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NAFCU Regulatory Affairs Counsel Kavitha Subramanian warned of the lack of consumer protections for borrowers who use online lenders, in a letter to the Treasury Department. She also raised concerns about the "uneven playing field" created by the over-regulation of credit unions compared to the unregulated online lenders.

In her response to Treasury's request for information on online marketplace lending, Subramanian noted that the "increasing complexity of the regulatory environment" is hampering the credit union industry and leading to an increased number of "non-traditional" actors like online lenders.

"NAFCU continues to hear that many small businesses are forced to turn to online lenders because they are unable to secure lines of credit from traditional financial institutions," Subramanian wrote. "Credit unions are unable to adequately meet the needs of America's small businesses due to outdated and unnecessary regulatory burdens on the amount of member business loans that they are allowed to extend."

Subramanian urged Treasury and other financial regulators to hold online lenders to the regulatory requirements such as the Truth in Lending Act, underwriting standards for loans, and state usury laws.

She also recommended that Treasury conduct a follow-up report to its 2001 study on the small business lending marketplace, which found that credit unions have the ability to offset a lack of lending by banks during recessions. She noted that this study and others support lifting the arbitrary member business lending cap placed on credit unions, which would free credit unions to help more small businesses and provide a boost to the economy.