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Federal Action on Truth-In-Lending

Capitol Hill

As you may know, CAMEO worked on SB 1235, a small business truth-in-lending bill that passed last year. The legislation ensures California small business borrowers have more transparency and clearer information when considering online and alternative financing options. Now the federal government is weighing in with two bills introduced by the House Committee on Financial Services last month.

Small Business Lending Fairness Act

Introduced by Representatives Nydia Velazquez (D-NY) and Roger Marshall (R-KS), the “Small Business Lending Fairness Act” aims to protect small business borrowers from predatory lenders. Such lenders use an obscure legal instrument to seize their assets without warning or recourse.

Many small business lending products throughout the country include this clause, called “confession of judgment.” By signing it, borrowers forfeit their right to defend themselves in court should a dispute with the lender arise.

“People are so desperate to get a loan that they are willing to sign any disclosure without understanding what they’re signing for,” said Rep. Velazquez in an effort to emphasize the necessity of this legislation. Protection against confessions of judgment already exists for consumer lending products, but many states still allow it for commercial loans.

Advanced with a 31-23 vote, the bill will now move to the House floor. Last year, Senators Sherrod Brown and Marco Rubio introduced similar legislation in the Senate. It was then referred to the Committee on Banking, Housing, and Urban Affairs.

Fair Debt Collection Protection Act (H.R. 5013)

H.R. 5013 was passed by the House Financial Services Committee. It has the goal of protecting small business borrowers from abusive debt collection practices. Rep. Al Lawson (D-FL) introduced the bill.

Currently, small business borrowers do not receive the same protections as buyers of consumer loans. This leaves them vulnerable to harassment and abuse by debt collectors. H.R. 5013 puts guardrails on what debt collectors can do to collect the debts from small businesses who owe less than $5 million.

“Small businesses are the backbone of our economy, employing 58.9 million workers, and most are doing well, but in those instances when they fall behind on meeting their obligations, they should be shown the same respect and dignity as consumers,” said Rep. Lawson. Sen. Ron Wyden also introduced legislation in the Senate that mirrors H.R. 5013.

CAMEO and the Responsible Business Lending Coalition support both bills as a great step toward more transparency and fairness in small business lending.