On July 30, Congresswoman Nydia Velázquez (D-NY), chair of the House Small Business Committee, ad New legislation titled “Small Business Loan Disclosure and Broker Regulation Act,” which would amend TILA and subject small business financing transactions to APR disclosures. Federal legislation would follow similar state legislation passed in California and awaiting the governor’s signature in New York, covered by InfoBytes here and here. However, unlike in California and New York, federal law does not exempt depository institutions from coverage. Highlights of the TILA changes include:
- Monitoring of the CFPB. The law gives the CFPB the same power over small business financing as the Bureau does with regard to consumer financial products and services.
- Blanket. The legislation defines the financing of small businesses as “[a]ny line of credit, closed-end trade credit, sales-based financing or other non-equity obligation or deemed obligation of a partnership, corporation, cooperative, association or another entity which is [$2.5 million] or less ”, which is not intended for personal, family or household use.
- Disclosure. The law would require disclosure of the following information at the time a credit offer is made: (i) amount of finance; (ii) annual percentage rate (APR); (iii) the amount of the payment; (iv) duration; (v) financing costs; (vi) prepayment charges or savings; and (vii) warranty requirements.
- Restriction of fees. The law 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.
In addition, the legislation would amend the Consumer Financial Protection Act to create the Broker Registration Office, which would be responsible for overseeing brokers who “solicit and present commercial financing offers on behalf of a third party. The legislation should, inter alia: (i) require commercial brokers to register with the CFPB; (ii) require commercial brokers to provide certain information to small business borrowers; (iii) prohibit the charging of fees if funding is not available or is not accepted, and (iv) require the CFPB to collect and publish complaints from small business brokers. Finally, the legislation would require each state to establish a Small Business Broker Licensing Act that includes reviews and enforcement mechanisms.
Similarly, the FTC recently took action against New York-based merchant cash advance providers and two company executives for allegedly committing deceptive practices by distorting the terms of their advances into merchantable cash (MCA), using unfair collection practices, and making unauthorized withdrawals from consumers. accounts, and misrepresentation of collateral and personal guarantee requirements. See InfoBytes’ detailed coverage of the claim here.