Law Offices of David A. Tilem

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Under a microscope: terms/conditions in online lending products

"Watch out, our eyes are on you."

So states a commentator on recent statements made and related actions undertaken by federal and California state regulators regarding online lenders.

That group of loan purveyors comprises a seemingly ever-expanding list of players that seeks to profit from services provided to consumers in California and nationally.

It seems to be those "services" that concern government watchdogs in the financial industry, given the industry's long association with novelty mortgage products, highly variable interest rates and other offerings that have ensnared high numbers of unwary consumers.

And wary borrowers, as well, given the microscopic jargon that can engender onerous consequences for those who agree to contractual terms on a loan without fully appreciating the potential downsides in the event that full performance is not scrupulously achieved.

In a loose sense, online lending can be portrayed as something akin to the Wild West days of yore, when many individuals and entities seeking to make a buck engaged in practices that victimized borrowers while simultaneously staying one step ahead of regulatory officials.

And thus the regulatory microscope is out and hunting, with both the Consumer Financial Protection Bureau and relevant state bodies striving to gain solid oversight traction over online lending and its effects on consumers.

As for the bureau, its chief principal, director Richard Cordray, says directly and unequivocally that his agency wants borrowers "to understand what they are signing up for."

In parallel fashion, California regulators' actions are indicating the same concern and desire. Late last year, the state's Department of Business Oversight directed many so-called "online marketplace lenders" to supply it with detailed data concerning business operations.

The industry reasonably seems to beg the mantra "caveat emptor." Although there are certainly many online lending products that are perfectly fair and suitable for some investors, there are also high numbers of offerings that can lead -- and quickly -- to insuperable financial challenges and a compelling need for debt relief.

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