Washington, D.C. — Today, U.S. Senators Marco Rubio (R-FL), Chairman of the Senate Committee on Small Business and Entrepreneurship, and Sherrod Brown (D-OH), Ranking Member of the Senate Committee on Banking, Housing, and Urban Affairs, reintroduced the Small Business Lending Fairness Act to protect small businesses by closing a loophole used by predatory lenders that prevents their ability to be heard in a court of law before a credit default. Last year, Bloomberg published an in-depth investigative report on confessions of judgement, which has allowed predatory creditors to steal the savings of tens of thousands of borrowers without notice or opportunity for defense.
“With this bill, we are taking another step toward protecting America’s small businesses—the foundation of our economy—by preserving the right of a business to be heard in a court of law before a potential credit default,” Rubio said. “I remain committed to protecting our small businesses from predatory, out-of-state lenders, and I hope my colleagues will join me in this effort.”
“When we let financial predators harm hardworking Americans through scams like confessions of judgment, we undermine the dignity of work,” Brown said. “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.”
The Small Business Lending Fairness Act codifies the Federal Trade Commission’s (FTC) 1985 ban on confessions of judgement, and extends it to include small business borrowers. Confessions of judgment require a borrower to give up his or her rights in court before obtaining a loan, and allows 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 nationwide are still exposed due to loopholes in state laws that have allowed predators to devastate small businesses across the country. Although confessions of judgement are illegal in Florida, small business owners are being targeted by out-of-state lenders who operate within the state. The Small Business Lending Fairness Act provides small businesses with the same federal protections that consumers already have nationally.
The Small Business Lending Fairness Act:
- Codifies the FTC’s 1985 ban on confessions of judgment in law in consumer loan contracts, and
- Expands the ban to provide these protections to business borrowers as well.