Originally published in Entrepreneur Magazine

By Mark Abell

A recent lawsuit against fintech small-business lender Kabbage Inc., charging that it partnered with a bank in order to offer interest rates that exceeded the legal limit, highlights the need for more regulatory oversight of the growing number of online lenders signing deals with small businesses.

U.S. banks are licensed by either their state’s banking commission or the U.S. Treasury Department’s Office of the Comptroller of the Currency (OCC) and are federally regulated by either the OCC, the U.S. Federal Reserve System (Fed) or the Federal Deposit Insurance Corporation (FDIC).

Once a bank has a charter, it serves an important community purpose: It takes deposits and lends that cash to keep money moving through the economy — a dynamic economists call the multiplier effect.

Done correctly, the economy grows sustainably; done incorrectly, it can cause a recession. If banks take deposits and hoard cash, the economy could contract, and if banks lend without regard for the borrower’s ability to repay, high defaults could cause credit to seize up. Bank regulator oversight tries to ensure that nothing in this delicate balance goes amiss.

Online lenders are getting more scrutiny.

Read the full article at https://www.entrepreneur.com/article/311243

Mark Abell is senior vice president and SBA division director at NBH Bank, Member FDIC, Equal Housing Lender. NBH Bank serves clients through Bank Midwest, Community Banks of Colorado and Hillcrest Bank.