Assemblyman Zebrowski’s Landmark Small Business Truth in Lending Act Passes Full Legislature

Assemblyman Ken Zebrowski announced that his Small Business Truth in Lending Act has passed the Legislature and now awaits the Governor’s signature (A10118A). The bill would require basic, uniform disclosures for non-bank commercial lenders. Currently, there are no disclosure requirements for commercial borrowers under state or federal law unlike consumer borrowers who are protected under the federal Truth in Lending Act (TILA). Zebrowski’s measure will require this disclosure on the terms and cost of financing which is necessary for business owners to compare different commercial financing offers. This type of transparency is especially imperative in light of the COVID-19 pandemic when many small businesses are facing enormous challenges reopening and will be in need of financing as they move forward.

“Now more than ever, we must be supporting and providing our small businesses with every tool possible to succeed and recover from the COVID-19 pandemic. While some lenders provide detailed information on financing, others do not. This leaves small business owners in the dark regarding important information like cost and payment terms. This simple disclosure requirement will level the playing field and ensure business owners are making an informed decision that is best for their business,” said Assemblyman Zebrowski.

Non-bank commercial lenders have proliferated in New York State in recent years, providing small businesses with lending products that have widely varying disclosures on interest, cost, and fees. The inconsistency within the industry makes it difficult for small business owners to shop around for different products and can ultimately lead to a cycle of debt. Lenders are vastly different in what they disclose – some providing very little information and others using different metrics. Many small business owners do not have the financial background to interpret technical financial language regarding pertinent information such as cost and fee terms.

"First and foremost, thank you to Chairman Zebrowski and Chairman Thomas for their forward-looking vision that brought this critical legislation over the finish line. Their dedication to providing New York small businesses with more competitive options creates a more transparent lending system for all. This legislation creates the most robust disclosure regime for small business financing in the country. When searching for financing, small business owners deserve to know the exact terms, costs, and payments of the product they’re considering. And especially now, as New York businesses begin to recover from the COVID-19 pandemic, transparency and choice have never been more critical. We believe that all small businesses deserve the opportunity to see, understand, and compare the most essential information before committing to a financing agreement,” said Innovative Lending Platform Association (ILPA) CEO Scott Stewart.

“As small businesses face desperate decisions about how to survive this economic crisis, they must be treated fairly – and that includes transparent disclosure of the APRs they would be charged for financing. During the economic crisis of 2008, we saw the damage that can be caused by lending practices that put the interests of financing companies ahead of the interests of borrowers. The Small Business Truth in Lending Act helps bring those interests into alignment. That is why so many private-sector and nonprofit lenders, community and civil rights advocates, and both Democrats and Republicans rallied to support this bill. And it is why we are proud to commend Assemblyman Zebrowski for standing up for small businesses and responsible lending,” said Richard Neiman, Head of Public Policy of LendingClub, and former New York State Superintendent of Banks, on behalf of the Responsible Business Lending Coalition (RBLC).

The Responsible Business Lending Coalition, a cross-sector coalition of nonprofit and industry small business organizations, estimates that New York small businesses will save between $369 million and $1.75 billion annually in unnecessary finance costs when the Small Business Truth in Lending Act provides small businesses the information they need to choose more affordable financing.

“A lack of uniform disclosures has led to a confusing and complex environment for business owners accessing commercial financing. This legislation will provide clarity through a simple and easily understood disclosure that provides information on the true costs and hidden fees of an offer,” said Assemblyman Zebrowski.

This legislation is the culmination of nearly a year of input and constant conversation with various stakeholders including non-profit lenders (CDFI organizations), a diverse set of commercial lenders, small business advocacy groups and other groups dedicated to transparency in lending. Under the bill, the uniform disclosure requirements will apply to all types of commercial financing and provide the small business borrowers with the: cost of financing, APR/Estimated APR, payments, prepayment penalties and any other potential fees. All required disclosures must be provided to the business owner prior to entering into a contract.

The legislation requires disclosure of APR or estimated APR for all commercial financing; providing borrowers with a uniform measure of cost for comparison purposes. A recent study of small businesses by the Cleveland Federal Reserve highlighted the need for greater transparency and provided participants with various commercial financing offers to determine their ability to analyze the cost between products (Uncertain Terms: What Small Business Borrowers Find When Browsing Online Lender Websites,” Federal Reserve Bank of Cleveland. December 2019, https://www.federalreserve.gov/publications/files/what-small-business-borrowers-find-when-browsing-online-lender-websites.pdf ). The participants found “the varying product descriptions provided no common basis for cost comparisons, and several suggested that APR would be helpful.” For example, the study presented three offers of financings to participants with approximately $50,000 in financing, with an estimated term of six months and varying payment frequencies; the offers included description of cost as 1.15 factor rate (70% APR), 4% fee rate (45% APR) and 9 simple interest (46% APR). This bill would require APR to be disclosed for all products so that small business owners can compare offers to determine which financing is best for their business.

“Establishing this type of transparency was important prior to the pandemic, and is even more necessary now as we find ourselves in a public health crisis. This legislation is a critical step to ensuring our small businesses are provided accurate information, especially as they reopen and get back on their feet,” concluded Zebrowski.