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Financial Services Law Insights and Observations

FTC paper discusses small business financing issues

Federal Issues FTC Small Business Lending Online Lending

Federal Issues

On February 26, the FTC released a staff perspective paper covering topics discussed during the Commission’s “Strictly Business” forum on small business financing held in 2019, as well as an online tool for small businesses to submit lending- or financing-related complaints. As previously covered by InfoBytes, the forum heard from members of the small business marketplace who discussed the recent uptick in online loans and alternative financing products, and analyzed the potential for unfair and deceptive marketing, sales, and collection practices in the industry. The staff paper provides an overview of key issues discussed during the forum, as well as enforcement information, recent small business financing marketplace trends, potential benefits and risks of newer online financing products, and consumer protection issues associated with merchant cash advances. Among other things, the staff paper emphasized that “small business finance providers should avoid the sorts of practices that the Commission has alleged to be deceptive” in its enforcement actions involving either small business consumers or individual consumers, such as actions charging lenders with making “misleading claims regarding fees, consumer savings, payment amounts, and interest rates” in connection with personal loans. The staff paper also stressed that finance providers should understand that using marketing intermediaries, such as brokers and lead generators, “does not immunize them from liability under the FTC Act,” and that finance providers “should take steps to ensure that their marketers do not engage in deceptive or other unlawful conduct.” Small business consumers, the staff paper noted, would also likely benefit from more uniform and easily understood financing disclosures in order to compare costs and product features in the small business marketplace.

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