Reform Alternative Business Lending Practices to Protect Small-Business Owners
By Rep. Edolphus Towns
In my three decades representing parts of New York City in the House of Representatives, expanding economic opportunities for underserved communities was a top priority. That’s why, after I retired from public service, I joined the Board of World Business Lenders, an alternative business lender that provides desperately needed financing for businesses who want to grow or expand, leading to so many ancillary benefits to their local communities.
Unfortunately, not all alternative business lenders are created equal. In an industry that is not regulated, many of them are engaged in predatory practices, preying on the very customers they are committed to serving. Unlike World Business Lenders, which has voluntarily self-regulated by implementing a “best practices” lending program committed to offering fair and transparent loan terms to its borrowers, other alternative business lenders engage in opaque and occasionally destructive behavior that can lead to bankruptcy or worse for their own customers.
A critical tool for these predatory lenders has been the use of our state’s court system to seize the assets of small businesses whether located in New York or in any other state by employing legal instruments called “confessions of judgement.” These lenders have been requiring their small business borrowers, as a condition of receiving any short-term loans from them, to sign confessions of judgement that waive borrowers’ legal rights in any dispute with the lenders. Small business borrowers in other states have no right of notice if their assets are seized in New York under confessions of judgement and may not even realize if a New York judgement has been entered against them until their banks have seized their assets.
Alternative business lenders should make every loan transparent for their borrowers by clearly disclosing repayment terms, including interest rates, prepayment charges and by outlining clear payment schedules. Borrowers must be made aware of all fees and costs associated with their loans. Brokers and employees of alternative business lenders should be subject to background checks and continuing education requirements. Importantly, alternative business lenders should be required to offer each borrower terms not worse than the most favorable loan product for which he or she qualifies.
Alternative business lenders have nothing to fear from additional regulation. World Business Lenders is a successful company that profits even as we voluntarily abide by these terms, which protect customers. Unfortunately, in the political environment in Washington, it is unlikely that Congress will act to prevent predatory lenders from driving small business owners into bankruptcy. In the absence of leadership in Washington, it is time for Albany to act.
Rep. Edolphus Towns is a board member of World Business Lenders. He represented the 10th and 11th congressional districts in New York from 1983-2013.