WASHINGTON, D.C. – Today, U.S. Senator Sherrod Brown (D-OH) hosted a news conference call with an Ohio small business owner as Brown and Sen. Marco Rubio (R-FL) introduced legislation to protect small businesses from predatory lending practices.
Right now, lenders can include what’s called a ‘confession of judgment’ in lending contracts. Confessions of judgment require a borrower to give up their 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.
“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.”
Brown’s bill, the Small Business Lending Fairness Act, would:
- Codify a decades-old ban by the Federal Trade Commission against the use of confessions of judgment provisions in consumer loan contracts;
- and expand the ban to provide the same protections against these harmful provisions to small businesses, as well.
Brown was joined on today’s call by central Ohio small business owner Richard Schilg, who has been harmed by confession of judgement provisions, to talk about why Brown’s bill is so important to Ohio small businesses.
“For a struggling small business, it’s not only seductive, but it really does provide badly needed working capital oxygen you can’t find anywhere else. Small Business are close to the people. Your employees, clients and your shareholders you see and talk to nearly every day. You would do anything not to fail and that causes you to do things you would not otherwise do,” said Schilg.
Confessions of judgment make it easy for predatory lenders to strip a business of all of their assets – even from some businesses who are current on their loans, meaning business owners risk losing everything without a chance to defend themselves in court.
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 FTC passed a federal rule in 1985 protecting consumers, but small business borrowers are still exposed because the FTC left open a loophole. That loophole has allowed predators to devastate small businesses across the country.
More information on Brown’s bill can be found here.