WASHINGTON, D.C. – U.S. Senator Robert Menendez (D-N.J.) and Congresswoman Nydia M. Velázquez (D-N.Y.-07), the Ranking Member of the House Small Business Committee, this week introduced the bicameral Small Business Financing Disclosure Act.
The bill aims to protect small business borrowers from predatory lenders and small business financing options carrying unfair terms and conditions and would ensure safeguards already required in consumer lending, through the Truth in Lending Act. The bill would bolster the role of the Consumer Financial Protection Bureau (CFPB) in policing small business financing and bring enhanced transparency to small commercial originations.
“Predatory lenders often attempt to prey on small businesses in need, which is why we must have greater transparency around their lending practices and the loans they make available to small business borrowers. We must create an economy where hard-working Americans and small businesses can thrive,” Menendez said. “I am proud to be leading this legislation with Congresswoman Velázquez to help protect the more than 950,000 small businesses that call New Jersey home and the millions more that are the backbone of our nation’s economy.”
“Small businesses are the lifeblood of the American economy. But for too long, predatory lenders have taken advantage of businesses in need of capital by offering loans and similar products with unclear terms and exorbitant interest rates,” Velázquez said. “This legislation is a critical step in extending many consumer lending protections to small firms, bringing needed transparency to small business credit markets and ensuring entrepreneurs understand their obligations and rights when they sign up for credit.”
America’s over 33 million small businesses employ nearly half the private workforce and play a key role in the wellbeing of local communities. In recent years, online lending for entrepreneurs and small businesses has grown. While many of these financial products are fair and help meet entrepreneurs’ capital needs, some carry enormous interest rates that can exceed 80% or even rise above triple digits without the rates being fully disclosed to borrowers.
Under Menendez and Velázquez’s bill, the CFPB would be granted the same oversight authority with respect to small business financing as the agency has over consumer financial products and services. Moreover, the bill would require small business lenders to make additional information readily available to borrowers including: the annual percentage rate; financing charges for loans; loan terms; payment amounts and collateral requirements.
Joining Sen. Menendez in cosponsoring the bill are Sens. Ben Cardin (D-Md.), Sherrod Brown (D-Ohio), and Ron Wyden (D-Ore.). Joining Rep. Velázquez in cosponsoring the bill in the House of Representatives is Rep. Maxine Waters (D-Calif.-43).
The Small Business Financing Disclosure Act earned praise and support from a wide range of organizations and is endorsed by over 80 small business, financing, microenterprise and other advocacy groups.