California, Connecticut, Florida, Georgia, New York, Virginia, and Utah have enacted laws requiring consumer-like disclosures in certain commercial loans. Some of these “Commercial Financing Disclosure Laws” require compliance now, while others will apply to loans on or after some future date. Similar CFDL legislation has been introduced in other states. Although the new laws and proposed legislation are similar in many ways, they are not uniform with respect to types of loans and lenders they regulate nor with respect to available exemptions from the laws.
As of the date of this post, the following states have proposed various forms of commercial financing laws this legislative session:
- Illinois (Senate Bill 2234 and House Bill 3064),
- Kansas (Senate Bill 245),
- Maryland (House Bill 496, which has since failed);
- Mississippi (Senate Bill 2619 and House Bill 1271, both of which have since failed),
- Missouri (Senate Bill 187 and House Bill 584, both of which have since failed),
- North Carolina (Senate Bill 539 and House Bill 662) and
- Texas (Senate Bill 1918 and House Bill 4359, both of which have since failed).
Bills remain pending in New Jersey from the carry-over session (Senate Bill 819 and House Bill 2150).
Members of Congress are proposing their own federal CFDL. Similar to prior legislative iterations, bills were recently introduced in the Senate and House (Senate Bill 2021 sponsored by Senator Menendez (D-NJ) and House Bill 4192 sponsored by Representative Velazquez (D-NY)) to amend the Truth in Lending Act, 15 U.S.C. §§ 1601 et seq. The legislation would make provisions of TILA applicable to certain commercial loans (open-end and closed-end financings, factoring, and sales-based financings, are included) and require consumer-like disclosures. The bills would apply to loans to small businesses and include loans equal to or less than $2.5 million. The bills also propose to designate the Consumer Financial Protection Bureau as the regulatory and enforcement authority over the law.
Although recently introduced, the bills have not moved beyond the initial committees assigned to them. Discussions undoubtedly will unfold focusing on federal preemption of current state CDFLs. The Constitutional concept that federal law takes precedent over conflicting state and local laws cannot be ignored with the introduction of these new Congressional bills. An amendment to TILA may create one law to follow, as opposed to an individual state-driven patchwork of non-uniform CFDLs. Preemption, however, may remove exemptions for certain entities under state law, including an exemption for certain “depository institutions” provided almost uniformly under state CFDLs.
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