SPRINGFIELD – A bill that would put more controls on certain kinds of high-cost loans to small businesses cleared the Illinois Senate Thursday.
Senate Bill 2234, known as the Small Business Financial Transparency Act, targets a relatively new kind of nontraditional lender in the credit market, online app-based financial service companies sometimes known as “fintechs.”
Sen. Chris Belt, D-Swansea, the lead sponsor of the bill, said it is based on the federal Truth in Lending Act of 1968, which governs consumer loans. It requires nontraditional lenders to calculate and express the cost of the loan in terms of a standard annual percentage rate, or APR, even if the lender bases the loan around some other type of fee structure.
“There has never, ever been anything like the Truth in Lending Act on the commercial side,” Belt said on the Senate floor. “And so what this legislation looks to do is mimic the Truth in Lending Act on the commercial side. It ensures small businesses receive consistent and transparent disclosures on the cost of small business financing.”
At a news conference earlier in the day, credit reform advocates said in recent years, certain fintech firms have targeted small and minority-owned businesses, especially those in lower-income communities, with predatory lending practices in which the borrowers end up paying much higher fees and interest rates than they were led to expect.
Horatio Mendez, president and CEO of the Chicago-based Woodstock Institute, said that when he worked in the private financial lending industry, he often asked nonprofit and community-based lenders what a typical small business owner was looking for when applying for a loan.
“And more often than not, the response was, these small business owners and entrepreneurs needed help refinancing out of predatory loans that they didn’t realize they had gotten into,” he said.
Senate Republicans opposed the bill, arguing its goal is to squeeze one particular kind of new, nontraditional lender out of the marketplace at the expense of larger, more traditional institutions.
“It will shrink the marketplace in Illinois, thereby giving fewer options to the small and medium-sized companies in our districts that need to borrow money,” Sen. Jason Plummer, R-Edwardsville, said. “It forces a lot of people out of the marketplace, and it gives a bigger chunk of the business to certain companies.”
The bill passed the Senate 36-19. It next goes to the House for consideration.
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