Regulation
Maryland’s Commercial Financing Disclosure Bill Failed to Move Forward
April 12, 2022
Maryland’s commercial financing bill, propelled by bi-partisan support, failed to overcome the final hurdle before the State’s 2022 legislative session adjourned sine die yesterday. SB 825 passed the Senate in March and became the subject of much debate in the House of Delegates on the 30th. Testimony from 17 people was considered, much of it oral.
The bill’s lofty idyllic intent is perhaps what contributed to its demise. Despite legislative enthusiasm for applying consumer style protections to commercial finance transactions, regulators tasked with its actual implementation were amongst its harshest critics.
The Consumer Protection Division of the State’s Attorney General’s Office said “the bill makes a violation an unfair, abusive or deceptive practice in violation of the Consumer Protection Act. With limited exceptions, violations of the Consumer Protection Act are limited to consumer transactions, i.e., transactions that are primarily for personal, family or household use, and expanding the CPA to cover business-to business transactions would open a door that could lead to a significant increase in the number of complaints received by the Division, requiring the Division to add corresponding resources.” The Division gave an official thumbs down on the bill.
Maryland’s Department of Labor stated that the requirements of the bill would make it “difficult to operationalize from a monitoring, investigatory and enforcement perspective” and that there would be too much uncertainty given that New York, a state that passed a similar law, has been unable to effectively implement their own version. “Maryland small businesses, lenders and borrowers alike, may be negatively impacted if the rollout of the system in New York is significantly delayed or New York enacts systems or procedures not appropriate to or anticipated by Maryland businesses,” it concluded.
Other states, like California, have encountered similar problems with commercial financing disclosure legislation. The bill it passed in 2018 still has not been implemented over lingering disputes over how to do the math it mandates.
Proponents and critics alike picked away at each other’s arguments in Maryland, but when the session ended late late Monday evening to a hail of confetti and balloons, SB 825 had not been called. This was the third year in a row that a commercial financing bill has failed. Another version will likely be introduced when the legislature eventually returns.
New Bill Would Give CFPB Regulatory Authority Over Small Business Lenders
April 1, 2022
When Congress passed a law in 2010 that gave the newly created Consumer Financial Protection Bureau a mandate to collect small business loan data, industry observers wondered just how broadly the agency would interpret that authority.
At least one Congresswoman, however, feels that the statute as written is limited. That’s because Rep. Nydia M. Velázquez introduced a bill on Friday that would explicitly give the CFPB the power it lacks to oversee small business lending altogether.
H.R. 7351, the Promoting Fair Lending to Small Businesses Act, is designed to give the CFPB supervisory authority of “nondepository persons offering or making small business loans.”
“This bill will play an important role in applying the same standards for all lenders who make loans for small businesses, and especially those that have been historically underserved by lenders such as minority- and women-owned businesses,” said Velázquez.
It would be no surprise if a small business lender had not been previously aware of the CFPB’s pre-existing data-collection powers. That’s because the law that was passed twelve years ago, still has not been completely rolled out.
Utah Passes Commercial Financing Disclosure Law
March 28, 2022
The Governor of Utah signed SB183 last Thursday, a law that will require commercial financing providers to formally register with the State as well as provide uniform disclosures on the transactions they conduct.
Beginning January 1, 2023, covered parties will require State approval to conduct business with Utah customers. Following that, the disclosures listed below will be required in the contracts:
- Total amount of funds provided to the business
- Total amount of funds disbursed
- The total amount to be paid
- The total dollar cost of the transaction
- The manner, amount, and frequency of each payment OR the estimated amount of the initial payment
- A statement of costs or discounts associated with prepayment
- The broker’s commission amount
- Explanation of payment methodology and hypothetical circumstances that could cause it to vary
The full text can be read here. deBanked first reported on this bill on February 9th.
Utah follows Virginia, New York, and California who have all passed their own versions of a commercial financing disclosure law. Maryland is the most likely state to pass one next.
Update on Connecticut Commercial Financing Disclosure Bill
March 28, 2022The Connecticut commercial financing disclosure bill first reported by deBanked on March 3rd is still in play. SB272, written similarly to the first draft of the recently passed New York legislation, has been met with both support and opposition.
Supportive
- Connecticut Bankers Association (but with amendments)
- Responsible Business Lending Coalition
- Innovative Lending Platform Association
Opposed
- Electronic Transactions Association
- Revenue Based Finance Coalition
- Small Business Finance Association
Update on Maryland Commercial Financing Bill
March 20, 2022Maryland’s commercial financing disclosure bill is continuing to move through the state legislature. After debate with potentially affected parties, some changes were made to the bill’s language. The APR requirement on sales-based financing transactions remains in the bill, however.
The bill passed through the Senate unanimously (47-0) and has been referred to the House. The original version in the House had been withdrawn but that was most likely because the members of that chamber anticipated that substantive edits would take place in the Senate. The House will now resume review and consideration of the Senate’s version going forward.
Initiative to Push Maryland Commercial Financing Disclosure Bill Points to New York and California
March 14, 2022
Maryland State Senate bill SB0825 was put up for contentious debate last week. The bill is Maryland’s latest attempt to impose restrictions on a subset of commercial finance transactions.
State Senator Ben Kramer spoke at length before the Finance Committee, arguing that opposition to the 2022 version of the bill would be fruitless because it was modeled after passed legislation in New York and California. Apparently operating under the impression that such states had settled the issue of calculating an APR on a purchase transaction, Kramer appeared unaware (perhaps intentionally) that both states have been unable to enact their legislations because of critical flaws in their mathematical assumptions. In the case of California, for example, implementation of its disclosure law has been delayed for almost 4 years.
The corresponding Maryland House Bill of this legislation (HB1211) has since been withdrawn.
Senator Kramer has led the push for regulation for three years straight, beginning in 2020 when a related bill he introduced was called “Merchant Cash Advance Prohibition.”
Virginia Passes Landmark Sales-Based Financing Bill
March 7, 2022
The Virginia State legislature unanimously passed HB1027 on Monday, a law aimed squarely at revenue-based financing providers. Virginia Delegate Kathy Tran (D) celebrated the passage on twitter by saying that the law will “protect small business owners from merchant cash advances.”
The law will require “a provider or broker of sales-based financing to register with the State Corporation Commission (the Commission) in accordance with procedures established by the Commission,” the legislative summary reads. Furthermore, it will require “a sales-based financing provider to provide certain disclosures to a recipient at the time of extending a specific offer of sales-based financing.”
That is just the tip of the iceberg. The bill’s language changed somewhat since it was first introduced in January.
Despite some industry pushback, there was no opposition to the bill on either side of the political aisle and it passed through both chambers unanimously. Virginia has become the third state, following California and New York, to pass a commercial financing disclosure law.
Today, we had the final vote on my bill HB1027 – it passed unanimously and is headed to the Governor! We’re taking key steps to protect small business owners from merchant cash advances, a predatory financial practice. Thanks to @TCIFiscal @VPLC @rbrexperience for your support! pic.twitter.com/Wv8NRL9SOp
— Kathy Tran (@KathyKLTran) March 8, 2022
Delegate Tran thanked The Commonwealth Institute, the Virginia Poverty Law Center, and the Richmond Black Restaurant Experience for their support in making the law happen. The bill now just needs the governor’s signature to become law.
Connecticut Revives Commercial Financing Disclosure Bill
March 3, 2022The State of Connecticut has resurrected its commercial financing disclosure bill, adding to the pile of states doing the same. Senate Bill 272 is a throwback to earlier versions of legislative drafting in that it contains the term “double dipping.”
The bill was only just reintroduced today, March 3rd, where it has been referred to the Joint Committee on Banking. When it was raised last year, it was met with fierce opposition.
The full text of the bill can be read here.
