Committee passes bill extending debt-settlement protections to small businesses

The California State Assembly Banking and Finance Committee advanced AB 1166, a bill that would extend existing California debt-settlement protections from consumer loans to certain commercial loans used by small businesses.

Assemblymember Valencia carried the bill in committee; Louis Cadets Peck, executive director of the Responsible Business Lending Coalition, testified in support. Peck described the bill as a targeted reform that does not prohibit debt-settlement services but aligns their incentives with borrowers. “This is a great issue because there is, wide agreement and ready solutions,” Peck said. He told the committee that some debt-settlement practices can leave borrowers worse off, produce higher fees and tax consequences, and damage credit reports, and that aligning standards would protect small businesses and improve outcomes for lenders.

Peck referenced work he has done with the Consumer Financial Protection Bureau's advisory process and cited a Federal Reserve commentary (via a quoted paraphrase in testimony) expressing concerns about higher-cost small-business credit products. Committee members asked clarifying questions about the bill's mechanics. One committee member noted the measure would allow commercial borrowers a private right of action with statutory damages up to $5,000, which the author and witnesses confirmed is part of the bill's framework.

Supporters who spoke in favor included Chris Rosa (representing two commercial financing providers, Rapid and Capitis) and Indira McDonald (Forward Financing). The American Fintech Council also submitted a “me too” letter in support.

No key witnesses opposed the bill at the hearing. A motion to pass the bill was made and seconded; the roll call recorded affirmative votes by Chair Valencia and committee members Chen, Dixon, Phong, Krell, Michelle Rodriguez, Blanca Rubio and Soria. Committee staff announced the bill passed out of committee and that the roll would remain open for absent members.

AB 1166 would extend the state's regulatory floor for debt-settlement practices — previously applicable to consumer loans — to commercial loans for small businesses, and would provide an enforcement mechanism through a private right of action and statutory damages. The committee advanced the bill; further procedural timing (assembly floor referral or amendments) was not specified during the hearing.