Bill calling for interest rate disclosures on small business loans dies in Illinois House

The Illinois Legislature will not move forward with a bill that would've required nonbank lenders, mostly online companies, to disclose the annual percentage rate on small business loans.

Known as SB2234, it had strong support by a large coalition of advocates representing more than 250,000 small businesses and it passed the state Senate on May 2 by a vote of 36-19.

But on Monday, the House Financial Institutions Committee didn't call the bill for a vote. The committee gave no explanation for its decision. A prior version of the bill also died in committee last year.

“No plausible reason exists for denying small businesses this basic protection,” said Brent Adams, senior vice president at Woodstock Institute, a policy and research nonprofit in Chicago. “It is high time we close the APR disclosure loophole and empower small businesses with the information they need to protect themselves.”

While nonbank loans to small businesses have grown rapidly in recent years, nonbank commercial lenders aren't required to disclose APRs to borrowers. These lenders sometimes charge more than 300% interest — levels that advocates say are predatory. Nonbank lenders are also not required to be licensed.

Under the federal 1968 Truth In Lending Act, lenders are required to disclose interest rates to consumers for mortgages, credit cards, student loans or other types of consumer loans. However, the federal law does not apply to small business loans.

Withholding information about interest rates disproportionately harms borrowers in minority and lower income communities, who have more difficulty accessing mainstream loans and who then turn to nonbank lenders, advocates say.

“This is an issue of transparency and equity for small businesses,” said Jaime di Paulo, CEO of the Illinois Hispanic Chamber of Commerce. “We will not stop advocating for minority-owned businesses to get access to capital without predatory lenders threatening their futures."

California and New York have adopted laws similar to SB2234.

Financing from merchant cash advance providers, which cater to small businesses, jumped from an estimated $8.6 billion in volume in 2014 to $15.3 billion in 2017, according to a report from the Consumer Financial Protection Bureau. It estimates the volume "may have increased further" to $19 billion from 2017 to 2019.

"Despite the evidence and support behind reform, Illinois small businesses will continue to be targeted by nonbank lenders charging exorbitant interest rates — unbeknownst to the borrower — thanks to the inaction of House committee members," said Tasha Brown, Small Business Majority's Midwest director.

The coalition of advocates that supported the bill included AARP, Illinois State Black Chamber of Commerce, Illinois Hispanic Chamber of Commerce, Southland Chicago Black Chamber of Commerce, Responsible Business Lending Coalition, Woodstock Institute, Small Business Majority and others.

An analysis by the Responsible Business Lending Coalition found that if enacted, the bill would save Illinois small businesses an estimated $175 million to $835 million dollars each year in unnecessary interest and fees by letting business owners make better-informed price comparisons. Latino business owners would save $22 million to $104 million and Black business owners would save an estimated $24 million to $112 million a year.

In March 2021, Illinois passed the Predatory Loan Prevention Act to cap interest rates on high-cost consumer loans. Borrowers had interest rates as high as 200% but the rates plummeted after the act passed since it put a ceiling on interest rates at 36%.