The Illinois Senate passes a bill to increase scrutiny of certain business loans

SPRINGFIELD – A bill that would put more scrutiny on certain types of high-cost small business loans was approved Thursday by the Illinois Senate.

Senate Bill 2234known as the Small Business Financial Transparency Act, targets a relatively new type of non-traditional lender in the lending market, online app-based financial service providers, also known as “fintechs.”

Sen. Chris Belt, D-Swansea, the bill’s lead sponsor, said it is based on the federal Truth in Lending Act of 1968, which regulates consumer lending. It requires non-traditional lenders to calculate and express the cost of the loan in terms of a standard annual percentage rate (APR), even if the lender bases the loan on a different type of fee structure.

“On the commercial front, there has never been anything like the Truth in Lending Act,” Belt said on the Senate floor. “And so what this legislation appears to do is mimic the Truth in Lending Act on a commercial level. It ensures that small businesses receive consistent and transparent information about the costs of small business financing.”

At a news conference earlier in the day, credit reform advocates said that in recent years, certain fintech companies have targeted small and minority-owned businesses, especially those in lower-income communities, with predatory lending practices that ultimately leave borrowers with much higher pay amounts. fees and interest rates than expected.

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 nonprofits and community lenders what a typical small business owner looked for when applying of a loan.

“And more often than not, the answer was that these small business owners and entrepreneurs needed help refinancing predatory loans they didn’t know they had received,” he said.

Senate Republicans opposed the bill, arguing that its purpose is to drive a certain class of new, non-traditional lenders out of the market at the expense of larger, more traditional institutions.

“It will shrink the market in Illinois, giving fewer options to the small and medium-sized businesses in our districts that need to borrow money,” said Sen. Jason Plummer, R-Edwardsville. “It forces a lot of people out of the market, and it gives a larger share of revenue to certain companies.”

The bill passed the Senate by a vote of 36 to 19. It will then go to the House of Representatives for consideration.

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