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FTC Commissioner Calls for Review of Small-Business Loan Practices

May 09, 2019 / Zachary R. Mide

The U.S. Federal Trade Commission should scrutinize potentially abusive terms in small-business lending contracts, including the use of a legal instrument known as a confession of judgment, Commissioner Rohit Chopra said.Such terms “have led to a flood of questionable legal actions” against small-business borrowers, Chopra said at an agency forum in Washington on Wednesday. “We are accountable for cleaning up this market.”The merchant cash-advance industry, which provides an unregulated form of financing for small businesses, has embraced the use of confessions of judgment in recent years. Small businesses sign them as a condition of getting loans, effectively agreeing in advance to lose a court dispute if one later arises. Cash-advance companies have won more than 25,000 judgments against small businesses across the country since 2012, Bloomberg News reported last year. The judgments allow lenders to legally seize borrowers’ bank accounts and other assets...