Last month, we reported on Maryland Senate Bill 825 and its companion House Bill 1211. The Senate Committee on Finance recently proposed material changes to Senate Bill 825, and the bill passed the Senate as modified. House Bill 1211 has since been withdrawn.
As introduced, Senate Bill 825 titled “Consumer Credit – Commercial Financing Transactions” contains legislation substantially similar to the Commercial Finance Disclosure Law (CFDL) passed in New York last year. (N.Y. Fin. Serv. Law § 801 et seq.). Patterned after New York’s CFDL, the Senate bill would require certain providers of commercial financings to disclose consumer-like loan information, similar to certain federal Truth-in–Lending Act disclosures made to consumers in consumer loans. The bill further instructs the Office of the Commissioner of Financial Regulation to adopt regulations that may be adopted by the New York Department of Financial Services’ rules related to the CFDL. Commercial loans up to $2,500,000 would be subject to the law’s disclosure requirements, unless an exemption applies. We previously highlighted one noticeable difference between the New York CFDL and Maryland’s proposed legislation, as it relates to exemptions. Under New York’s law and the Maryland Senate bill, a “financial institution” would be exempt from compliance. We noted that Maryland’s definition appeared much narrower than the definition employed by New York, subjecting more lenders to the law. Maryland’s limiting exemption appears to have been an oversight, based on recent amendments.
The amendments to Senate Bill 825 bring the bill closer in line with New York’s CFDL in certain respects, but not in others. The amended bill now provides an exemption from the proposed law for (i) federal and state banks, credit unions and savings associations, as well as their subsidiaries and affiliates (similar to New York), and (ii) commercial financing transactions that are factoring transactions of certain health care receivables (unlike New York). Contrary to the New York law, the Finance Committee removed a safe harbor provision that would permit a lender to rely on a statement of the borrower concerning the borrower’s intended purpose of the loan, when determining if the loan was a commercial financing transaction. Consistent with New York’s law and commercial finance generally, the Senate Finance Committee removed provisions finding that a violation of the CFDL would likewise constitute a violation of the Maryland Consumer Protection Act.
Maryland is one of many states proposing to add to commercial lending regulation. New York and California are two states that have enacted similar CFDLs. Utah’s version was recently signed into law (2022 House Bill 183). Similar CFDL legislation has been introduced in other states. While these laws are similar, they are not the same. A number of proposed laws would apply mandatory disclosures in all commercial loans without regard to loan size, unless an exemption applies. As of the date of this post, states proposing similar disclosure laws include Connecticut (2021 Senate Bill 745 (failed); 2022 Senate Bill 272 (pending)), Mississippi (2022 Senate Bill 2629 (failed); 2022 House Bill 1178 (failed)), Missouri (2022 Senate Bill 963 (pending)), New Jersey (2022 Senate Bill 819 (pending)), North Carolina (2021 House Bill 969 (pending)), Pennsylvania (2021 House Bill 1793 (pending)), and Virginia (2022 House Bill 1027 (pending but limited to sales based financing)).
Miles & Stockbridge is closely monitoring developments in this area and remains ready to assist clients with navigating these proposed changes.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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