On March 24, Utah’s governor signed the Commercial Financing Registration and Disclosure Act (CFRDA) into law. Under the CFRDA, beginning January 1, 2023, commercial financing providers must register with the Utah Department of Financial Institutions (Department) and provide certain disclosures.
Utah’s registration requirement is the first applicable to providers of accounts receivable purchase transactions (commonly known as merchant cash advances, or MCAs), as Virginia’s governor has not yet signed HB1027, which also has registration and disclosure requirements.
Utah is also the third state to create commercial financing disclosure requirements applicable to accounts receivable purchase transactions, after New York and California. The New York and California requirements have not yet taken effect due to regulatory delays, but unlike New York and California, Utah does not require an APR or similar rate disclosure.
Who Will Be Required to Register?
The CFRDA requires a “provider” of commercial financing transactions to register annually with the Department and pay a fee, unless an exemption applies.
A “commercial financing transaction” includes a commercial loan, a commercial open-end credit plan, and an accounts receivable purchase transaction.
A “provider” is a person who offers more than five commercial financing transactions in Utah in any calendar year. A provider also includes a person who, under an agreement with a depository institution, offers one or more commercial financing products provided by the depository institution via an online platform that the person administers.
However, there are several exemptions from the CFRDA for certain entities and types of transactions, including for:
- Depository institutions and certain regulated subsidiaries and service corporations;
- Money transmitters licensed under Utah law;
- Commercial mortgages;
- Purchase money obligations;
- Commercial loans and open-end credit plans of $50,000 or more to motor vehicle dealers or rental companies;
- Commercial financing transactions offered in connection with the sale of a product that the person manufactures, licenses, or distributes; and
- Commercial financing transactions of more than $1,000,000.
As a result, although depository institutions and some regulated subsidiaries are exempt from the CFRDA, some bank partners who administer an online platform under an agreement with a depository institution may be required to register if they “offer” one or more products provided by the depository institution. The term “offer” is not defined.
Registration will require registering with the Nationwide Multistate Licensing System and Registry (NMLS), providing certain information about the provider, and disclosing information about certain control persons relating to specified criminal convictions. However, the Department may issue a rule requiring additional information.
What Are the Disclosure Requirements?
The CFRDA requires a provider to give certain disclosures before consummating a commercial financing transaction. Unlike California and New York, Utah will not require an APR or similar rate disclosure.
For all commercial financing transactions, the CFRDA requires the following disclosures:
- The amount of funds provided to the business under the terms of the commercial financing transaction, and the amount disbursed to the business, if less than the amount of funds provided;
- The total amount to be paid to the provider;
- The total dollar cost of the commercial financing transaction, which is the difference between the amount provided to the business and the amount to be paid to the provider;
- The manner, frequency, and amount of each payment, or an estimated amount of an initial payment if the payments vary;
- Information about costs or discounts associated with prepayment; and
- Any amounts provided to the business under the agreement that will be paid by the provider to a broker.
The agreement also must include a description of the method of calculating any variable payments and the circumstances under which payments may vary.
For commercial open-end credit plans the disclosures also must be provided after any disbursement of funds. Those disclosure requirements apply to a commercial financing transaction consummated after January 1, 2023. The Department may also require additional disclosures.