WASHINGTON, D.C. – Today, U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and Senator Marco Rubio (R-FL) introduced legislation to protect small businesses by codifying the Federal Trade Commission’s (FTC) 1985 ban on confessions of judgement in consumer loan contracts and extending the ban to include small business borrowers.
Confessions of judgment require a borrower to give up her rights in court before obtaining a loan, and allow the lender to seize the borrower’s assets without warning in order to satisfy the debt. Although many states have banned this practice for small business loans as well as individuals, borrowers are still exposed because the FTC left open a loophole. That loophole has allowed predators to devastate small businesses across the country. The Small Business Lending Fairness Act closes the loophole, and provides small businesses with the same protections consumers already have.
Last month, Bloomberg published an in-depth investigative report on this shady small business lending tactic which has allowed creditors to wipe out tens of thousands borrowers with no notice or opportunity for defense.
The Small Business Lending Fairness Act:
“When we let financial predators harm hardworking Americans through scams like confessions of judgment, we undermine the dignity of work that makes this country great,” said Brown. “This bipartisan bill ensures that consumers and small business owners benefit from protections that prevent predatory lenders from stripping away their hard earned money under cover of night.”
“With this new bill, we are taking another step in protecting America’s small businesses—the foundation of our economy—by preserving the right of a business to be heard in the court of law before a potential credit default,” Rubio said. “I remain committed to protecting our small businesses, and I hope my colleagues will join me in this effort by passing this bill.”
More information on the bill can be found here.