Nationally, the Truth-in-Lending Act of 1968 (TILA) regulates and requires of lenders to disclose the repayment term, fees, annual percentage rates (APR) and other terms for loans made to individual consumers.

Lawmakers recently pushed in Congress to introduce the Small Business Lending Disclosure Act of 2021, which would expand for small business loans the same disclosure requirements that apply for individual consumers under TILA (see HR 6054, 117th Congress).

Several states have already, or are working to, pass similar laws through the enactment of commercial finance disclosure law (CFDL) legislation. CFDL legislation is generally aimed at specialty and non-traditional lenders like merchant cash advance companies and factors, and requires that consumer-like disclosures akin to TILA requirements be provided for small business loans.

As of June 2022, four states have passed CFDLs, while six states have pending legislation. The federal effort, together with swift movement at the state-level—and instances where state lawmakers have even reintroduced CFDL proposals a after prior failure—indicates that CFDL legislation is on the uptick and could spread nationwide.

States With Enacted CFDLs
CFDL disclosure requirements are designed to promote and enable comparison shopping by small business borrowers, and to ensure they are equipped with knowledge to make better-informed decisions with respect to available financing options.

California was the first state to pass a CFDL in 2018, requiring that impacted providers disclose certain transaction-related information to prospective borrowers, and also execute agreements showing that disclosure had been made prior to consummation of a loan (see Cal. Fin. Code § 22800). Mirroring California, New York followed in late 2021, requiring TILA-like disclosures for certain commercial financing applicants (see N.Y. Fin. Serv. Law §§ 801-812). In March 2022, Utah adopted its Commercial Financing Registration and Disclosure Act (see Utah Code Ann. § 7-27-201), followed in April 2022 by Virginia’s Merchant Cash Advance Registration and Disclosure Law (see Va. Code Ann. §§ 6.2-2228 - 6.2-2238).

While both California and New York have formally enacted laws, neither has implemented regulations or began enforcement as of early 2022. In California, state agencies are continuing efforts to develop and implement workable regulations before the law will be enforced. Similarly in New York, although passed, actual implementation and enforcement of its CFDL awaits issuance of final regulations.

Utah and Virginia, in contrast, are not delaying implementation. Utah’s CFDL will become effective on January 1, 2023, and Virginia’s on July 1, 2022. Both states require providers to register with state financial regulatory agencies.

The disclosure requirements across all four states are similar—compelling providers to clearly disclose the total amount of funds provided to the borrower; the total financing cost; the total repayment amount to the provider; the payment schedule; and prepayment policies. However, certain other requirements and characteristics do differ by state.

Unlike California and New York, Utah and Virginia do not require disclosure of term or estimated term requirements, nor do they require disclosure of APR based on the terms of repayment and scheduled payment amounts. APR disclosure requirements have been difficult to implement, and are the primary driver behind delayed regulations and implementation in California and New York.

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