When California passed its landmark commercial financing disclosure law in 2018, some theorized that it was all just a five-year experiment. That’s because legislators wrote into the statute that the APR component of disclosures would only be required until January 1, 2024 and would then automatically be repealed. Then something unexpected happened, it took four years just to put the law into effect. And so with the clock ticking down toward repeal, California’s legislature passed a law last week that removes that line from the statute entirely. Now there is no sunset date. It’s permanent.
Although deBanked has learned that many providers are complying with the disclosure law, not everyone believes that doing so helps business owners or that its requirements are constitutional.
Meanwhile, California also passed ANOTHER commercial financing bill last week, Senate Bill 666, which you can read about here.
Four Democratic US Senators want to establish a national usury rate for credit transactions. S. 2730, dubbed the “Protecting Consumers from Unreasonable Credit Rates Act of 2023” says that “attempts have been made to prohibit usurious interest rates since colonial times” but that high interest rates have prevailed because of loopholes, safe harbor laws, and the “exportation of unregulated interest rates permitted by preemption.”
The solution to all this, it says, is a nationwide 36 percent rate cap that no one can ever circumvent and for which no exemptions would be allowed. The bill repeatedly references “consumers” and makes no mention of commercial or business credit. The bill would technically amend the Truth in Lending Act, however, so TILA covered parties are the likely covered parties for this bill as well.
The sponsors are Sen. Durbin, Sen. Blumenthal, Sen. Merkley, and Sen. Whitehouse.
This bill is new. Whether it progresses remains to be seen.
Complying with the recent California commercial financing disclosure law? Great! Get ready for another one. Senate Bill 666 (unfortunate number choice) has been making its way through the state legislature since February and is approaching a final vote.
The bill would prohibit covered entities from charging:
(a) A fee for accepting or processing a payment required by the terms of the commercial financing contract as an automated clearinghouse transfer debit, except for a fee imposed for a payment by an automated clearinghouse transfer that fails because of insufficient funds in the transferor’s account.
(b) A fee for providing a small business with documentation prepared by the covered entity that contains a statement of the amount due to satisfy the remaining amount owed, including, but not limited to, interest accrued to the date the statement is prepared and a means of calculating per diem interest accruing thereafter.
(c) A fee in addition to an origination fee that does not have a clear corresponding service provided for the fee, including, but not limited to, a risk assessment, due diligence, or platform fee.
(d) A fee for monitoring the small business’s collateral, unless the underlying commercial financing transaction is delinquent for more than 60 days.
(e) A fee for filing or terminating a lien filed in accordance with the provisions of the Uniform Commercial Code against the business’s assets that exceeds 150 percent of the cost of the filing or termination.
Overall, the bill is not that extreme. The bill can be viewed and tracked here.
Although Connecticut Governor Ned Lamont signed SB1032 into law this summer, covered parties have until July 1, 2024 to start complying. On its face it was a disclosure bill, but as previously mentioned there was a twist, it amends chapter 903a of the general statutes, the code governing prejudgment remedies.
Specifically it says:
No commercial financing contract entered into on or after July 1, 2024, shall contain any provision waiving a recipient’s right to notice, judicial hearing or prior court order under chapter 903a of the general statutes in connection with the provider obtaining any prejudgment remedy, including, but not limited to, attachment, execution, garnishment or replevin, upon commencing any litigation against the recipient. Any such provision in a commercial financing contract entered into on or after July 1, 2024, shall be unenforceable.
Similar to Virginia, brokers will be required to register in order to broker deals to any Connecticut merchant.
The New York commercial financing disclosure law has arrived. Are you in compliance with it?
While the law is similar to the one recently rolled out in California, there may be some key differences. Your best bet is to contact a lawyer that is equipped to help you with this very thing. If you need a recommendation for one, email me at email@example.com.
If you have no idea what this disclosure law thing in New York is all about, you need to catch up ASAP! This law was passed in 2020 and went through a formal rule-making process that lasted years. The rules were finalized on February 1, 2023 and were mandated to go into effect six months from that date.
Here’s a map of what you should be paying attention to right now!
The number of registered sales-based financing providers in Virginia is increasing, according to the most recent available public records. At last count there were 150. Both funders and brokers are required to be registered if they plan to do any MCA business with VA-based merchants.
If you’re not on the list and you believe you registered, you may not have completed all the steps. Not only do you have to register as a sales-based financing provider but you also have to register to transact business in the state.
1. Register as a sales-based financing provider.
2. Register to transact business in the state.
So there are two applications and registrations to fulfill the requirement, per deBanked’s understanding. See more info here. Please consult an attorney if you have questions.
The state has been very quick to add new registrants to the list so if someone said they registered months ago but that the government has been slow to add them, it might actually be a matter of them missing a requirement instead.
As written, the law says it is supposed to go into effect on July 1, 2023. One wonders given the timeline if that will be extended to give the industry an opportunity to even understand what the requirements are.
Florida has now been updated on the deBanked regulatory map.
Federal Legislators Jump on Commercial Financing Disclosure Bandwagon, Renew Push to Give CFPB Authority Over IndustryJune 16, 2023
Feel like there’s a lot of state-level disclosure going around lately? Well now some members of Congress believe another layer is needed at the federal level. In a bill titled the “Small Business Financing Disclosure Act of 2023,” the language looks awfully familiar. There’s a Double Dipping clause in it, for example, which was a term first seen in a New York State law.
The federal bill, which was introduced by US Senator Robert Menendez and Congresswoman Nydia M. Velázquez, seeks to place the small business finance industry under the authority of the Consumer Financial Protection Bureau (CFPB). As part of that, the Director (currently Rohit Chopra) would be responsible for devising all the rules and formulas, according to the bill. Furthermore, with regards to sales-based financing, the bill specifically states:
1. The provider must disclose an APR.
2. The estimated term of repayment and periodic payments based on projected sales volume must be disclosed.
“Small businesses are the lifeblood of the American economy,” said Congresswoman Velázquez. “But for too long, predatory lenders have taken advantage of businesses in need of capital by offering loans and similar products with unclear terms and exorbitant interest rates.”
Supporters of the bill, including Senator Sherrod Brown and Senator Ron Wyden, also stated that the bill is aimed at “predatory lenders.”
In Senator Menendez’s press statement for the bill, it cites Funding Circle, a small business lending company, as a supporter.
“We believe a free and fair market operates most efficiently when there is transparency in pricing, terms and conditions,” said Ryan Metcalf, Head of U.S. Public Affairs at Funding Circle U.S. When a small business has all of the necessary information up front including the annual percentage rate (APR), they can comparison shop and make informed decisions that are best for their business. Funding Circle supports one national uniform small business financing disclosure law because it is in the best interests of small businesses and interstate commerce.”
The push for a small business financing bill is not new. A similar bill introduced by Velázquez last year did not move forward, nor did the one from 2021, nor the one from 2019. The difference is that previous versions focused on Confessions of Judgment and fairness in small business lending. The latest version takes on the air of disclosure while attempting to subjugate the whole industry to CFPB regulatory authority.