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Insights and Expertise
Navigating regulation How lenders can stay compliant as rules evolve
in the alternative One big challenge facing alternative finance providers is Spotlighting companies that promote
that regulation is still in flux. Federal rules remain un-
der development, while states are rolling out their own
finance space requirements at different speeds and with different pri- innovation in the payments industry
orities. The result is a fragmented environment in which
compliance obligations can vary significantly by jurisdic-
By Chad Otar tion. For lenders, an effective way to manage this com-
Lending Valley plexity is to establish a dedicated compliance function. A
compliance team is responsible not only for ensuring cur-
rent requirements are met, but also for tracking regulatory
raditional banks operate under an extensive developments and preparing the organization for upcom-
regulatory framework, reflecting the critical
role they play in handling deposits, extending ing changes. This proactive approach allows businesses to
T credit and maintaining financial stability. Given adapt early, rather than scrambling to comply under pres-
the volume of money they manage, and the systemic con- sure.
sequences if they fail, tight oversight is both expected and
necessary. By contrast, much of the alternative finance Staying informed is equally important. Lenders should
regularly follow industry-specific news, including trade
industry, including nonbank lending and merchant cash
advances, has historically operated with far less regula- publications, to stay aware of emerging trends and en-
forcement actions. Building relationships with legal coun-
tion. That is now changing. In recent years, federal and
state authorities have introduced new rules aimed at sel and, where appropriate, regulatory bodies can also
help clarify expectations and reduce the risk of missteps.
increasing transparency, accountability and borrower
protection. In addition, lenders benefit from having a formal change-
management framework. Such a framework outlines how
the organization responds to regulatory changes, assesses
While this shift may be long overdue, it also makes navi- operational impact and implements new controls. This
gating the regulatory landscape increasingly complex for
alternative finance providers and the businesses that rely reduces surprises, minimizes disruption, and lowers the Custom pages on our high-tra c website showcasing

risk of costly fines or enforcement actions.
on them. This article offers a brief guide to understanding
why regulation in alternative finance is expanding and Finally, compliance cannot live in a silo. Regular training your company’s unique message
how both lenders and borrowers can adapt.
across an organization ensures that employees understand
Why regulation of alternative finance is increasing new rules and how they affect daily operations. Keeping
staff informed helps prevent errors and reinforces a cul- • Your own, customized News from the Wire that highlights
At a basic level, increased oversight makes sense. Alterna- ture of accountability.
tive finance providers extend capital to small businesses stories about your company
and individuals, often under urgent circumstances, and What borrowers should know
those financial decisions can have lasting consequences. • Featured content: updated monthly, either by your in-house
In many cases, these providers hold as much influence Borrowers generally face fewer direct regulatory obliga-
over a borrower's livelihood as a traditional bank would. tions than lenders. Even so, they have a strong interest in writers or by one of ours
Regulatory oversight helps ensure that power is exercised paying attention to how the alternative finance market is
responsibly. evolving. Savvy borrowers should work with lenders that • Custom infographics and videos
demonstrate regulatory compliance and transparency.
Growth is another factor. Alternative finance has expand- Doing so can make the borrowing process smoother, re- • Premier content placement in each issue of e Green Sheet

ed rapidly over the past decade, far outpacing lending duce the likelihood of disputes, and ensure that, if issues
growth at traditional banks. As the sector scales, the ab- arise, there are clear avenues for recourse through over-
sence of consistent regulation becomes more problematic. sight authorities. • And so much more...
Establishing guardrails now is far easier than attempting
to rein in harmful practices after they become deeply en- Staying informed about regulatory changes is no longer
trenched. optional. The alternative finance industry is entering a
period of significant transition, and regulation will play
Perhaps most importantly, regulation is intended to curb an increasingly central role in shaping how capital is pro-
predatory lending. In lightly regulated environments, bad vided and repaid in the years ahead.
actors can proliferate, charging excessive fees, obscuring Rick@greensheet.com
repayment terms or trapping borrowers in cycles of debt. Note: I used the following when researching this article:
Borrowers will always need access to capital, particularly https://www.huschblackwell.com/newsandinsights/alternative-
small businesses with limited financing options. commercial-finance-update-adapting-to-regulatory-changes-in-
the-alternative-finance-landscape
But access shouldn't come at the cost of transparency or Chad Otar is CEO of Lending Valley Inc. For information about the com- 707-284-1693
fairness. Much of the current regulatory push is aimed pany, please visit www.lendingvalley.com. To reach Chad, send an email
squarely at eliminating these abuses. to chad@lendingvalley.com.

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