Banking and Finance Law Daily Senate, House introduce bills targeting predatory commercial lending practices
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Wednesday, June 26, 2019

Senate, House introduce bills targeting predatory commercial lending practices

By Charles A. Menke, J.D.

The Senate and House have each introduced legislation that would ban confession of judgment clauses in commercial lending agreements.

Senators Sherrod Brown (D-Ohio) and Marco Rubio (R-Fla) have re-introduced legislation to protect small businesses from predatory lenders by extending current consumer loan protections to business loans. The Small Business Lending Fairness Actcodifies the Federal Trade Commission’s 1985 ban on confessions of judgment in consumer loan contracts, and expands the ban to commercial loans. Representatives Nydia M. Velazquez (D-NY) and Roger Marshall (R-Kansas) introduced similar legislation in the House.

A confession of judgment requires a borrower to relinquish the right to appear in court as a condition to the making of a loan. If the borrower defaults on the loan, the confession of judgment allows the lender to obtain a judgment against the borrower without following regular court procedures in which the borrower could defend the action.

A release issued by Velazquez emphasized that "[c]onfessions of judgement have been linked to unfair lending terms, onerous interest rates and unjust seizure of assets." Brown and Rubio noted that "[a]lthough many states have banned this practice for small business loans as well as individuals, borrowers nationwide are still exposed due to loopholes in state laws that have allowed predators to devastate small businesses across the country."

MainStory: TopStory Loans UDAAP

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