The National Association of Federal Credit Unions is calling for stricter regulation of marketplace lending.
The online lenders should be required to comply with the Truth in Lending Act, Kavitha Subramanian, regulatory affairs counsel at the association, said in a letter sent on Friday to the Treasury Department.
Because peer-to-peer lenders, hedge funds and other alternative lenders are not covered by the consumer protection law, they "are often able to operate more quickly and with fewer compliance costs since they are not required to follow the same disclosure practices and underwriting standards of traditional lenders," Subramanian wrote.
Small-business lenders are not subject to Truth in Lending, which requires consumer lenders to disclose their annual percentage rates to borrowers.
A NAFCU spokeswoman declined to comment Monday beyond the letter.
Additionally, the credit union group blamed the Dodd-Frank Act for the shrinking of available credit. The number of credit unions has declined because of the increased regulatory burden, and at the same time marketplace lenders have proliferated.
"The growth of online lenders proves the need for regulators to modernize existing regulations on traditional financial institutions in order to facilitate greater access to credit," Subramanian wrote.
The NAFCU letter was sent in response to Treasury's request for comment on online marketplace lending. Treasury said in July that it is interested in learning about marketplace lenders' business models, the potential to expand access to underserved market segments and how regulation should evolve.