FTC To Scrutinize SMB Confessions Of Judgement?

Small business lending could get a bit more scrutiny from regulators.

To that end, the U.S. Federal Trade Commission (FTC) is reportedly examining small business lending practices, with an eye on cutting down predatory loans extended to small to mid-sized businesses.

The move comes as Commissioner Rohit Chopra wants to cut down on such activities, per his commentary at a forum in Washington, D.C. that abusive lending has “led to a flood of questionable legal actions” against small businesses. He added that “we are accountable for cleaning up this market. The FTC is the sole federal regulator and enforcer in the non-bank small business financing marketplace. We will need to determine whether certain contract terms and business practices constitute a violation of the law.”  Chopra’s comments were aimed in part at the merchant cash advance industry.

In a significant number of merchant cash advance activities, SMBs have been induced to sign confessions of judgement, which means borrowers essentially agree to have assets seized in any dispute without review by judges. Officials at the FTC have said they have “broad authority” under the Federal Trade Commission Act to address those issues.

Credit Cards Under the Microscope, Too

In the lending arena, lenders of a different sort are also gaining more scrutiny on Capitol Hill. As reported, Democratic presidential candidate Senator Bernie Sanders and New York Rep. Alexandria Ocasio-Cortez have debuted legislation that would put a cap rate on credit cards and other types of consumer loans, including payday loans, to 15 percent, in a lending landscape where banks already charge an average of more than 17 percent. Sub-prime customers already charge more, in some cases significantly more, than that 17 percent rate.

The lawmakers said the caps should come as lenders had been acting as “modern-day loan sharks.” Beyond that cap, the legislation would turn about 30,000 post offices into low-cost providers of basic financial services such as checking and savings accounts. That 15 percent cap takes a cue from credit cards issued by credit unions, which already have that cap in place.

The Sanders/Ocasio-Cortez legislation came the same week that the Consumer Financial Protection Bureau (CFPB) announced it has a new proposal in place to implement the Fair Debt Collection Practices Act.

The notice of proposed rule-making – where commentary is slated to come over a 90-day period, with tenets of the proposal set to become law roughly a year after that – means that, among other changes, debt collectors would be able to call debtors no more than seven times a week, but could reach out via text and email.

Separately, across the pond, European Union antitrust regulators are levying fines on seven banks as they were found to have manipulated the foreign exchange market. Among the banks involved are JPMorgan, HSBC, Citigroup and the Royal Bank of Scotland. Should the banks admit to wrongdoing, the fines will be cut by 10 percent, according to reports. The magnitude of the fines can be as much as 10 percent of firms’ global turnover, according to the antitrust regulator, which has been investigating the matter for six years. Thus far, they have been fined roughly $2.8 billion.