In response to the state Department of Financial Services’ request for comments on online lending, New York Credit Union Association President/CEO William J. Mellin penned a letter to DFS Superintendent Maria T. Vullo. Mellin noted that the emerging online lending industry offers many benefits to consumers, but he also said the industry desperately needs more oversight.
“[The online lending industry] is currently so under-regulated that consumers are at risk and traditional financial institutions are at risk of competing for these consumers on an uneven playing field,” he wrote.
While noting that regulating the industry could be difficult because there is no clear definition of “online lending”—and because the industry has outpaced current banking regulations—Mellin offered the following suggestions to the department:
Parity of treatment: To the extent that online lenders provide consumers with traditional banking products and services, they should be subject to the same regulations as their brick-and-mortar counterparts.
Capital requirements should be imposed to protect consumers against economic downturns.
Consumer choice: Consumers should be given maximum flexibility to choose whatever lender they feel best meets their needs. This includes allowing credit unions to compete in virtual communities.
Federal involvement: While it is appropriate for the state to address these issues, for any online lending regulatory framework to be effective, it must be national in scope.
“It is both in the interest of consumers and the economy as a whole that these increasingly important institutions be properly regulated,” he concluded. “Simply put, as they take on more of the characteristics of a traditional financial institution, they should also have to assume many of the responsibilities of traditional financial institutions.”