- Beyond Banks
- Posts
- Gov. Barr pushes for stricter lending disclosure rules
Gov. Barr pushes for stricter lending disclosure rules
Scrutiny of factor rates used by nonbank lenders

Unlike consumer lending, which is regulated by laws like the Truth in Lending Act (TILA), small businesses are generally excluded from these protections, based on the assumption that they possess financial sophistication or access to professional advice. However, many small business owners lack this expertise and face challenges in navigating complex financial terms, such as factor rates used by nonbank lenders, which can lead to poor financial decisions.
Barr suggested that policies should focus on enhancing transparency in loan terms, ensuring that loan products are sustainably repayable, and preventing costly reborrowing cycles. He encouraged banks, small business advocates, and industry stakeholders to support these policies. Some states, like California and New York, have already implemented regulations requiring lenders to disclose APRs and estimated monthly payments for small business loans.
Additionally, Barr noted that while nonbank lenders provide valuable competition, it is crucial that their lending practices meet the credit needs of small businesses without leading to unsustainable debt. He also highlighted the importance of community-based programs in supporting entrepreneurs through education and technical assistance34.
Overall, Barr's call for lending protections aims to help small businesses make informed financial decisions and thrive in a competitive market.
Source: federalreserve.gov
What Could This Mean for Alternative Business Lenders?
Standardized APR Disclosure: Alternative lenders might be required to disclose loan terms in standardized APR formats, similar to consumer lending, to enhance transparency and facilitate comparison shopping.
Clear Fee Disclosure: Lenders would need to clearly outline all fees associated with loans, ensuring that borrowers understand the total cost of credit.
Repayment Terms: Disclosure of repayment terms, including any potential reborrowing cycles, to protect borrowers from unsustainable debt.
Modifying Factor Rate Disclosures
Changes Needed:
Inclusion of Fees: Factor rates should include all fees and charges, not just interest, to provide a comprehensive view of the loan's cost.
Comparison Metrics: Lenders might need to provide comparison metrics, such as equivalent APRs, to help borrowers understand the true cost of credit.
Timeline for Regulatory Changes
Expected Timeline:
While there is no specific timeline announced, regulatory changes typically follow a process that includes proposal, public comment, and finalization. Given the current emphasis on consumer protection, changes could be proposed within the next coming years.
Formal Comment Period
Likely Process:
There would typically be a formal comment period for industry stakeholders to provide input before any new regulations are implemented. This allows for feedback and adjustments before finalizing rules.
Impact of California and New York Disclosure Laws
Existing Laws:
California and New York require small-business loans to be presented in APR terms with clear monthly payments. This model could serve as a template for federal regulations, emphasizing transparency and comparability.
Lessons Learned: These laws demonstrate the effectiveness of standardized disclosures in protecting small businesses and could inform federal policy.
Compliance Costs
Potential Costs:
Implementing new disclosure requirements could add costs related to system updates, training, and compliance monitoring. However, these costs might be offset by improved borrower trust and reduced regulatory risk.
Competitive Advantages for Traditional Banks
Potential Impact:
Traditional banks might gain a competitive edge if alternative lenders struggle to adapt to new regulations. However, banks also face regulatory challenges and may need to innovate to remain competitive.
Opportunities for Self-Regulation
Industry Response:
The alternative lending industry could self-regulate by adopting voluntary standards for transparency and borrower protection. This proactive approach might mitigate the need for more stringent government regulations.
Impact on Approval Rates and Access to Capital
Potential Effects:
Enhanced transparency could lead to more informed borrowing decisions, potentially reducing approval rates for unsustainable loans. However, this could also protect small businesses from predatory practices and ensure more sustainable access to capital.
Technology and Process Changes
Required Adjustments:
Alternative lenders would need to implement systems capable of generating standardized disclosures and tracking borrower interactions. Technology, such as AI and data analytics, could help streamline these processes.
Impact on Different Segments of Alternative Lending
Segment-Specific Impacts:
MCAs and Invoice Factoring: These segments might face increased scrutiny due to their complex fee structures and potential for high-cost credit.
Equipment Financing: This segment might be less affected if it already provides clear, asset-based financing terms.
General Impact: All segments would need to adapt to enhanced transparency requirements, potentially leading to more sustainable lending practices across the board812.
Our Opinion
Barr is advocating for consumer-style lending regulations in the small business sector, which seems like regulatory overreach. Criticizing factor rates is misguided; they differ from APR because they cater to different needs and risks than traditional loans.
This could lead to Increased regulatory burden leading to higher compliance costs, reduced access to capital as lenders may tighten criteria, and market distortion from inappropriate APR comparisons.
The assumption that small business owners can't understand financial terms is patronizing. This perspective overlooks the value of alternative lending, portraying it as a problem rather than an innovation. Instead of imposing uniform disclosure requirements, Barr should encourage competition in lending markets.
Beyond Banks Podcast: General Merchant Funding Automated Underwriting
Craig's implementation of Cobalt Intelligence has revolutionized their underwriting process in three critical ways:
Secretary of State Verification Automation
ELIMINATED manual state-by-state lookups that previously required visiting individual websites
What used to take ~3-5 minutes PER APPLICATION is now INSTANT
Automatically pulls business registration data the moment an application enters their system
Real-Time EIN Verification
Validates Federal Tax ID numbers IMMEDIATELY at the start of the process
Confirms they're dealing with legitimate businesses BEFORE investing time in full underwriting
Prevents wasted manpower on applications that would eventually fail verification
Judicial Records & Court Case Searches
Automates county-level court case lookups that were previously EXTREMELY time-consuming
Craig specifically noted this was even MORE time-intensive than SOS checks
Business Impact & ROI
The implementation has delivered outstanding results:
Massive Time Savings: Saving at least 3-5 minutes per application across THOUSANDS of files monthly
Earlier Fraud Detection: Identifying problematic applications at the entry point rather than late-stage
Rapid Integration: Craig emphasized the API was "very simple to integrate" without months of implementation time
Data Reliability: Craig specifically mentioned "the information we're looking at, we know we can trust"
Why This Matters in Today's Market
The interview reveals why alternative lenders NEED this automation:
The industry has expanded from just 3-4 players to 15-20 major players with HUNDREDS of smaller lenders
Competition has intensified as entry barriers have lowered
Success depends on moving quickly while still maintaining risk controls
Craig's survival for 14+ years while "hundreds" of competitors have vanished speaks to the importance of efficient operations
Subscribe to our Beyond Banks Podcast Channels
Headlines You Don’t Want to Miss
Truework Intelligence is a new platform from Truework that offers a fully automated and comprehensive verification solution for mortgage lenders and property managers. It integrates new data methods, including bank income and tax transcripts, and predictive modeling to enhance report turnaround times and completion likelihood, providing a more streamlined and accurate verification process. This platform aims to replace traditional vendor "waterfalls" with a plug-and-play solution, leveraging machine learning to ensure data accuracy and trust.
Affirm, a leading buy-now, pay-later (BNPL) fintech, has partnered with JPMorgan Chase to offer its installment loan services to merchants using JPMorgan's payment network. This partnership allows U.S. retailers to provide Affirm's BNPL options at checkout, offering consumers loans with terms ranging from 30 days to 60 months for purchases between $35 and $30,000, thereby expanding Affirm's reach in the competitive BNPL market.
Rapid Finance has introduced advanced network monitoring features to its Lynx platform, enhancing fraud detection capabilities for small and medium-sized business (SMB) and commercial lenders. The new features leverage AI-driven pattern and anomaly detection, along with a collaborative Trust Network that shares anonymized metadata in real-time, allowing financial institutions to proactively identify and mitigate emerging fraud schemes. This update is crucial as fraudsters increasingly use sophisticated tactics like synthetic identities and coordinated account takeovers, making traditional fraud detection methods less effective.
Schedule a FREE Demo Call with Jordan
Get Free Access to our Alternative Finance Disclosure Law Helper GPT
Get Free Access to our Cobalt Modern Underwriter GPT
Get Free Access to our Alternative Funding Expert GPT
Get Free Access to our AI Credit Risk Tool
Create an account to Get Free Access to our Secretary of State AI Tool
![]() | Subscribe on our YouTube Channel here |
See us on LinkedIn |