online lending industry is likely to be carried out through nonprofit organization that protection a small number of borrowers. These organizations usually have meeting regularly to encourage lenders to commit in responsible lending for example being upfront about the interest rates for the loans.

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