CT considers ‘truth in lending’ rules for some fintech companies
- louis4952
- Mar 29, 2023
- 1 min read
Erica E. Phillips March 29, 2023
In the decade following the Great Recession, traditional banks cut back on small business lending, and alternative lenders — many of them online — emerged to fill the void.
Connecticut lawmakers are now seeking to regulate those commercial financing companies, which advocates say tend to service more minority-owned small businesses, charging them higher rates for less transparent loans or loan-like products.
The legislature’s Banking Committee passed Senate Bill 1032 earlier this month, which would require certain alternative lenders to disclose an estimated annual percentage rate — the yearly interest — charged on any financing they offer to small business clients. Violators would be subject to fines up to $10,000.
“There’s a lot of evidence out there that these products really need to be regulated, or have more adequate disclosures, so people understand what they’re getting themselves into,” said Rep. Jason Doucette, D-Glastonbury, a co-chair of the Banking Committee and a leading force behind the legislation.
A federal bill that sought to apply the consumer protections included in the Truth in Lending Act to small business financing — namely, the required disclosure of APR — was introduced in Congress in 2021 but never got a vote.'
Since then, a handful of states, including California, New York, Virginia and Utah, have adopted similar regulation. The Virginia and Utah laws don’t call for financers to disclose an estimated APR but do require several other disclosures. The California and New York laws lay out a method to approximate APR on nontraditional financing products.