The Georgia Legislature is considering a bill that would dramatically change the landscape of the current lending environment and creditor litigation. Last week, the Senate passed SB 448 by a vote of 45-0. Known as the Small Business Borrower Protection Act (the “Act”), the Act limits the amount successor creditors can recover from guarantors. This has the potential to signal a sea change in the way certain creditors pursue and prosecute note obligors. Bloom Sugarman Everett is at the tip of the spear of this legislative initiative.

The Act defines a “successor creditor” to mean any person who did not originally enter into a debt, but has acquired the debt obligation by assignment, sale, transfer or some other means. The Act then caps the amount a successor creditor may recover from a guarantor of the debt at the actual amount the successor creditor paid for the debt plus interest.

The Act is retroactive and applies to all transfers of debts and judgments regardless of when the debt was originally incurred or the transferred occurred. The Act does not apply to institutions with federally insured deposits. As a result, it will not apply to most banks who purchase debt from other banks.

While the Act makes great strides in protecting Georgia’s business owners, certain language is not as clear as it could be. For example, the bill’s retroactivity language references the timing for judgments, but fails to specifically state that the Act applies regardless of when the debt was incurred or when the successor creditor purchased the debt. The Act also does not require the creditor give the guarantor credit for the collateral’s value or for any amounts collected from the borrower.

The Act is currently before the House of Representative’s Banks and Banking Subcommittee. BSE Partner Simon Bloom will testify before the committee and is working with House members to craft and refine the bill’s language.

For the past five years, BSE has remained the leading law firm in the areas of workout and lender litigation. We have witnessed first-hand how third-party investors have bought notes from banks for pennies and then sued the guarantors for the note’s face amount and racked up huge profit. Like in the courtroom every day, BSE will use this opportunity before the Legislature to fight for our clients and prevent successor creditors from unfairly targeting our clients.

Please reach out to your state house representatives and encourage their support for this monumental piece of legislation. Don’t hesitate to reach out to Simon, Skip, or Stephanie with questions or for more info.