The online lending space has grown rapidly in the last few years. With each new company, consumers are changing the way they manage their finances, pay for a cup of coffee and obtain a mortgage. According to a recent Citigroup Inc. report, $19 billion in investments poured into FinTech (financial technology) last year alone, up from $1.8 billion five years earlier – eating into some of the business of traditional banks. FinTech represents a wide and diverse group of companies from mobile payments, online mortgage lenders, small dollar lenders to digital currency.

The explosive growth of FinTech has not gone unnoticed by Washington regulators. The Federal Reserve, Treasury Department and Consumer Financial Protection Bureau (CFPB) are all pursuing ways to increase regulation of marketplace lenders.

The Consumer Financial Protection Bureau, which has authority to regulate nonbanks, recently launched a program called “Project Catalyst” where it is collecting consumer complaints about marketplace lending in its database.

The Treasury’s Office of Comptroller of the Currency, which regulates national banks, recently issued a white paper outlining its plans to create a framework to regulate FinTech companies and national banks. This process is fueling conversation across the industry, especially by traditional banks that see these innovations as disruptive to their business model.

Additionally, Securities and Exchange Commission Chairwoman Mary Jo White raised concerns in a speech at Stanford University about the limited information investors receive from online lenders and said more information should be disclosed about these companies.

All this regulatory scrutiny could be dangerous to the prosperous innovation these companies have so far enjoyed.

House Republicans are pushing back against the increased regulations and are preparing a legislative package to create a framework to foster innovation. This package could alleviate certain state-level licensing requirements and provide clarity on lending standards for marketplace lenders. Yet, the FinTech industry needs to be a part of shaping any new legislative framework from the beginning.

The warnings have been heard, as many marketplace lenders are hiring lobbyists and forming Washington-based trade groups. Lenders understand that those preparing the rules are traditional bank regulators who are unfamiliar with the different business models of their firms. For these firms, the only way to avoid new regulation that limits innovation and growth is to be a part of the Washington process.

In order to prepare for this increased oversight, marketplace lenders must:

  • Establish a presence in the nation’s capital in order to tell their unique stories, push back against any regulation or legislation that will limit company growth and stem the flow of products that have made the industry flourish
  • Engage regulators, lawmakers and reporters before a new regulatory regime is created without their insight and unique business structures in mind
  • Communicate the standards and policies they are already subject to follow, including anti-money laundering laws and data security protection. This will help push back against incorrect industry characterizations of loose standards in this growing industry

Online lenders are still struggling to figure out the regulatory maze in Washington. FinTech has already increased their lobbying muscle. Edelman’s experience navigating the maze of financial regulation and knowledge of these unique business models can help bring the industry and regulators together.

Cheyenne Beach is a vice president with the Financial Services and Corporate teams in Washington D.C.