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Velázquez and Menendez Introduce Bicameral Bill to Stop Predatory Small Business Loans

Velázquez and Menendez Introduce Bicameral Bill to Stop Predatory Small Business Loans
November 18, 2021
Press Release

Washington, D.C. –Today, Rep. Nydia M. Velázquez, the Chairwoman of the House Small Business Committee, and Senator Robert Menendez (D-NJ) introduced the bicameral Small Business Lending Disclosure Act. This bill aims to protect small business borrowers from predatory lenders and loans 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 in policing small business lending and bring enhanced transparency to small commercial loans.
 
“Prior to the COVID-19 pandemic immoral lenders sought to prey on small businesses with unfair and unsustainable loans, said Velázquez. “Once we were in the midst of the worst public health crisis in over a century these predatory lenders would take aim at business and entrepreneurs trying to stay afloat. This legislation is a critical step in extending many of the protections in consumer lending law to small firms, bringing needed transparency to small business credit markets and ensuring entrepreneurs understand their obligations and rights when they sign up for a loan.”
 
“It’s time to strengthen consumer protections for our small businesses, especially after what many of them had to endure to keep their doors open and employees paid during the pandemic,” said Sen. Menendez. “The lack of disclosure requirements leaves small business borrowers at risk of making decisions without access to the best information, and at the mercy of predatory lenders who go out of their way to take advantage of those in need of critical funds. I’m proud to join Congresswoman Nydia Velazquez in leading this effort to extends safeguards already required in consumer lending to the small business credit market.”
 
“Small businesses are the lifeblood of communities in Ohio and across the country. Right now, many of these businesses are desperate for loans to keep their doors open and their workers on payroll, leaving them vulnerable to predatory lenders who want to trap them in an endless cycle of debt,” said Sen. Brown, Chair of the U.S. Senate Committee on Banking, Housing, and Urban Affairs. “I’m proud to support the Small Business Lending Disclosure Act, which would help protect small business owners by extending consumer protections to Main Street.”
 
“Too many small and minority-owned businesses have been preyed upon by predatory lenders that use unclear pricing and confusing terms to rip borrowers off,” said Representative Maxine Waters (D-CA), Chairwoman of the U.S. House Committee on Financial Services. “And we know too well, Black and Latinx businesses were the hardest hit by the pandemic and faced challenges accessing support programs like the Paycheck Protection Program. So, as small businesses recover from the pandemic, they deserve to have the same basic protections consumers have had for decades under the Truth in Lending Act to ensure they have a clear understanding of the loans they receive, and that it will help their business grow.”
 
“Entrepreneurs’ livelihoods are often intertwined with their small businesses. The Truth in Lending Act has been protecting borrowers and ensuring transparency in lending for consumers for more than 50 years, and it’s time for the same level of transparency and fairness to be afforded to small businesses. This legislation will better protect small business borrowers and ensure a level playing field as small businesses work to recover from the pandemic and grow their business,” said Rep. Ed Perlmutter (D-CO).

Small businesses make-up almost half of private sector jobs in the United States and play a key role in 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 Velázquez’s bill, the Consumer Financial Protection Bureau (CFPB) would be granted the same oversight authority with respect to small business financing as the agency has with respect to consumer financial products and services. Moreover, small business lenders would need to make additional information readily available to borrowers including: the annual percentage rate; financing charges for loans; loan terms; payment amounts and collateral requirements.
 
This bill is co-sponsored in the House of Representatives by Rep. Ed Perlmutter (D-CO) and Rep. Maxine Waters (D-CA).
 
This bill is co-sponsored in the Senate by Senator Sherrod Brown (D-OH) and Senator Ben Cardin (D-MD)
 
The Small Business Lending Disclosure Act earned praise and support from a wide range of small business, financing, microenterprise and other advocacy groups.
 
“Small businesses count on us to help them make financial decisions. As we face the reality of the racial wealth gap in this country, this bill helps countless Black-owned small businesses gain greater financial assurance that they’re obtaining accurate lending terms and fair rates. This gives them the opportunity to see for themselves and make informed decisions without the worry of predatory lending fees,” said Lenwood V. Long, Sr., President & CEO of the African American Alliance of CDFI CEOs.
 
“Entrepreneurs of color bore the brunt of COVID-19’s economic fallout, with more than 19% of Black-, 10% of Latinx-, and 10% of Asian-owned businesses closing permanently, and they will continue to face an uphill battle in the months ahead. This is a critical time for small businesses to start rebuilding, and accessing capital will be crucial in this effort. The Small Business Lending Disclosure Act of 2021 is much-needed to provide transparency, giving small business owners, especially entrepreneurs of color, a fair opportunity to make informed financial decisions for their businesses,” said Luz Urrutia, CEO of Accion Opportunity Fund.
 
“Small businesses deserve common sense transparency in evaluating financing options so they can make well-informed financial decisions and play a key role in rebuilding our economy--and this bill delivers that. In the face of our current economic crisis, entrepreneurs desperate to keep their doors open are vulnerable to predatory lenders at the worst possible time. We all have a stake in the financial health of our small business community and should rally around national legislation to protect their basic rights to responsible and transparent financing,” said Jacob Haar, Managing Partner of Community Investment Management.
 
“We believe a free and fair market operates most efficiently when there is transparency in pricing, terms and conditions. When a small business has all of the necessary information up front including the annual percentage rate (APR), they can comparison shop and make informed decisions that are best for their business. Funding Circle supports one national uniform small business financing disclosure law because it is in the best interests of small businesses and they need our support now more than ever,” said Ryan Metcalf, Head of U.S. Public Policy at Funding Circle U.S.
 
“Commonsense transparency standards promote innovation by enabling small businesses to comparison shop. This groundbreaking bill will create healthy competition, lowering prices for small businesses and encouraging responsible lending,” said Louis Caditz-Peck,  Director of Public Policy at LendingClub.
 
“At a time when many small business owners need capital to stabilize their businesses, this legislation is critical to helping small businesses access affordable, responsible financing and avoid high-cost predatory loan products. Requiring lenders to disclose key information including the annual percentage rate (APR) ensures entrepreneurs have the knowledge they need to make financial decisions that grow and strengthen their business,” said Lisa Mensah, Opportunity Finance Network President and CEO.
 
“Unregulated, predatory lenders come with the promise of fast cash for small businesses; however, these lenders often use bait and switch tactics that can send a business into financial ruin. For years predatory lenders have been able to skirt transparency and trick small business owners into repaying a loan at exorbitant rates—sometimes as high as 350% APR. As small businesses face a long road to recovery from COVID-19, we cannot allow them to be taken advantage of any longer. Having access to clear and accurate lending terms will be critical to aiding small business recovery in the months and years ahead. We commend Senator Menendez and Congresswoman Velázquez for leading this charge in Congress and urge all Members to join them in providing America’s entrepreneurs with the financial transparency they rightly deserve,” said John Arensmeyer, Founder and CEO of Small Business Majority.
 
“Accompany Capital frequently encounters entrepreneurs who have become trapped in cycles of payday-like, expensive debt that can quickly drain all of the business’ resources. Too many of New York’s small businesses are at risk for taking out predatory financing unknowingly, because finance companies are not required to clearly disclose the price and terms to borrowers. Small businesses need the annual percentage rate (APR) and other key terms in order to compare different financing options available to them and make informed decisions. We applaud Congresswoman Velázquez and Senator Menendez’s leadership to give our small businesses the transparency they deserve” said Yanki Tshering, Executive Director of Accompany Capital.
 
"We are excited that Congresswoman Velázquez and Senator Menendez are working to close a loophole for small business lending. Many business owners act like consumers when it comes to lending and look at their financing options like they would a car loan or a mortgage. This bill is of special importance to entrepreneurs of color as they are more likely to find financing online, where most of the predatory lenders operate and tend to hide the true costs of their products," said Carolina Martinez, CEO of CAMEO (California Association for Micro Enterprise Opportunity).
 
“Fair and honest lenders have nothing to fear regarding transparency and the adoption of standard terms to describe the cost of business loans. Our legislature passed the NYS Small Business Truth in Lending Act with overwhelming bipartisan support last year. We thank Rep. Velázquez and Senator Menendez for their commitment to deliver similar protections at the federal level through universal disclosure standards,” said Linda MacFarlane, Chair of the New York State CDFI Coalition.
 
“While immigrant and Latino entrepreneurs are drivers of US innovation their economic contributions can be stifled by predatory financial practices and a lack in access to capital. NALCAB applauds the introduction of the Small Business Lending Disclosure Act, legislation that will help guard against unsafe lending products and ensure these entrepreneurs have the responsible capital needed to help them spur economic growth and great jobs,” said Marla Bilonick, President and CEO of NALCAB, the National Association for Latino Community Asset Builders.
 
“For far too long unregulated, predatory lenders come with the promise of fast cash for small minority businesses. However, these lenders often use deceiving tactics that can send a business into financial strain or even shutdown. For years, predatory lenders have been able to manipulate transparency and mislead small minority business owners into repaying a loan at exorbitant rates, sometimes as high as 350% APR. Now, as our nation builds back after the unprecedented global pandemic which caused the worst financial crises in American history, we cannot allow small minority businesses to be taken advantage of. Having access to clear and accurate lending terms will be critical to assisting the more than 32 million small businesses and five million Hispanic-owned businesses in America with their recovery. The USHCC supports the efforts of Senator Menendez and Chairwoman Velázquez for introducing the Small Business Lending Disclosure Act of 2021 and leading this charge in Congress to help America’s entrepreneurs and small minority businesses with the financial transparency they rightly deserve,” said C. LeRoy Cavazos-Reyna, Vice-President of Government and International Affairs, United States Hispanic Chamber of Commerce (USHCC).
 
“Black entrepreneurs in New York often struggle to secure the financing resources needed to start or grow businesses. Our community members encounter predatory lenders charging rates and fees that are not presented in a straightforward way. This lack of transparency can trap small businesses in high-cost debt that harms their bottom line or risks taking down their business completely. Hard-working entrepreneurs deserve to receive the necessary information to be able to avoid costly products and make the best financing decisions for their businesses. Congresswoman Nydia Velázquez and Senator Bob Menendez’s legislation will bring much-needed sunshine by requiring clear disclosures in small business lending. If knowledge is indeed power, this bill will empower business owners with better information to assist them in making better-informed decisions,” said Anthony Gaddy, Co-Founder/President and CEO of the UpState New York Black Chamber of Commerce (USNYBCC).
 
“For far too long, the small business lending industry has been plagued by predatory lenders who have targeted our nation's most vulnerable entrepreneurs by imposing high interest rates, hidden fees, unfair terms, and more. The Small Business Lending Disclosure Act of 2021 takes a bold step to protect borrowers by requiring transparency, access to information, and other tools that would allow entrepreneurs to make informed financial decisions. The Latino Economic Development Center (LEDC) fully supports the bill and encourages its passage,” said Marjorie Nemes-Galarza, MSc, Interim Executive Director & CEO of Latino Economic Development Center.
 
“Small businesses are the economic and cultural lifeblood of low income neighborhoods and communities of color. Accountability and transparency about how they are financed is critical to how these vital community assets are supported. The Small Business Lending Disclosure Act gets us a long way toward our shared goal of equitable and prosperous communities for all,” said Frank Woodruff, Executive Director of the National Alliance of Community Economic Development Associations (NACEDA).
 
"Predatory lenders have long exploited the gap in lending protections for small businesses. Small businesses deserve the same protections in the lending market as consumers," said Didier Trinh, Director of Policy and Political Impact for Main Street Alliance. "Representative Velázquez and Senator Menendez's bill will extend these common sense protections, and protect Main Street. Many Black and brown business owners are particularly targeted for unregulated loans, and lending protections would help to address inequality in lending interest rates that contribute to disparities in access to capital and long term wealth building. Especially coming out of one of the worst economic recessions in recent memory, small businesses need to be protected when accessing credit and capital so that a short term cash flow issue does not lead to a long term financial crisis."
 
The Small Business Lending Disclosure Act also received endorsements from: Accompany Capital, African American Alliance of CDFI CEOs, California Association for Micro, Enterprise Opportunity (CAMEO), Colorado Black Chamber of Commerce, Latino Economic Development Center (LEDC), Main Street Alliance, National Alliance of Community, Economic Development Associations (NACEDA), National Association for Latino Community Asset Builders (NALCAB), National Urban League, New York State, CDFI Coalition, UpState NY Black Chamber of Commerce, United States Hispanic Chamber of Commerce, Woodstock Institute, Responsible Business Lending Coalition (RBLC) and members, Accion Opportunity Fund, The Aspen Institute, Community Investment Management, Funding Circle, LendingClub, Opportunity Finance Network (OFN), Small Business Majority.