Small-Business Loan Brokers Need a Code of Ethics

By McCarthy, Brayden | American Banker, May 28, 2015 | Go to article overview

Small-Business Loan Brokers Need a Code of Ethics


McCarthy, Brayden, American Banker


Byline: Brayden McCarthy

The subprime crisis illuminated just how dangerous it can be when loan brokers go unchecked. If we're not careful, we may have to learn that lesson all over again.

While new Dodd-Frank rules have reined in mortgage brokers, many of the brokers who cut their teeth in the run-up to the subprime crisis have reincarnated themselves in a new industry, this time targeting small businesses. Small-business loan brokers typically fall through the grips of regulators. Aside from fair lending laws, they aren't subject to federal oversight. Only a handful of states require brokers to obtain licenses. Highly regulated banks have traditionally steered clear of small-business loan brokers, but the explosive growth of largely unregulated online lenders has given them new opportunities to prey on unsuspecting borrowers.

Because finding creditworthy borrowers can be tough, brokers originate as much as three-quarters of all loans at some of the largest online lenders. That's worrisome news, since brokers' hefty commissions dramatically increase the costs of already-expensive loans. In one instance reported last year, a business borrowing $50,000 over six months would pay back $65,500, with the broker getting $8,500. The 17% fee is more than the lender would make on the loan, and about six times what brokers earn on typical Small Business Administration loans.

Worst of all, brokers rarely break out their fees to borrowers, so borrowers don't know how much they're paying for their brokers' services. These brokers also often market themselves as impartial when in fact many of them get expensive commissions from lenders and offer bonuses to salesmen for steering borrowers toward high-priced loans, even if cheaper options are available. As with the mortgage crisis, that avarice can ensnare borrowers in loans they can't afford and that aren't best suited to their needs.

Because the most egregious offenders are often offline loan brokers, some may think that the rise of online upstarts would bring greater transparency to the process. But make no mistake: while there's no question that the Internet has the potential to make finding a loan as seamless as booking a flight on Kayak, many of the most prominent online brokers engage in similar tricks, despite claiming to carry the torch of disruptive innovation.

These actions impugn the reputation of all brokers and undermine the positive role that brokers can play in facilitating loan discovery. After all, finding a business loan on your own can be daunting, consuming three full workdays on average and requiring that borrowers make sense of myriad complicated loan options. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Small-Business Loan Brokers Need a Code of Ethics
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.