Predatory Lending Tactics Spur House Lawmakers to Propose a Ban
The bill, called the Small Business Lending Fairness Act, mirrors one introduced earlier this month by Senators Sherrod Brown.
(Bloomberg) -- U.S. Representatives Nydia Velazquez and Roger Marshall called for a ban on a legal tactic that predatory lenders use to seize money from small businesses, matching a bipartisan bill introduced in the Senate earlier this month.
Velazquez, a Democrat from New York, and Marshall, a Kansas Republican, introduced legislation that would ban confessions of judgment, legal documents that many financial firms offering quick money require customers to sign to get loans. By signing, the borrowers forfeit their right to defend themselves in court, allowing lenders to seize their assets before they know what happened.
“This legal loophole has fueled an entire cottage industry of con artists and scammers who profit by exploiting hardworking entrepreneurs and ruining the lives of cash-strapped small business owners,” Velazquez, the incoming chair of the House Small Business Committee, said in a statement. “I call on my colleagues to join me in swiftly enacting this bipartisan measure, which will put an end to these abusive practices.”
The bill was introduced after a series of articles published by Bloomberg News about how lenders are using confessions to squeeze small-business owners. In dozens of interviews and court pleadings, borrowers described lenders who forged documents, lied about how much they were owed or fabricated defaults out of thin air. The borrowers said the consequences were drastic and they had no way to fight back.
“We must put a stop to this abuse of power that hurts small businesses across the country,” Marshall said in a statement. “Shady lenders are using confessions of judgment as a weapon to take advantage of entrepreneurs and small business owners."
The House bill, called the Small Business Lending Fairness Act, mirrors one introduced earlier this month by Senators Sherrod Brown, the top Democrat on the Senate Banking Committee, and Marco Rubio, a Florida Republican.
To contact the reporters on this story: Zeke Faux in New York at zfaux@bloomberg.net;Zachary R. Mider in New York at zmider1@bloomberg.net
To contact the editors responsible for this story: Robert Friedman at rfriedman5@bloomberg.net, Jeffrey D Grocott
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