Around the nation, regulators are preparing to implement and enforce new consumer-like disclosure laws for small business commercial finance providers.
New York regulators have yet to issue final regulations implementing the state’s Commercial Finance Disclosure Law (CFDL), which went into effect on January 1, 2022. As we previously reported, the New York State Department of Financial Services (NYDFS) advised that commercial finance providers’ obligations under the CFDL do not ripen until the NYDFS “issues final implementing regulations and those regulations take effect.” The NYDFS is expected to provide an updated proposal prior to March 31, 2022.
Similarly, California regulators have yet to finalize proposed implementing regulations. As we also reported, the California Department of Financial Protection and Innovation (CADFPI) proposed implementing regulations in September 2020, modifications to its proposal in April 2021, second modifications in August 2021, third modifications in October 2021, and fourth modifications in November 2021. As of December 30, 2021, the CADFPI’s proposal is still under review. The NYDFS and CADFPI have indicated they are working together to promulgate consistent disclosure laws.
Connecticut, Missouri, New Jersey, North Carolina, and Virginia previously introduced bills requiring small business commercial disclosures which are in various stages of implementation, with Missouri differing from the other jurisdictions in that its proposed legislation does not require disclosure of the annual percentage rate. On February 1, 2022, Mississippi’s commercial disclosure bill died in committee. During the week of February 7, 2022, bills were introduced in Utah and Maryland that would require disclosures in commercial transactions. The Maryland bill represents the state’s most recent attempt to pass legislation to restrict merchant cash advance programs.
Based on the current status of the proposed rules, we anticipate New York and California’s disclosure laws for commercial finance providers will not go into effect sooner than summer 2022. Compliance obligations are not likely to arise in any of the other states before the third quarter of 2022. Accordingly, lenders in this space should be using this time to develop their compliance programs to avoid investigations, litigation, and fines.