Update On 2024 State Legislative Session and Disclosure Bills
Written By: Rob Carothers, Esq., Partner- Jones Walker, LLP
As expected, during this year’s state legislative sessions, several state legislatures entertained proposed commercial finance disclosure bills that would impact the factoring industry. Many of the state legislative sessions have concluded for 2024, but there are still a few that do not adjourn until later in the year. While it has been a busy year on the disclosure legislation front, only one state (so far) has enacted legislation. The following is a summary of the status of each proposed bill.
Kansas
Kansas has been the only state so far that has enacted disclosure legislation during the 2024 session. The Kansas disclosure law is modeled after last year’s Florida disclosure law and does not include an APR calculation requirement. The law provides that the following items must be disclosed to the business prior to consummating a commercial financing transaction (which would include establishment of a factoring facility): (i) the total amount of funds provided to the business under the terms of the transaction, (ii) the total amount of funds disbursed to the business under the terms of the transaction if less than the total amount of funds provided under item (i), (iii) the amount to be paid to the provider (i.e. factor) pursuant to the terms of the agreement, (iv) the total dollar cost of the transaction under the terms of the agreement, (v) the manner, frequency and amount of each payment, and (vi) a statement of whether there are any prepayment penalties. The law includes a provision that the American Factoring Association (AFA) was successful in having included in the Florida disclosure law last year to allow factors to utilize an example transaction to provide the relevant disclosures for a factoring facility. It also specifies that a new disclosure is not required each time accounts receivable are purchased under the factoring facility. It exempts depository institutions and transactions exceeding $500,000 from compliance. Authority to enforce compliance is vested exclusively with the Kansas Attorney General. The law became effective on July 1, 2024.
Illinois (SB 2234)
The Illinois legislature introduced a disclosure bill modeled after California and New York which includes an APR calculation requirement as well as robust registration and supervision requirements. The disclosure obligations are similar to the California and New York laws. The bill would impose a registration requirement on any person conducting commercial financing transactions in Illinois (including factors) and a renewal registration would be required annually. The initial registration fee and each renewal registration fee would be $2,500. The annual renewal form would require, among other items, information on financing offers presented by the registrant in Illinois in the previous calendar year. The bill would exempt depository institutions from its coverage.
The law would be implemented and enforced by the Illinois Department of Financial and Professional Regulation - Division of Financial Institutions (“Department”). The Department would be authorized to (i) refuse to issue a registration, (ii) revoke or suspend a registration under certain circumstances, (iii) investigate complaints filed against registrants, (iv) adopt implementing regulations, (v) issue enforcement actions and civil money penalties for violations or unsafe/unsound practices, (vi) require reports from registrants, (vii) levy fees and assessments to cover the costs of administering the law, and (viii) exercise visitorial powers over a registrant.
The bill provides for the creation of a commercial financing database, but importantly this requirement only applies to sales-based financing and closed-end loans. For sales-based financings and closed-end loans, the provider would have to report information to the database with respect to each recipient and certain terms of each transaction.
The proposed bill was modified several times during the session. It was ultimately approved in the Senate but died in the House when the session adjourned. The AFA sent letters and had conversations with several key legislators opposing the bill. While the bill did not get passed in this year’s session, it is likely to be reintroduced next year. AFA believes it made significant progress in helping the bill sponsors better understand the factoring industry’s concerns with the bill and will continue to advocate to exclude factors from its coverage.
Maryland (SB 509/HB 574)
The Maryland legislature reintroduced a disclosure bill modeled after California and New York, which includes an APR calculation requirement. The AFA sent letters to key legislators opposing the bill. The bill passed in the Senate but died in committee when it reached the House. While it did not pass this year, it will likely be reintroduced next year.
Louisiana (SB 335)/South Carolina (SB 1187)/Missouri (SB 753)
The Louisiana, South Carolina and Missouri legislatures each introduced disclosure bills with no APR calculation requirement. The disclosure requirements in each of these bills were very similar to the disclosures required in Florida, Georgia and Kansas. AFA members expressed their concerns to key legislators regarding these bills. The bills did not pass in this year’s session.
New Jersey (SB 1397/AB 865)/Pennsylvania (HB 1792)/North Carolina (SB 539/ HB 662)
The New Jersey, Pennsylvania and North Carolina legislatures each introduced disclosure bills with an APR calculation requirement similar to California and New York. While these state legislatures remain in session, so far these bills have not gotten traction. AFA will continue to monitor them.
Pending California Bills
On a different topic, the California legislature has introduced SB 1521 which would provide some relief to factors with respect to the restriction imposed in legislation enacted late last year on collateral monitoring fees. The law enacted last year prohibits a factor from charging certain fees in connection with a factoring transaction with a small business or small business owner, including a fee for monitoring the small business’ collateral, unless the underlying factoring transaction is delinquent for more than 60 days.
Proposed Bill SB 1521 would provide, among other things, that the restriction on collateral monitoring fees would not apply to a factoring transaction if the fee is intended to compensate the factor for actions taken to validate the collateral with the intended purpose of maximizing the amount of financing provided to the small business or small business owner under the factoring contract pursuant to which the fee is charged. The proposed bill has passed the Senate and is currently pending in the House and final passage looks promising.
Another pending California bill, SB 1482, would, among other things, impose a new registration requirement on commercial finance providers (including factors) that provide commercial finance products to California small businesses. Small business is defined as a business entity with annual gross receipts of no more than $16,000,000 or the annual gross receipt level as biennially adjusted by the Department of General Services. The proposed registration form requires a substantial amount of information. In addition, the proposed bill would require a registrant to pay to the commissioner an annual registration fee of $100 plus an assessment equal to its pro rata share of all costs and expenses, including the costs and expenses associated with registration, reasonably incurred in the administration of this law. The bill would also require registrants to file an annual report with the commissioner reporting on its gross income for the prior calendar year from products provided to California residents.
How You Can Get Involved
While the AFA had some successes in both the 2023 and 2024 state legislative sessions, we expect versions of these bills to reemerge in the next session. The AFA is staying on top of all of these developments. Its ongoing efforts will be critical in ensuring that the interests of the factoring industry are represented and that the industry continues to navigate the regulatory landscape effectively. Your support is vital to AFA’s efforts in advocating for the factoring industry and navigating the complex regulatory landscape. You can support AFA in two ways. First, by joining the AFA, you contribute to a collective voice that strives to influence policy, educate legislators, and ensure the continued success of the factoring industry. Second, a large of part of the AFA’s success these last two sessions was due to factors using their connections to help in the process. If you think you have a relationship that would be helpful in your home state, please reach out to Rob at rcarothers@joneswalker.com.
We invite you to renew your membership in the AFA or become a member if you haven’t already. Your support is vital to our efforts in advocating for the factoring industry and navigating the complex regulatory landscape. To join the AFA, go to www.americanfactoring.org/donate.
About Rob Carothers
Rob represents and advises the AFA on federal and state lobbying issues. He also advises banks and other financial institutions on a wide range of regulatory matters. This includes assisting clients with compliance with federal and state financial services laws and regulations (e.g., Truth in Lending Act (TILA)/Reg Z, Real Estate Settlement Procedures Act (RESPA), TRID, Bank Secrecy Act (BSA), Fair Debt Collections Practices Act, Community Reinvestment Act (CRA), mortgage origination/servicing rules, privacy rules, as well as many others). He also has experience assisting clients with data breach issues. He works with clients to prepare for regulatory examinations and counsels them on issues that arise during the examinations process, including negotiating proposed enforcement actions. Rob can be reached at rcarothers@joneswalker.com.
The views expressed in the Commercial Factor website are those of the authors and do not necessarily represent the views of, and should not be attributed to, the International Factoring Association.