R48281 — Consumer-Style Protections for Small Businesses: Issues and Options for Congress

Small businesses rely on financing to manage their finances, increase inventory, and expand their business operations. Small business lending from banks remains well below pre–Great Recession levels, and as a result of those changes, nonbank financial companies—including financial technology companies (“fintechs”)—have filled much of the void. While these nonbank financial institutions offer some operational advantages over more traditional lenders, they might present some novel risks associated with their nontraditional financing terms and relatively higher pricing. Consumers have a number of federal protections in the financial marketplace. These protections have limited applicability to small business markets, and some have argued that such protections should apply to small businesses. As a result, congressional, state-level, and regulatory attention has focused on potentially expanding consumer-style protections to small businesses. This report details a handful of the most prominent consumer protections and the extent to which federal and state policymakers have either enacted or proposed changes to consumer-style protections for small businesses. Below is a basic primer on each and their applicability to small businesses: The Truth in Lending Act (TILA) requires standardized consumer disclosures at origination of the cost of credit and other potentially relevant information. It provides additional protections, including ability-to-repay requirements for mortgages and credit cards. TILA has limited applicability to small businesses. The Fair Debt Collection Practices Act (FDCPA) regulates debt collectors’ communications with consumers, what types of disclosures are required, and consumers’ rights in debt collection. It offers no protection for small business loans. The Equal Credit Opportunity Act (ECOA) prohibits discrimination in credit transactions on the basis of race, sex, religion, and other factors. It applies to small business loans, but some complexities remain. The Fair Credit Reporting Act (FCRA) establishes consumers’ rights in credit reports and scores, required disclosures, and permissible uses of credit reports. It does not apply to small businesses except in limited cases. This report further presents some of the relevant policy issues and trade-offs presented to Congress and other policymakers considering extending consumer-style protections to small businesses. Any additional protection would likely increase compliance costs for financial institutions, which may constrain access to credit for small businesses. Small business lending may be particularly sensitive to higher compliance costs than other financial services are. Congress may want to establish one federal standard, which could preempt the growing state-by-state small business protections. Other considerations include the level of current stress in the small business market, business owners using personal sources of credit as a substitute for business loans, and the extent to which financial institutions might voluntarily implement consumer-style protections. Congress may weigh the costs and benefits of changes in protections for small businesses. In the 118th Congress, bills have been introduced that would expand the coverage of TILA to small business credit (H.R. 4192/S. 2021); amend ECOA to repeal, delay, or revise a CFPB-issued rulemaking, required by Section 1071 of the Dodd-Frank Act, that mandates the collection of small business demographic information at origination (S.J.Res. 32, Section 502 of H.R. 8773, H.R. 1806/S. 1159, H.R. 8338, and H.R. 2423); and expand some of FCRA’s protections to business credit (H.R. 3071/S. 1371).

Curated by CRS — every bill listed in this report's relatedMaterials. Edge type cited_in_report, gold confidence.

• HR 8773 — Financial Services and General Government Appropriations Act, 2025 · 118th Cong
• HR 8338 — Clarity in Lending Act · 118th Cong
• HR 4192 — Small Business Financing Disclosure Act of 2023 · 118th Cong
• HR 3071 — Small Business Credit Protection Act of 2023 · 118th Cong
• HR 2423 — Farm Credit Administration Independent Authority Act · 118th Cong
• S 2021 — Small Business Financing Disclosure Act of 2023 · 118th Cong
• HR 1806 — Small LENDER Act · 118th Cong
• S 1371 — Small Business Credit Protection Act of 2023 · 118th Cong
• S 1159 — Small LENDER Act · 118th Cong
• SJRES 32 — A joint resolution providing for congressional disapproval under chapter 8 of title 5, United States · 118th Cong