New York Legislature Passes Small Business Truth in Lending Act
For years now, online lending options have made it easier for small business owners to obtain loans, allowing them to access capital much more quickly than in the past. Unfortunately, not all of the lenders were transparent and upfront about their fees and interest rates. In turn, some desperate owners may have accidentally taken out loans that did their business a disservice. Now, New York lawmakers are looking to curb this issue with new regulations for lenders.
Last week, the New York State Legislature approved the Small Business Truth in Lending Act that will increase transparency standards for lenders. As Bloomberg notes, the bill — which was sponsored by Assemblyman Kenneth Zebrowski and Senator Kevin Thomas — will require lenders to clearly disclose important loan information, such as the annual percentage rate (APR), the total repayment amount, and more. At press time, the legislation was awaiting the signature of New York Governor Andrew Cuomo. Once signed, the new regulations will go into effect 180 days later.
The bill’s passage was applauded by the Responsible Business Lending Coalition, which counts FinTechs LendingClub, Funding Circle, Street Shares, and others among its member. According to the Coalition, the law will be the strongest disclosure requirement in the nation. They also estimate that New York small businesses will save a combined total of between $369 million to $1.75 billion each year as a result of these necessary disclosures.
In a press release discussing the Truth in Lending Act, LendingClub’s head of public policy (and former New York State Superintendent of Banks) Richard Neiman stated, “During a difficult time for small businesses, this is much-needed good news. Truth-in-lending will empower small businesses to choose the best financing for them. And healthy price competition will reward innovations that provide better loans and lower rates.” Neiman added, “During the last economic crisis, we learned a valuable lesson that must guide us today: alignment of incentives between borrowers and lenders benefits all of us.” Funding Circle’s head of regulatory affairs Ryan Metcalf echoed those sentiments, saying “As the world’s largest online marketplace for small business financing, Funding Circle believes a free and fair market operates most efficiently when there is transparency in pricing, terms and conditions. When a small business has all of the necessary information up front including the annual percentage rate (APR), they can compare financing products and make informed decisions that are best for their business.”
While it may seem odd for online lenders to call for regulation upon themselves, the truth is that those who are members of the Responsible Business Lending Coalition were already meeting the standards that could soon take effect. Thus, the hope is that these requirements will help “clean up” the industry and take away some of the stigma that still faces online lenders. With California and now New York implementing these requirements, it likely won’t be long before other states follow suit, allowing small businesses to make better, more informed loan decisions going forward.
Also published on Medium.