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Committee advances AB 1166 to extend debt-settlement standards and a private right of action to small-business loans
Summary
AB 1166, which would extend California's debt-settlement standards to commercial financing and provide a private right of action (statutory damages up to $5,000 cited in committee exchange), passed the Assembly Banking and Finance Committee after testimony from lenders and industry groups.
The Assembly Banking and Finance Committee moved AB 1166 out of committee with a do-pass recommendation after testimony from lenders, fintech representatives and consumer-advocacy coalitions. Supporters said the bill brings California's existing consumer debt-settlement standards to commercial financing, setting disclosure and conduct requirements for companies that settle business debt and providing affected businesses with an enforcement route.
Louis Cadets Peck, identified in the hearing as the executive director of the Responsible Business Lending Coalition, described the bill as a response to widespread problems in small-business finance. “This is a great issue because there is, wide agreement and ready solutions,” he told the committee. He said the current market includes higher-cost, less transparent credit products that can leave small businesses worse off after using debt-settlement services. In testimony, Peck quoted Federal Reserve Governor Michael Barr saying the problems in small-business lending are “extremely troubling, and they’re reminiscent of the problems we saw in the subprime mortgage sector in the lead up to 2008,” attributing that characterization to Barr via his testimony.
What the bill would do: Supporters and the committee described AB 1166 as extending the state's debt-settlement framework (previously applicable to consumer loans) to commercial lending. Committee discussion noted the measure would allow commercial-financing recipients to bring a private right of action for statutory damages up to $5,000, a point raised during committee questioning. Supporters emphasized the bill does not ban debt settlement; rather, it seeks to align the incentives of debt-settlement companies with borrowers to avoid situations in which settlement services charge high fees, trigger tax liabilities or damage credit reports while lenders recover less capital.
Support and opposition: Witnesses offering support included Louis Cadets Peck (Responsible Business Lending Coalition), Chris Rosa (representing Rapid and Capitis), Indira McDonald (Forward Financing), and a me-too filing from the American Fintech Council. The transcript records no formal opposition during the hearing.
Committee action: The committee recorded a do-pass motion and a roll call. The roll call recorded yes votes from Chair Valencia and Assemblymembers Chen, Dixon, Fong, Krell, Michelle Rodriguez, Blanca Rubio, Chiavo/Chiavo Astoria (as listed in the transcript), and Soria. The committee chair said the bill passed and left the roll open for absent members.
Testimony highlights and numbers: During testimony, witnesses said higher-cost, less transparent credit products had grown substantially in volume. Louis Cadets Peck cited research, stating such products charged California small businesses “on average double what they can afford to pay” and charged Latino-owned businesses about four times what they can afford; he also said that by 2019 the volume of these higher-cost products was about six times the volume of SBA lending for loans under $250,000.
Next steps: The measure passed the committee and will advance through the legislative process; the transcript does not specify the next committee stop or floor scheduling.
