California Nears SMB Borrower Protection Rules

California continues its efforts to extend borrower protection rules to small businesses (SMBs), with new support for the initiative from SMB advocates and an approval from the state’s Assembly Appropriations Committee and the California Senate.

The Committee approved of the bill late last month with an 11-to-zero vote, with six Republican members abstaining, according to a recent Bloomberg report. The California Senate followed with its approval of the SB 1235 bill, dubbed a truth-in-lending law. The legislation would require online and non-bank lenders to disclose commercial loan terms, extending consumer-like borrower protections to small businesses.

Reports noted that the latest version of the legislation that received approval followed a revision last month, which received criticism for its use of “a new and untested annualized cost metric,” the publication said. The revised version has landed support from lawmakers, FinTech firms, nonprofits and others, reports said.

Most recently, small business advocacy group Small Business Majority voiced its approval of the legislation, calling it “critical because it would dramatically increase the transparency of financial products marketed to small firms.”

The group noted that while the federal Truth in Lending Act (TILA) protects consumers, small businesses are not included in the legislation. SB 1235 aims to “close that loophole,” said Small Business Majority. The group pointed to 2017 research it commissioned, which found 71 percent of California small business owners agree that online lending platforms should be regulated to protect borrowers from predatory practices.

The legislation has its opponents, however. Reports in Bloomberg said the Electronic Transactions Association (ETA), which includes Amazon and PayPal as members, opposes the bill. Some critics said the legislation could force lenders “to use annualized cost metrics that don’t adequately reflect the pricing of their products,” the publication noted.

“We are fully committed to providing small businesses with transparent, readily understandable and comparable financing options,” said ETA Director of Regulatory Affairs PJ Hoffman, according to Bloomberg. “Unfortunately SB 1235 will not achieve those objectives and will prevent small businesses from being able to compare apples to apples.”