The federal Truth in Lending Act (TILA) does not provide enough protection to all borrowers. While individual consumers are protected by TILA’s disclosure requirements for loan costs and terms, these do not generally apply to small business owners or entrepreneurs obtaining credit for commercial purposes. This leaves commercial borrowers at risk. Given that Black and Latino entrepreneurs are far less likely to secure funding through traditional capital markets, they are particularly vulnerable to deceptive or predatory lending practices and credit products. In fact, businesses owned by people of color are more likely to seek out alternative financing providers, such as merchant cash advances, than are white-owned firms. To ensure entrepreneurs and small business owners are adequately protected and able to make fully informed decisions, policymakers should:
- Direct the Consumer Financial Protection Bureau to study the impact of TILA and related policy and publicly release the findings.
- Analysis of small business loan applications found some alternative lenders charging APRs of 90% or higher, with one study finding Black business owners were charged an average APR of 128%.
- A survey indicated that a majority of small business owners believe predatory lending is a problem and support stiffer regulations for alternative lenders.