A two-ton rule book: Is tighter regulation of business lending the solution – or would it just compound the problem?
A Treasury Select Committee of MPs has called for tighter regulation of business lending to bring the rules more in line with those governing consumer lending. However, the Treasury itself is said to be against such a move on the grounds that it is unnecessary and would over-complicate an already complex and confusing picture for borrowers. What to do?
It is certainly true that, while SME owners are usually very good at running the operational side of their businesses, some are not quite so adept when it comes to finance. The nub of the argument is that, as things stand, business borrowers – whether knowledgeable or not – do not enjoy the same level of protection as consumer borrowers when things go wrong. The Government has said that SMEs may in future be given greater access to the Ombudsman Service, but there has been no specific mention of changes to the regulations.
As every schoolboy knows, ignorance of the law is normally no protection. If you don’t know the rules, then you should find out before signing any sort of binding agreement, financial or otherwise. More importantly, gaining better access to the Ombudsman Service is all very well, but that means something has already gone wrong. The emphasis should be on prevention rather than redress. The finance industry bears a clear responsibility for making sure that customers, whether as individuals or the people taking responsibility for corporate decisions, appreciate and understand what they are entering into. There should be transparency on fees, pricing and risk. However, raising the awareness of borrowers should also form part of the remit for the FCA, CMA and the Department of Education.
There are, after all, a myriad of financial products and services available from numerous providers. Maybe there should be rules to protect lenders against borrowers who provide false information in order to secure finance? To put together a set of regulations that would cover off all the countless scenarios in granular detail would produce a formidable tome more likely to deter than educate. My guess is that the Treasury has recognised that rigid regulation is not the answer.
The latest report from Cambridge Centre for Alternative Finance (CCAF) shows that the volume of P2P business lending in 2017 was, at £2bn, 65% higher than in the previous year and accounted for 29.2% of all new bank loans to small businesses. Institutions accounted for 40% of the funding. Like banking, P2P business lending is not perfect, but it has been a resounding success for lenders and borrowers alike. The case for its existence has been proven beyond doubt. Let’s have some lateral thinking that nurtures success rather than a two-ton rule book that suffocates it.