Small Loan Act to receive new guardrails

Updates to the Small Loan Act (SLA) via the Senate Bill 1033, “An Act Concerning Various Revisions to the Banking Statutes,” will implement several changes designed to improve access to smaller loans while bringing Connecticut laws in line with those in other states, which have also legislated a strict cap for consumer loan rates.

When this takes effect on Oct. 1, it will raise the small loan limit from $15,000 to $50,000; expands the SLA licensure requirement to cover certain brokering and facilitating activities; codify the predominant economic interest test in the SLA; redefine small loans to include income sharing agreements, refund anticipation loans, and pension advances; put a 25% cap on the Annual Percentage Rate (APR) on loans of $5,000 to $50,000; and provide a broader definition of finance charges.

The anticipated impact is to address a wider range of expenses that consumers are likely to encounter.

“Many Connecticut residents struggle with student loans, and we understand that this law is an attempt to control the APR on those loans,” said Peter Myers a public policy associate for the Connecticut Business and Industry Association (CBIA). “Connecticut is facing a workforce crisis, and we must enact solutions to grow the population and make our state more affordable to live and work. Finding ways to help residents struggling with student loans will help them make important investments in housing and invest in their community.”

State Sen. Tom Delnicki, a Republican who represents South Windsor, is both a co-sponsor of the bill and the ranking member of the Banking Committee. He pointed to the issues faced by many customers of People’s United Bank when it merged with M&T Bank last year as a partial impetus for the legislation , particularly the requirement that requires the banking commissioner to “provide timely assistance to any person holding an account at a financial institution concerning any matter related to the financial institution’s merger with another financial institution.”

“I must have handled a good 20 or 30 calls personally just from my district, with folks that couldn’t get access to their money,” Delnicki said, adding the bank responded to his concern by making a contact available for his constituents. He emphasized his hope that the clarifying language should make it easier for the banking commission to protect consumers during mergers and spur better preparation for mergers.

Delnicki also speculated that the legislation could benefit credit unions.

“We talk about low-cost or no-cost banking and a credit union is perhaps one of the best instruments that an average person or even small business can go to and not have the kinds of fees you would have with a larger bank,” Delnicki said.

Tweaks to rules about advertising for banks with Connecticut charters were also poised to provide some amount of parity between smaller local financial institutions and larger ones by requiring state banking licenses before announcing or promoting small loan services.

“When you look at it in its totality,” Delnicki added, “there are a lot of things in (SB1033) that actually help out the small business folks and the average persons that find themselves having their bank gobbled up by a bigger bank. There’s no piece of legislation that is going to guarantee that a bank’s merger is going to go 100% successful. But you can legislate having guardrails there and have the ability to make sure people have help and that the commissioner can be involved.”