Skip to main content
Menu Icon Menu Icon

InfoBytes Blog

Financial Services Law Insights and Observations


Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.

  • Connecticut joins states enacting commercial financing disclosures and lender and broker registration requirements

    State Issues

    On June 28, Connecticut became the latest state to require certain providers of sales-based commercial financing to provide disclosures to borrowers and that such providers and brokers register with the state. SB 1032 (the “Act”) defines “commercial financing” as any extension of sales-based financing by a provider in amounts of $250,000 or less, which the recipient does not intend to use primarily for personal, family, or household purposes. A “provider” is defined by the Act 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.” “Sales-based financing” means a transaction that is repaid by the recipient to the provider over time (i) as a percentage of sales or revenue, in which the payment amount may increase or decrease according to the volume of sales made or revenue received by the recipient, or (ii) according to a fixed payment mechanism that provides for a reconciliation process that adjusts the payment to an amount that is a percentage of sales or revenue. The Act establishes parameters for qualifying commercial transactions and outlines numerous additional exemptions.

    Under the Act, when extending a specific offer for sales-based financing, the provider must disclose the terms of the transaction as specified within the Act. 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 Act also discusses conditions and criteria when using another state’s commercial financing disclosure requirements that meet or exceed Connecticut’s provisions may be permitted. Providers may rely on a statement of intended purpose made by the “recipient” (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.

    Further, the Act 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. Notably, there 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.

    Finally, the banking commissioner is authorized to adopt regulations to carry out the Act’s provisions. Providers who violate the Act’s provisions, or any adopted regulations, will be subject to civil penalties. The commissioner may also seek injunctive relief against providers who knowingly violate any of the provisions.

    The Act takes effect July 1, 2024.

    State Issues State Legislation Connecticut Commercial Finance Disclosures Broker

  • Florida enacts commercial financing disclosure requirements

    State Issues

    On June 23, the Florida governor signed HB 1353 (the “Act”), creating the Florida Commercial Financing Disclosure Law and imposing several requirements on commercial financing providers and brokers. The Act defines a “provider” as “a person who consummates more than five commercial financing transactions with a business located in [Florida] in any calendar year.” The definition “also includes a person who enters into a written agreement with a depository institution to arrange a commercial financing transaction between the depository institution and a business via an online lending platform administered by the person.” The Act clarifies, however, the “fact that a provider extends a specific offer for a commercial financing transaction on behalf of a depository institution may not be construed to mean that the provider engaged in lending or financing or originated that loan or financing.” A “commercial financing transaction” is defined broadly and means a secured or unsecured commercial loan, an account receivable purchase transaction, or a commercial open-end credit plan. 

    The Act establishes parameters for qualifying commercial transactions and outlines numerous exemptions, including federally insured depository institutions; transactions secured by real property, a lease, or a certain purchase money obligations; transactions of at least $50,000 where the recipient is a motor vehicle dealer or rental company (or an affiliate of such company); providers licensed as money transmitters in any state; and commercial financing transactions greater than $500,000.

    Specifically, at or prior to consummation of a commercial financing transaction, a provider must (i) disclose the terms of the transaction as specified within the Act; (ii) outline the manner and frequency of the payments, including a description of the methodology used to calculate any variable payment amount and the circumstances that may cause a payment amount to vary; and (iii) disclose any costs or discounts associated with prepayment. Disclosures must be in writing and may be based on an example of a transaction that could occur under the agreement. The Act further specifies that only one disclosure is required for each commercial financing transaction. Subsequent disclosures are not required as a result of a modification, forbearance, or change to a consummated commercial financing transaction.

    The Act also defined a “broker” as “a person who, for compensation or the expectation of compensation, arranges a commercial financing transaction or an offer between a third party and a business in [Florida] which would, if executed, be binding upon that third party.” The definition excludes “a provider and any individual or entity whose compensation is not based or dependent upon the terms of the specific commercial financing transaction obtained or offered.” In addition, the Act outlines prohibited conduct and establishes unique broker requirements. Specifically, a broker may not “[a]ssess, collect, or solicit an advance fee from a business to provide services as a broker” (a business may pay for actual services required to apply for a commercial financing transaction), and may not make any false or misleading representations when engaging in the offering or sale of its brokering services.

    The Act explicitly prohibits a private right of action, but instead grants the Florida attorney general exclusive enforcement authority. The AG may seek fines of $500 per incident (not to exceed $20,000 for all aggregated violations). Fines will increase to $1,000 per incident (not to exceed $50,000 for all aggregated violations) for continued violations following receipt of written notice or a prior violation.

    The Act takes effect on July 1.

    State Issues State Legislation Florida Commercial Finance Disclosures Broker

  • Rhode Island regulator extends work from home guidance for lenders

    State Issues

    On September 28, the Rhode Island Department of Business Regulation, Banking Division, extended previous guidance (previously covered here and here) issued to mortgage loan originators, lenders, loan brokers, and exempt company registrants. The guidance permits working from home, even if the home is located outside of Rhode Island or is not a licensed branch, so long as specified data security provisions are met. The department extended this guidance until December 31, 2020.

    State Issues Covid-19 Rhode Island Lending Mortgage Origination Broker Broker-Dealer Mortgage Broker Licensing Mortgage Licensing Privacy/Cyber Risk & Data Security

  • Federal legislation would apply TILA to small business financing

    Federal Issues

    On July 30, Congresswoman Nydia Velázquez (D-NY), the Chairwoman of the House Small Business Committee, announced new legislation titled, “Small Business Lending Disclosure and Broker Regulation Act,” which would amend TILA and subject small business financing transactions to APR disclosures. The federal legislation would track similar state legislation enacted in California and currently pending the governor’s signature in New York, covered by InfoBytes here and here. However, unlike both California and New York, the federal legislation does not exempt depository institutions from coverage. Highlights of the TILA amendments include:

    • CFPB Oversight. The legislation provides the CFPB with the same authority with respect to small business financing as the Bureau has with respect to consumer financial products and services.
    • Coverage. The legislation defines small business financing as, “[a]ny line of credit, closed-end commercial credit, sales-based financing, or other non-equity obligation or alleged obligation of a partnership, corporation, cooperative, association, or other entity that is [$2.5 million] or less,” that is not intended for personal, family, or household purposes.
    • Disclosure. The legislation would require disclosure of the following information at the time an offer of credit is made: (i) financing amount; (ii) annual percentage rate (APR); (iii) payment amount; (iv) term; (v) financing charge; (vi) prepayment cost or savings; and (vii) collateral requirements.
    • Fee Restriction. The legislation prohibits charging a fee on the outstanding principal balance when refinancing or modifying an existing loan, unless there is a tangible benefit to the small business.

    Additionally, the legislation would amend the Consumer Financial Protection Act to create the Office of Broker Registration, which would be responsible for oversight of brokers who “solicit[] and present[] offers of commercial financing on behalf of a third party.” The legislation would, among other things: (i) require commercial brokers to register with the CFPB; (ii) require commercial brokers to provide certain disclosures to small business borrowers; (iii) prohibit the charging of fees if financing is not available or not accepted; and (iv) require the CFPB to collect and publicly publish broker complaints from small businesses. Lastly, the legislation would require each state to establish a small business broker licensing law that includes examinations and enforcement mechanisms.

    Relatedly, the FTC recently took action against New York-based merchant cash advance providers and two company executives for allegedly engaging in deceptive practices by misrepresenting the terms of their merchant cash advances (MCAs), using unfair collection practices, making unauthorized withdrawals from consumers’ accounts, and misrepresenting collateral and personal guarantee requirements. See detailed InfoBytes coverage on the complaint here.

    Federal Issues TILA Small Business Financing Broker CFPB Disclosures State Issues Licensing Federal Legislation FTC Merchant Cash Advance

Upcoming Events