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New York legislature introduces bills to protect small businesses, regulate merchant cash advance transactions
On May 1, S5470 was introduced in the New York State Senate and is now sitting with the Committee on Banks, which would establish consumer-style disclosure requirements for certain commercial transactions. Similar to the legislation enacted in California last September, previously covered in InfoBytes here, the bill requires financing entities subject to the law to disclose in each commercial financing transaction “the total cost of the financing, expressed as a dollar cost, including any and all fees, expenses and charges that are to be paid by the recipient and that cannot be avoided by the recipient, including any interest expense.” For open and closed-end commercial financing transactions, the bill requires that the disclosures must include, among other things, (i) the amount financed or the maximum credit line; (ii) the total cost of the financing; (iii) the annual percentage rate; (iv) payment amounts; (v) a description of all other potential fees and charges; and (vi) prepayment charges. The bill sets out analogous, but separate, disclosure requirements for accounts receivable purchase transactions, such as merchant cash advance and factoring transactions.
Importantly, the bill does not apply to (i) financial institutions (defined as a chartered or licensed bank, trust company, industrial loan company, savings and loan association, or federal credit union, authorized to do business in New York); (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) a technology service provider; and (v) a lender who makes no more than one applicable transaction in New York in a 12-month period or any person that makes commercial financing transactions in New York that are incidental to the lender’s business in a 12-month period.
Additionally, the New York legislature is also considering a number of other bills that would affect commercial financing transactions:
- A03637, would amend the state’s banking law to deem asset-based lending transactions (defined as, “a transaction in which advances are made which are contingent on the recipient forwarding payments received from one or more third parties for goods such recipient has supplied or services such recipient has rendered to that third party or parties.”) to be loans for all purposes. On its face, this legislation would subject typical merchant cash advance and factoring transactions, which New York courts have in many recent court cases deemed to be non-loan transactions, to lending law restrictions, which would include potential licensure requirements and usury restrictions.
- A03636, would amend the state’s business law to prohibit the inclusion of a confession of judgment (COJ) in a contract or agreement for a financial product or service provided by an entity regulated by the New York Department of Financial Services for the purpose of consumer or investor protection, which is specifically defined by the bill as: (i) any product or service for which registration or licensing is required or for which the offeror or provider is required to be registered or licensed by state law; (ii) any product or service as to which provisions for consumer or investor protection are specifically set forth for such product or service by state statute or regulation; and (iii) securities, commodities and real property subject to the provisions of article 23A of the general business law. COJs are contractual clauses in which a debtor waives in advance his or her right to be notified of a court hearing, or to present his or her side of the case, which are prohibited under federal law for consumer contracts by the FTC Credit Practices Rule (16 C.F.R. pt. 444). In conjunction with potential licensure required under AO3637 above, the passage of both pieces of legislation in New York could result in the prohibition of COJ clauses in merchant cash advance agreements, a common feature of such agreements and generally permitted under New York law.
- A03638, would extend the majority of the state’s consumer protections with respect to loans made to small businesses (defined by the bill as, a “small business shall be deemed to be one which is resident in this state, independently owned and operated, not dominant in its field and employs one hundred or less persons.”). Specifically, the bill would amend the state’s general obligations law to extend all rights and privileges granted under the title to small businesses and would also amend Section 173 and Section 380-e of the state’s banking law to extend all the rights and privileges granted by the section to small businesses.
Relatedly, the FTC recently held a forum on small business marketplace lending practices, see detailed InfoBytes coverage on the forum here.
Maryland amends security breach notification requirements
On April 30, the Maryland governor signed HB 1154 to amend current law related to security breach notification requirements. Among other provisions, HB 1154 (i) requires businesses that own, license, or maintain computerized data that includes a resident’s personal information to conduct a reasonable, prompt investigation in the event of a security breach to determine whether the personal information has been, or is at risk of, being misused due to the breach; (ii) requires business to provide notice to the affected individuals; (iii) stipulates that businesses may not charge fees when providing necessary information to an owner or licensee who is required to provide notice to affected individuals; and (iv) provides restrictions concerning the use of the computerized data relative to the security breach. The amendments take effect October 1.
Oklahoma prohibits credit, debit card surcharges
On April 30, the Oklahoma governor signed HB 1425, which, among other things, bans surcharges on credit or debit card transactions. The ban prohibits sellers from increasing the price of any sales transaction for buyers who pay with a credit or debit card instead of a check, cash, or similar means. HB 1425 takes effect November 1.
New Jersey approves mortgage lending bill package
On April 29, the New Jersey governor approved several bills related to mortgage lending in the state. According to a press release issued by the governor, the package of nine bills addresses the state’s foreclosure crisis and includes the following:
- A 4997, known as the Mortgage Services Licensing Act, requires persons who act as mortgage servicers—either directly or indirectly—to obtain a license from the New Jersey Commissioner of Banking and Insurance for each office where business is conducted. The Act provides certain licensing exemptions, including federally insured banks and credit unions and their wholly-owned subsidiaries, those already licensed under the state’s Residential Mortgage Lending Act (the Act) who meet certain criteria, and the New Jersey Housing and Mortgage Finance Agency. However, the Act stipulates that sections 9 – 12, which discuss, among other things, record-keeping requirements, late fee restrictions, and required disclosures, apply to all persons, including exempt persons, acting as mortgage servicers in the state. Among other provisions, the Act (i) outlines licensing application requirements, procedures, and expiration terms; (ii) requires licensed mortgage servicers to file annual reports about loan servicing in the state; (iii) stipulates that licenses are non-transferable; (iv) mandates mortgage servicers to file a surety bond, fidelity bond, and evidence of coverage with the Commissioner; (v) requires compliance with all applicable federal laws including RESPA and TILA; (vi) requires mortgage servicers to keep a current schedule of service-related activity fees; and (vii) prohibits mortgage servicers from engaging in unfair or deceptive practices in connection with loan servicing. Moreover, the Act grants the Commission with supervision, investigation, and examination authority. The Act takes effect in 90 days.
- A 5001 “reduces the statute of limitations in residential mortgage foreclosures from 20 years to six years from the date on which the debtor defaulted, in situations in which the date of default is used as the method to determine when the statute of limitations has expired.” A 5001 takes effect immediately and applies to all residential mortgages executed on or after the effective date.
- S 3416 states that provisions of the New Jersey Residential Mortgage Lending Act now apply to certain out-of-state persons involved in residential mortgage lending in the state “provided they are otherwise required to be licensed pursuant to the provisions of the [A]ct. . . .” S 3416 takes effect immediately.
- S 3411, among other things, (i) requires a notice of intention to foreclose on a residential mortgage to be filed within 180 days prior to commencing foreclosure, stating that if a foreclosure proceeding has not yet commenced, “the lender shall send a new written notice at least 30 days, but not more than 180 days, in advance of that action”; and (ii) limits the number of permitted reinstatements of dismissed mortgage foreclosure actions to three, with certain exceptions. S 3411 takes effect August 1, which is the first day of the fourth month following enactment.
Washington state amends debt collection laws
On April 30, the Washington state governor signed HB 1531 and HB 1066, which amend certain state debt collection laws. HB 1531 covers medical debt and among other things, outlines certain requirements for medical debt collection notices, including providing information regarding the medical creditor, the date(s) of service, and the health care services provided. The notice must also include the principal amount of the debt incurred, interests and fees, and the amount of any payments already received. HB 1531 also prohibits a collector from reporting any adverse information regarding the medical debt to credit reporting agencies until at least 180 days after the obligation with [was?] received by the collector and limits prejudgment interest to nine percent. Additionally, HB 1066 prevents a debt collector from serving a debtor with a court summons unless the summons and complaint are first filed with the appropriate court and bear a case number assigned by the court. The amendments both take effect July 28.
Washington state recognizes distributed ledger technology
On April 26, the Washington state governor signed SB 5638, which recognizes the validity of distributed ledger technology. Intending to expand the scope of the existing federal ESIGN Act, the bill adds a new chapter to the Revised Code of Washington, defining distributed ledger technology as “any distributed ledger protocol and supporting infrastructure, including blockchain, that uses a distributed, decentralized, shared, and replicated ledger.” The bill prohibits an electronic record from being denied “legal effect, validity, or enforceability solely because it is generated or stored using distributed ledger technology.” The bill is effective July 28.
Georgia exempts certain retailers from mortgage licensing requirements
On April 18, the Georgia governor signed HB 212, which amends the Official Code of Georgia Annotated relating to the licensing of mortgage lenders and mortgage brokers. Under the Act, the following persons, who meet certain requirements, are exempt from state licensing requirements: “retailers and retail brokers of manufactured homes, mobile homes, or residential industrialized buildings.” The Act also revises the definition of a “mortgage broker” to remove the aforementioned categories from the term, and further provides that a “mortgage broker” does not include employees of exempt persons who satisfy specific requirements. The Act takes effect July 1.
South Carolina enacts servicemembers civil relief act
On April 26, the South Carolina governor signed H 3180 to enact the South Carolina Servicemembers Civil Relief Act, which will “expand and supplement the rights, benefits, and protections of the federal Servicemembers Civil Relief Act (SCRA)” and provide that a violation of the SCRA is a violation of the state’s act. In particular, the Act expands federal SCRA’s definition of “military service” to include South Carolina guardsman who are on state active duty, subject to certain requirements. It also provides that a “dependent of a servicemember engaged in military service has the same rights and protections provided to a servicemember” under both the Act and the SCRA and expands contract termination rights for servicemembers receiving “military orders to relocate for a period of service of at least ninety days to a location that does not support the contract,” encompassing phone, internet, TV, and gym subscriptions. The Act took effect upon signature and is applicable to contracts executed on or after April 26.
Oklahoma permits inter-agency information-sharing agreements
On April 22, the Oklahoma governor signed HB 1387 to permit the state’s Administrator of Consumer Credit to enter into certain cooperative, coordinating, information-sharing agreements with other agencies in place of conducting a separate examination or investigation. According to the Act, the information-sharing agreements apply to any agency that has “supervisory or regulatory responsibility over any entity that has been or may be licensed by the Department of Consumer Credit or any organization affiliated with or representing one or more” such agency, as well as the Oklahoma State Banking Department. The Act is effective November 1.
Maryland approves bills on debt settlement services, mortgage lenders, and credit service businesses
On April 18, the Maryland governor approved several bills concerning debt settlement service providers, mortgage lenders, and credit service businesses.
Under HB 59, registrants providing debt settlement services are required to apply for a license or renewal and obtain a valid unique identifier issued by the Nationwide Multistate Licensing System and Registry (NMLS) on or after July 1. HB 59 also requires the Office of the Commissioner of Financial Regulation (OCFR) to establish a time period of at least two months within which registrants must transfer licensing information to NMLS. Additionally, registration fees are decreased to $400 from $1,000 for the issuance or renewal of a registration.
HB 61 amends the Annotated Code of Maryland related to mortgage lenders, loan servicers, and loan originators to, among other things, (i) alter and clarify certain tangible net worth requirements and criteria for mortgage lenders, servicers, and originators; (ii) repeal a provision that requires licensees to reapply for a license should a location change request not be filed in a timely manner with the OCFR; (iii) extend examination cycle periods; and (iv) amend certain expiration provisions related to mortgage loan originator licensees. The amendments take effect October 1.
Finally, SB 68 amends the definition of a “credit service business” to mean, among other things, any person who represents the ability to provide advice or assistance to consumers concerning improving a consumer’s credit record, establishing a new credit file, or obtaining credit extensions. SB 68 also exempts certain credit services businesses from certain information statement requirements when engaged to obtain an extension of credit for a consumer. Credit services businesses that qualify for an exemption must provide the consumer with certain information concerning the right to file a complaint as well as a copy of the contract before the consumer executes the contract. SB 68 takes effect October 1.