Brown, Rubio float bill to protect small-business borrowers
WASHINGTON — Sens. Sherrod Brown, D-Ohio, and Marco Rubio, R-Fla., are teaming up on legislation aimed at protecting small-business borrowers from predatory lenders.
The two lawmakers from different sides of the aisle Thursday introduced the Small Business Lending Fairness Act, which would extend certain Federal Trade Commission protections for consumer loans to small-business lending as well.
The FTC now bans so-called "confessions of judgment" in consumer loan contracts. Those legal clauses essentially force borrowers to give up their right to court proceedings before obtaining a loan, and enable lenders to seize a borrower's assets.
“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, who is the ranking member of the Senate Banking Committee and mentioned as a possible 2020 presidential contender, in a press release.
The Brown-Rubio legislation would make the FTC ban part of federal law and expand it to small-business loans as well.
“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 in the press release.
In some cases, confessions of judgment allow a lender to claim a debt exists even when a borrower has made all required payments.
Since the FTC ban does not apply to small businesses, many states have passed laws banning the practice for commercial lenders. However, the lack of such a ban on a national scale has still permitted lenders to prey on small businesses, the senators said.
The legislation comes just weeks after Bloomberg published an in-depth story on the arcane legal tactic and how it allows lenders to seize a borrower’s assets without cause.