Illinois could become the first state in the country to regulate online loans to small businesses.
Business loans done over the Internet are likely to have little to no oversight regarding how they are presented to the lendee. State Sen. Jacqueline Collins (D-Chicago) and a group of bipartisan state and city of Chicago officials want to create some ground rules for the online outlets that Collins said are largely good companies but can stray into deceptive habits.
"All we're trying to do is help those responsible lenders, but also create some oversight to those who are moving in the direction of being predatory," Collins said.
The Small Business Lending Act of 2016 would require the online companies to register with the Illinois Department of Financial and Professional Regulation as well as always list their interest rate in annual increments. Collins said monthly or even daily interest rates, which are currently offered, can fool businesses into agreeing to rates she described as "gouging."
The measure would make online loan outlets limit the number of late fees and early termination fees they are able to impose.
"There's a lack of uniformity among small business loan offers and it makes it difficult to compare loans and to fully understand the terms of the loan," Collins said.
Collins said opponents to the legislation have, surprisingly, included larger banking corporations. She believes they are providing the money for some of the online loans. Opponents say the state should let the federal government handle the regulation of online loan outlets. Collins discounts that idea, saying it could take a decade before anything happens.
"That could be five years. That could be ten years," Collins said. "Why should that preclude us on the state level from dealing with a problem that exists in the state of Illinois?"
Collins said she plans on presenting the bill once the General Assembly reconvenes this November. State Sen. Karen McConnaughay (R-St. Charles) is a co-sponsor of the bill. Collins said the idea for the legislation originated with Chicago Treasurer Kurt Summers.