Maryland Senate Passes Commercial Finance Disclosure Law, House Considers Consumer Type Disclosures in Commercial Loans

This article originally appeared at womblebonddickinson.com. It has been reposted here with permission. 

By Joel L. Perrell Jr., Partner, Womble Bond Dickinson

The Maryland Senate unanimously approved amended Senate Bill 496 last week – a measure proposed to curb perceived commercial lending abuses in Maryland by requiring additional financial disclosures when making loans to small businesses. The bill has moved on to the House for consideration.

Senate Bill 496 contains legislation substantially similar to the Commercial Finance Disclosure Law (CFDL) in New York, the provisions of which will be effective August 1, 2023. (N.Y. Fin. Serv. Law §§ 801 et seq.). Very similar to a bill introduced last year, the bill would require certain providers of commercial financings to disclose consumer-like loan information, similar to certain federal Truth-in–Lending Act disclosures required for consumers in consumer loans. The bill establishes requirements related to disclosures, annual percentage rate (APR) calculations, repayment terms, and other related items. The text of 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. New York DFS finalized its rules last month. (23 NYCRR §§ 600 et seq.).

Commercial loans of $2,500,000 and less would be subject to the law’s disclosure requirements, unless an exemption applies. The types of loans captured by the legislation include open-end and closed-end credit facilities, factoring transactions, sales based financings, and other types of commercial financings. Commercial financings captured by the bill include any form of financing, the proceeds of which the loan recipient does not intend to use primarily for personal, family or household purposes.

Maryland is one of many states proposing to regulate commercial lending. California, New York, and Utah have enacted similar CFDLs. Virginia enacted a narrow CFDL focused solely on sales based financing. California and Utah have gone effective and apply now. CFDL legislation has been introduced in other states. While these laws are similar, they are not the same. Opponents of CFDLs have complained of lack of uniformity and associated costs of compliance with varying standards. Maryland’s solution to lack of uniformity is to closely track New York’s law and regulations. To evaluate this issue on a larger scale, the Uniform Law Commission (known also as the National Conference of Commissioners on Uniform State Laws) recently formed a committee to study the need for a uniform or model act for standardization of disclosures in commercial financing transactions.

As of the date of this post, the following states have proposed various forms of commercial financing laws: Connecticut (Senate Bill 1032), Florida (Senate Bill 1624 and House Bill 1353); Illinois (Senate Bill 2234 and House Bill 3064), Kansas (Senate Bill 245), Mississippi (Senate Bill 2619 and House Bill 1271, both of which have since failed), and Missouri (Senate Bill 187 and House Bill 584). New Jersey’s proposed CFDL remains pending during the carry-over session (Senate Bill 819 and House Bill 2150).

Womble Bond Dickinson (US) LLP is closely monitoring developments in this area and remains ready to assist clients navigate these laws and legislation.

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