The Federal Trade Commission (FTC) recently announced that it will host a forum, "Strictly Business: An FTC Forum on Small Business Financing," on May 8, 2019 in Washington, DC. Like the FTC's previous "fintech" forums on marketplace lending, crowdfunding, and peer-to-peer payments, the purpose of the forum is to gather various stakeholders to discuss the benefits and potential consumer protection concerns related to a particular area of financial innovation. The May 8 forum will focus on small business financing, including term loans, lines of credit, and cash advances, offered through online lenders and other alternative, "non-traditional" financing sources.
It is a common industry misperception that the FTC's regulatory authority extends only to consumer transactions (or B-to-C transactions) and would not apply to business-to-business, or B-to-B transactions. In fact, the Federal Trade Commission Act ("FTC Act") simply prohibits the use of unfair or deceptive acts or practices in or affecting commerce. Although the FTC has carved out B-to-B transactions in some of its regulations (for example, the Telemarketing Sales Rule provides an exemption for soliciting the purchase of goods or services from a business), the FTC can still pursue non-bank lenders and their service providers that use telemarketing via its UDAP authority. In addition, the FTC has enforcement authority over specific statutes applicable to commercial credit, including portions of the Equal Credit Opportunity Act and the Fair Credit Reporting Act.
According to the FTC, many businesses turn to alternative financing sources when credit is not available from banks (which the FTC does not have jurisdiction over) or other traditional lenders. Although these options may provide benefits like faster access to capital, the FTC believes that some alternative credit products may raise consumer protection concerns, including high costs and potentially unclear terms.
The FTC's forum is consistent with efforts in recent years by state and federal regulators to increase oversight of small business financing, particularly by non-bank credit providers. For example, in December 2018, the FTC requested public comments on changes to its identity theft protection rules, including what modifications, if any, should be made to increase their applicability to small businesses. In July 2018, the New York Department of Financial Services released a report on online lending, which concluded that "the individual owners of New York small businesses should benefit from the same protections as New York consumers." Similarly, California passed legislation in September 2018 requiring comprehensive disclosures for various types of commercial financing in amounts of $500,000 or less.
Stakeholders in the small business credit and alternative lending industries, including lenders, servicers, lead generators, and bank partners, should pay close attention to the forum discussion and any FTC reports produced as a result. In the past, such materials have provided guidance on what the FTC considers best practices and the types of activities that may be targeted in future enforcement actions. Industry stakeholders who are interested in participating in the forum should contact the authors.