Over the past year, we have reported on the new wave of laws enacted and proposed in various states requiring consumer-like disclosures in commercial financing transactions. These state laws are often titled “Commercial Finance Disclosure Laws.” New York and California are two states that have enacted similar CFDLs. Those laws will not go into effect until regulations are finalized. California recently published final implementing regulations on June 9, 2022, and it is anticipated that New York is not far behind. Utah’s version was recently signed into law (2022 House Bill 183) and will apply to loans entered into on or after January 1, 2023. Virginia enacted a similar law this year but limited the law’s application to sales-based financings. Similar CFDL legislation has been introduced in other states. As of the date of this post, states recently proposing similar disclosure laws include Connecticut (2022 Senate Bill 272 (failed)), Maryland (Senate Bill 825 (failed); House Bill 1211 (withdrawn)); Mississippi (2022 Senate Bill 2629 (failed); 2022 House Bill 1178 (failed)), Missouri (2022 Senate Bill 963 (failed)), New Jersey (2022 Senate Bill 819 (pending); 2022 House Bill 2150 (pending)), North Carolina (2021 House Bill 969 (failed)), and Pennsylvania (2021 House Bill 1793 (pending)). Although new laws and proposed legislation are similar, they are not the same. Some would apply mandatory disclosures in all commercial loans without regard to loan size, unless an exemption applies, and the exceptions are not uniform.
Enter Congress. The House introduced legislation late in 2021 titled the “Small Business Lending Disclosure Act of 2021” (House Bill 6054). It proposes to amend the Truth in Lending Act (15 U.S.C. §§ 1601 et seq.). The amendments propose to pull in certain commercial loans (open-end and closed financings, factoring, and sales-based financings, to name a few) under TILA and require consumer-like disclosures that, under current law, are not required. The bill would apply to loans to small businesses and include loans equal to or less than $2.5 million. The bill proposes to provide the Consumer Financial Protection Bureau (CFPB) regulatory and enforcement authority over the law.
House Bill 6054 has not moved from the House Committee on Financial Services since its introduction. However, the bill was discussed before the House Small Business Subcommittee on July 13, 2022. Some discussions focused on the interplay of federal and state law and federal preemption of current CDFLs – the Constitutional concept that when federal and state laws conflict, federal law prevails. The discussions at the hearing did not foreclose the idea of adding an amendment to include express federal preemption and creating a federal standard requiring consumer-like disclosures in small business lending. Such an amendment would ultimately create one law to follow, as opposed to a federal minimum standard subject to a state-driven patchwork of more stringent, non-uniform CFDLs. Such an approach, however, would remove exemptions for certain entities under state law, including the exemption for “depository institutions.”
Miles & Stockbridge is closely monitoring developments in this area and remains ready to assist clients with navigating these proposed changes.
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