The Illinois General Assembly is not expected to move forward with a bill that would require nonbank lenders, primarily online companies, to disclose annual interest rates on small business loans.
The measure, known as SB2234, passed the state Senate on a 36-19 vote on May 2 with strong support from a large coalition of advocates representing more than 250,000 small businesses.
But on Monday, the House Financial Institutions Committee did not call for a vote on the bill. The committee did not explain its decision. An earlier version of the bill also died in committee last year.
“There is no plausible reason to deny small businesses this basic protection,” said Brent Adams, senior vice president at the Woodstock Institute, a Chicago-based policy and research nonprofit. “The time is now to close the APR disclosure loophole and ensure small businesses have the information they need to protect themselves.”
Nonbank lending to small businesses has grown rapidly in recent years, but nonbank commercial lenders are not required to disclose annual interest rates to borrowers. These lenders sometimes charge interest rates of more than 300 percent — levels that advocates say are predatory. Nonbank lenders also do not have to be licensed.
Under the federal Truth in Lending Act of 1968, lenders are required to disclose to consumers interest rates on mortgages, credit cards, student loans and other types of consumer loans, but the federal law does not apply to small business loans.
Withholding information about interest rates disproportionately harms borrowers in minority and low-income communities, making them more difficult to access mainstream loans and more reliant on non-bank lenders. advocates argue.
“This is an issue of transparency and fairness for small businesses,” said Jaime Di Paulo, CEO of the Illinois Hispanic Chamber of Commerce. “We will never stop advocating for minority-owned businesses to have access to capital without having their futures threatened by predatory lenders.”
California and New York have adopted laws similar to SB2234.
According to a report from the Consumer Financial Protection Bureau, loan volume from small business cash advance lenders jumped from an estimated $8.6 billion in 2014 to $15.3 billion in 2017. It estimates that the amount “may have increased further” to $19 billion between 2017 and 2019.
“Despite the evidence and support behind reform, the inaction of House committee members leaves Illinois small businesses targeted by non-bank lenders who charge exorbitant interest rates unknown to borrowers. “This will continue to be the case,” said Tasha Brown, Midwest director of Small Business Majority.
The coalition of supporters who supported the bill included AARP, Illinois Black Chamber of Commerce, Illinois Hispanic Chamber of Commerce, Southland-Chicago Black Chamber of Commerce, Coalition for Responsible Business Lending, Woodstock Institute, Small Business This included the majority.
According to an analysis by the Responsible Business Lending Coalition, this bill, if passed, would help Illinois small businesses avoid unnecessary interest rates and fees by an estimated year by allowing business owners to make informed price comparisons. The savings were found to be between $175 million and $835 million. Latinx business owners save an estimated $22 million to $104 million annually, and Black business owners save an estimated $24 million to $112 million.
In March 2021, Illinois passed the Predatory Loan Prevention Act, which caps interest rates on high-value consumer loans. Borrowers’ interest rates used to be as high as 200%, but after the law was passed, interest rates plummeted to 36%.
