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Financial Services Law Insights and Observations

More states targeting commercial financing disclosures

State Issues State Legislation Commercial Finance Disclosures Florida Connecticut

State Issues

Several states are moving forward on legislation relating to commercial financing disclosures. While Georgia is the most recent state to require disclosures in connection with commercial financing transactions of $500,000 or less (covered by InfoBytes here), additional states, including Connecticut and Florida, are moving bills through the legislature that would also impose several requirements on commercial financing lenders and providers.

Awaiting the governor’s signature, Connecticut SB 1032 would require certain providers of commercial financing to make various disclosures, with violators being subject to civil penalties. The requirements are applicable to sales-based financing in amounts of $250,000 or less. A “provider” is defined by the bill as “a person who extends a specific offer of commercial financing to a recipient” and includes, unless otherwise exempt, a “commercial financing broker,” but does not include “a bank, out-of-state bank, bank holding company, Connecticut credit union, federal credit union, out-of-state credit union or any subsidiary or affiliate of the foregoing.” The bill establishes parameters for qualifying commercial transactions and outlines numerous additional exemptions. Providers may also be able to rely on a statement of intended purpose made by the “recipient” – which is defined as “a person, or the authorized representative of a person, who applies for commercial financing and is made a specific offer of commercial financing by a provider” – to determine whether the financing is commercial financing. Additionally, when extending a specific offer for sales-based financing, the provider must disclose the terms of the transaction as specified within the bill. As a condition of obtaining commercial financing, should the provider require a recipient to pay off the balance of existing commercial financing from the same provider, the provider would be required to include additional disclosures. The bill also discusses conditions and criteria for when using another state’s commercial financing disclosure requirements that meet or exceed Connecticut’s provisions may be permitted.

The bill further provides that a commercial financing contract entered into on or after July 1, 2024, may not contain any provisions waiving a recipient’s right to notice, judicial hearing, or prior court order in connection with the provider obtaining any prejudgment remedy. Additionally, a provider may not revoke, withdraw, or modify a specific offer until midnight of the third calendar day after the date of the offer. Finally, the banking commissioner also is authorized to adopt regulations to carry out the bill’s provisions. Notably and unique to Connecticut is a requirement that providers and brokers of commercial financing be registered with the state banking commissioner in addition to adhering to the prescribed disclosure requirements. No later than October 1, 2024, providers and brokers must abide by certain application requirements and pay registration fees. If enacted, Connecticut’s requirements would take effect July 1, 2024.

Similarly, Florida also moved legislation during the 2023 session related to commercial financing that would have created the Florida Commercial Financing Disclosure Law. Among other things, HB 1353 would have required covered providers to provide specified disclosures for commercial financing transactions in amounts of $500,000 or less and would have established unique broker requirements. Florida’s session ended May 5.