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Lawmaker Queries Alt-Lenders With Concerns Over ‘Trapped’ Small Biz Borrowers

One U.S. lawmaker has begun to inquire about SMB alternative lending practices, according to JD Supra news reports.

Rep. Emanuel Cleaver II (D-Mo.) has reportedly sent letters to five alternative SMB lending companies with questions regarding borrower protections, anti-discrimination efforts, transparency and other factors.

“While FinTech lending can create the opportunity for more small business credit, I’m concerned that some FinTech lenders may be trapping small business owners in cycles of debt or charging higher rates to entrepreneurs of color,” Cleaver wrote. Reports said he is paying particular attention to the payday lending industry servicing small businesses via merchant cash advances.

“The payday loan industry has often targeted communities of color with high rates and fees, and Congress needs further information that small business payday lending is operating with transparency and free of discrimination,” the lawmaker continued. “Current law does not provide certain protections for small business loans, compared to other consumer laws.”

The publication noted that small businesses are not protected as consumers are under the Truth in Lending Act and other legislation geared toward borrower protections and transparency in the lending process.

Cleaver is reportedly seeking details of the companies’ business models and products offered to small businesses, how those products are originated, information on fees and rates and whether these businesses offer borrowers a repayment plan based on future credit card receivables, reports said.

The lawmaker is also seeking information on how these lenders handle transparency and whether they make disclosures to SMBs the same way they do to consumers as required under the Truth in Lending Act. He is also asking about whether these firms pull a consumer credit report for small business lending.

Cleaver is additionally asking these companies to explain their “typical approach to ensuring that people of color, women,and other protected classes are not subject to higher interest rates or denial rates, compared to similarly-situated borrowers.”

He is requesting that responses be made no later than Aug. 10, reports said.


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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