June 15, 2023

Sen. Menendez, Rep. Velázquez Introduce Bicameral Bill to Stop Predatory Small Business Financing

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, today 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,”said Sen. Menendez. “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,”said Ranking MemberVelázquez. “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."

“We have a responsibility to ensure that small business owners have access to capital on reasonable terms. This is particularly important for entrepreneurs and small business owners from minority and underserved communities who have historically faced barriers to receiving financing,” said Sen. Ben Cardin (D-MD), Chair of the Senate Committee on Small Business and Entrepreneurship. “Many small businesses do not have the necessary resources to make determinations on financing, leading them to search for alternatives. This legislation simply ensures that small business owners understand the terms of the capital they receive in an effort to bring much needed transparency into this market.”

“It’s outrageous that unscrupulous lenders continue to rip off small business owners with unfair predatory loans,”said Sen. Ron Wyden (D-OR), Chair of the Senate Committee on Finance. “Small business owners in Oregon and nationwide deserve transparency when it comes to small commercial loans and this bill would add necessary safeguards to protect borrowers and allow the small business economy to flourish.”

“Small businesses are the heart of communities in Ohio and across the country. Without access to safe, affordable, and transparent credit to grow, small businesses are vulnerable to predatory lenders who want to trap them in an endless cycle of debt,”said Sen. Sherrod Brown (D-OH), Chair of the U.S. Senate Committee on Banking, Housing, and Urban Affairs. “I’m proud to support the Small Business Financing Disclosure Act, which would help protect small business owners by extending consumer protections to Main Street.”

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 isendorsedby over 80 small business, financing, microenterprise and other advocacy groups.

“Small business borrowers must have fair and transparent information about all financial products and services in order to run their companies responsibly and successfully. We applaud Senator Menendez for reintroducing the Small Business Financing Disclosure Act, to protect businesses in New Jersey and across the country from proliferating unfair, deceptive, abusive and predatory lending practices,"said Beverly Brown Ruggia, Financial Justice Program Director, New Jersey Citizen Action.

“Small business owners are the backbone of the economy and deserve fair and transparent financing. For far too long, people of color and women have been shut out of the traditional financial system becoming frequent targets by predatory lenders. I am pleased with the introduction of the Small Business Financing Disclosure Act of 2023 that will promote the disclosure of total cost of credit so that business owners understand the terms of the credit they are accessing,” said Luz Urrutia, CEO of Accion Opportunity Fund.

“It is vital that small businesses who are seeking financing have the information to fully understand the cost and terms of each offer, and to easily compare across products, so they can make the best choice for their business. APR is the only metric that enables apples-to-apples comparisons among products with different fees, interest rates, and term lengths over a common unit of time. Lack of transparency is currently inhibiting competition and innovation in the financing markets. Today, without transparent disclosure and the ability to compare costs, financing companies do not have a strong incentive to lower prices but compete instead on the speed or ease of accessing financing. As a result, small business financing prices remain high. This reduces the ability of business owners to reinvest in the growth and health of their businesses, support their workers, or use the profits of their business to support and invest in their families and communities,” saidJoyce Klein, Senior Director, Business Ownership Initiative, The Aspen Institute.

“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 interstate commerce,” saidRyan Metcalf, Head of U.S. Public Affairs at Funding Circle U.S.

“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. As small businesses recover from myriad challenges stemming from the pandemic, we cannot allow them to be taken advantage of any longer. 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,” saidJohn Arensmeyer, Founder and CEO of Small Business Majority.

"Accompany Capital often receives inquiries from entrepreneurs who have become trapped in cycles of expensive, payday-like debt that quickly drain all their business resources. Too many small businesses in New York are at risk of taking out predatory financing unknowingly because finance companies have not been required to clearly disclose the prices and terms to borrowers. To make informed decisions and compare different financing options available to them, small businesses need to know the annual percentage rates (APR) and other key terms. Therefore, we supported the New York legislature's work in creating state-level protections, which will go into effect in August. We also applaud Congresswoman Velázquez and Senator Menendez's leadership on the federal level in ensuring that small businesses in every state have access to responsible and affordable capital,” saidYanki 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,” saidCarolina 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, and the Governor signed it in 2020. We thank Rep. Velázquez and Senator Menendez for their commitment to deliver similar protections at the federal level through universal disclosure standards,” saidLinda MacFarlane, Chair of the New York State CDFI Coalition.

“There are more than 4.37 million businesses owned by Hispanics in the United States, contributing around $700 billion per year to the national economy. Despite this, Latino business owners are frequent targets of unfair small business lending practices. NALCAB applauds Senator Menendez and Ranking Member Velazquez for introducing legislation that will give 5 entrepreneurs the transparency needed to make informed financial decisions,” saidMarla Bilonick, President and CEO, NALCAB.

"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 Financing Disclosure Act of 2023 and leading this charge in Congress to help America’s entrepreneurs and small minority businesses with the financial transparency they rightly deserve,”saidAnthony J Hinojosa, Vice President 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. We applaud New York’s state legislators for passing a bill to address this challenge for business 9 owners in New York. Congresswoman Nydia Velázquez and Senator Bob Menendez’s legislation will bring much-needed sunshine to benefit business owners across the U.S. 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,” saidAnthony Gaddy, Co-Founder/President and CEO of the UpState New York Black Chamber of Commerce (USNYBCC).

"Small businesses are the backbone of our local economies, yet many are vulnerable to ruthless lenders looking to lock them in a never-ending cycle of debt and ambiguous terms. The Small Business Lending Disclosure Act of 2023 is a great step forward as we aim to level the playing field and give small businesses the tools they need to succeed in this market. Small business owners require accessible loan terms, especially as we work to support these businesses in the aftermath of a worldwide pandemic. LEDC is proud to endorse the Small Business Lending Disclosure Act of 2023 as a manner of supporting small businesses in thriving and expanding rather than solely surviving,” saidEmi Reyes, Chief Executive Officer, Latino Economic Development Center (LEDC).

“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 Financing Disclosure Act gets us a long way toward our shared goal of equitable and prosperous communities for all,” saidFrank Woodruff, Executive Director of the National Alliance of Community Economic Development Associations (NACEDA).

For a copy of the bill text click HERE.