Regulation
New York State Bill Aims to Recharacterize Factoring, Leasing, Revenue Based Financing, and More
March 22, 2024
A proposal to amend a New York State statute that governs how the rate of interest is computed “upon a loan or forbearance of any money, goods, or thing in action” seeks to broaden its application to an all encompassing umbrella of loan and non-loan products defined as a “financing arrangement” and then subject them all to usury caps.
And yes, it applies to commercial financing.
According to Assembly Bill 9585, a financing arrangement will be defined as “to include loans, forbearance of any money, goods or things in action, and all other transactions that involve the lending or advancing of money, goods or things in action for an amount charged, taken or received, and all transactions that operate as substitutes for such products, including but not limited to retail installment contracts, merchant cash advances, invoice financing, revenue-based financing, earned wage access or similar wage advance transactions, lease- or rent-to-own arrangements, rental-purchase agreements as defined in subdivision six of section five hundred of the personal property law, buy-now pay-later transactions, financing for litigation or legal settlements, income-sharing agreements and financing for education.”
And once that rate of interest is computed, “any rate exceeding twenty-five per centum per annum” in accordance with how the rate is allowed to be calculated, will be considered a Class E Felony of Criminal Usury.
This is just a bill. It hasn’t passed anything yet. It can be read here. It was introduced by Assemblywoman Helene E. Weinstein.
Utah Amends Definition of Commercial Finance Broker
March 11, 2024
The Utah state legislature successfully passed a bill amending some elements of its recent commercial financing disclosure law.
As part of that the definition of a broker has changed from:
a person who, for compensation or the expectation of compensation, arranges a commercial financing transaction between a third party and business in the state.
to:
a person who:
(i) for compensation or the expectation of compensation, obtains a commercial financing product or an offer for a commercial financing product from a third party that, if executed, would bind the third party; and
(ii) communicates the offer described in Subsection (2)(a)(i) to a business located in the state .
(b) “Broker” does not include:
(i) a provider; or
(ii) a person whose compensation is not based or dependent on the terms of a specific commercial financing product that the person obtains or offers.
The law will also remove the line about having to disclose “any amount of the funds described in Subsection (2)(a) that the provider pays to a broker in connection with the commercial financing transaction.”
You can read it here. The bill just needs the governor’s signature.
Louisiana Introduces Commercial Financing Disclosure Bill
March 3, 2024Louisiana is the latest state to introduce a commercial financing disclosure bill. SB 335 is a copy & paste of the law that recently passed in Florida.
Other states with pending legislation on the subject include Missouri, Kansas, Illinois, and Maryland.
You can read the Louisiana bill here.
Illinois State Rep Proposes Database of All Funded Deals
February 19, 2024
A Representative of the Illinois State legislature has introduced its own version of a commercial financing licensing bill. HB5587, which makes licensing sound like one is consenting to judgment and references the word subpoena 29 times, calls for a state-controlled commercial financing database that would require all licensed providers to upload their deals into it after they’re funded. The bill says that such a database would not be made public but would be used to monitor licensees, prepare industry reports, and to refer instances of illegal activity to law enforcement.
This proposal is aimed at non-bank providers of commercial financing rather than brokers or technology services, and it’s not limited to just loans. For instance, it says that providers would have to include “the amount of the receivables purchase price paid to the recipient and, if different from the purchase price, the amount disbursed to the recipient after any amount deducted or withheld at disbursement, if applicable” when submitting funded deals to the database.
Overall, the database component to this licensing bill somewhat overlaps with what will soon be required at the national level by the CFPB under the small business lending data collection rules. Are you prepared to comply with those rulex already?
This Illinois bill is new. You can read the full thing here.
FCC Closes the Lead Generator Loophole, Are You Compliant?
February 1, 2024Coming soon to a lead provider near you, new regulations that require “one-to-one” consent. The loophole that deBanked warned about last November is now officially scheduled to close on March 26. To revisit the heart of what’s changing, we republish the following:
“Lead-generated communications are a large percentage of unwanted calls and texts and often rely on flimsy claims of consent to bombard consumers with unwanted robocalls and robotexts,” the FCC said. As such they’re now requiring one-to-one consent.
First, the one-to-one consent must come after a clear and conspicuous disclosure to the consenting consumer that they will get robotexts and/or robocalls from the seller. “Clear and conspicuous” means notice that would be apparent to a reasonable consumer. In addition, if compliance with the federal Electronic Signatures in Global and National Commerce Act (the E-Sign Act) is required for the consumer’s signature, then all the elements of ESign must be present.”
Second, we adopt our proposal that robotexts and robocalls that result from consumer consent obtained on comparison shopping websites must be logically and topically related to that website. Thus, for example, a consumer giving consent on a car loan comparison shopping website does not consent to get robotexts or robocalls about loan consolidation.
Fortunately, the FCC spells out an example of what might be acceptable as one-to-one consent for a lead generator.
For instance, the website may offer a consumer a check box list that allows the consumer to specifically choose each individual seller that they wish to hear from. Alternatively, the comparison shopping website may offer the consumer a clickthrough link to a specific business so that the business itself may gather express written consent from the consumer directly. Our rule does not prohibit comparison shopping websites from obtaining leads through valid consent and provides multiple opportunities for responsible comparison shopping websites to obtain leads for potential callers.”
The FCC has since published the new rules in the Federal Register. There are two components of it that have a delayed effective date, one being July 24, 2024 and the other being January 27, 2025. The rest goes into effect this March 26, however.
For questions about whether or not this will affect you, please consult with an attorney.
Top Industry Execs Attend Small Business Finance Leaders Summit in Washington DC
January 29, 2024
Fifty top C-level executives attended the Small Business Finance Leaders Summit in Washington DC last week to discuss the economy, small business finance, policy issues, regulatory impacts, and industry best practices. Co-hosted by two major trade organizations, the Small Business Finance Association (SBFA) and the Innovative Lending Platform Association (ILPA), it was invite-only and open to members of both.
Speakers included US Senator Roger Marshall, Tom Sullivan from the US Chamber of Commerce, Holly Wade from the National Federation of Independent Business, Aaron Klein from Brookings, Will Tumulty from Rapid Finance, Justin Bakes from Forward Financing, Kirk Chartier from OnDeck, and Steve Allocca from Funding Circle, among others.
“As our industry matures, it’s important to provide industry leaders with an opportunity to connect and engage with high-level thought leaders,” said Steve Denis, Executive Director of the SBFA. “We believe our C-level Summit complements the Broker Fair and other industry conferences like Money 20/20 or Nexus. We hope to expand our Summit in June to bring in some new industry voices and will continue to focus on high-end content that is meaningful and strategic for our members and other top industry leaders.”
The organizations are planning another Summit in early June to build upon the success.
Financial Service Associations Urge Legislation on IRS Income Verification
January 25, 2024
The IRS doesn’t want financial service companies to be able to verify the income of customers, at least not through official channels like the Income Verification Express Services (IVES) system. On January 2 and 3, the IRS announced it would only allow IVES transcripts to be made available “to mortgage lending firms for the sole purpose of obtaining a mortgage on residential or commercial real property (land and buildings).” Government agencies will also not be allowed to use IVES.
“The IRS is implementing the provisions of the Taxpayer First Act (P. Law 116-25) with increased privacy and security requirements for access to confidential tax information,” it announced. “If tax transcript information is required by your firm for other than securing a mortgage, we recommend requesting it directly from the taxpayer.”
But relying on getting the information directly from the taxpayer defeats the whole purpose in more ways than one, many financial service trade associations say. On Wednesday, a letter jointly signed by the American Bankers Association, America’s Credit Unions, American Fintech Council, Consumer Data Industry Association, Electronic Transactions Association, Financial Technology Association, Innovative Lending Platform Association, Independent Community Bankers Association, Mortgage Bankers Association, Responsible Business Lending Coalition, and Small Business Finance Association urged senior ranking members of Congress to pass H.R. 3335. Dubbed the IRS eIVES Modernization and Anti-Fraud Act, it would “ensure the IRS follows the original intent of Congress to modernize the system and prevent disruptions to the consumer and commercial lending industries.”
Seven States Reintroduce Commercial Financing Bills
January 20, 2024
They’re BACCKKKK. The following states legislatures all have new bills in front of them for consideration.
North Carolina – Small Business Truth in Financing Act
Kansas – The commercial financing disclosure Act
Missouri – Commercial Financing Disclosure Law
New Jersey – An Act concerning commercial financing
Illinois – Small Business Truth in Lending Act
California – Commercial Financing Bill
