As discussed here, on December 7, the Consumer Financial Protection Bureau (CFPB or Bureau) made a preliminary conclusion that New York’s Commercial Financing Law (the New York law) was not preempted by the Truth in Lending Act (TILA), and was also considering whether to make a preemption determination regarding similar state laws in California, Utah, and Virginia. Today, the CFPB announced that it has determined there is no conflict between the state laws and TILA because the state laws extend disclosure protections to businesses and entrepreneurs that seek commercial financing rather than to consumer purpose transactions. In doing so, the CFPB expressly adopted a narrow view of the scope of TILA preemption of state laws.

As the Bureau stated in the press release announcing the decision, “[s]tates have broad authority to establish their own protections for their residents, both within and outside the scope of the [TILA]. The [TILA] only preempts state laws under what is known as conflict preemption. The state laws reviewed by the CFPB concern protections for businesses to ensure they can understand the credit terms available to them. This is beyond the scope of the [TILA’s] statutory consumer credit purposes. The CFPB’s decision affirms that the four states’ commercial financing disclosure laws do not conflict with the [TILA].”

The CFPB’s decision was prompted by a request from a business trade association asking it to determine that TILA preempts certain provisions in the New York law. Like TILA, the New York law requires rate and cost disclosures for certain covered transactions, however, the New York law applies to multiple types of commercial financing products instead of consumer credit. It requires providers to issue disclosures when “extending a specific offer” for various types of commercial financing. The request asserted that TILA preempts the New York law with respect to its use of the terms “finance charge” and “annual percentage rate” (APR), notwithstanding that the statutes govern different categories of transactions. The request focused on what it alleged are material differences between how the New York law and federal law use the terms “finance charge” and “APR,” and alleged that these differences made the New York law inconsistent with federal law for purposes of preemption.

The CFPB’s preliminary determination was that TILA did not preempt the New York law because the statutes govern different transactions. TILA requires creditors to disclose the finance charge and APR only for “consumer credit” transactions, whereas the New York law requires the disclosures only for “commercial financing.” Second, the CFPB disagreed that the New York law significantly impeded the operation of TILA or with the purposes of the federal scheme. On its own initiative, the CFPB announced that it was considering making a similar determination regarding state laws in California, Utah, and Virginia that prescribe similar disclosures in certain commercial transactions.

The CFPB reached its decision after analyzing 15 comments on its preliminary determination, including one from the Attorney General of California discussed here. In the end, the CFPB determined that Congress adopted a narrow standard for TILA preemption that displaces state law only in the case of inconsistency. “As relevant here, commercial financing transactions to businesses —and any disclosures associated with such transactions — are beyond the scope of TILA’s statutory purposes, which concern consumer credit.”

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Photo of Mark Furletti Mark Furletti

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial services across numerous industries.

Photo of Josh McBeain Josh McBeain

Josh focuses his practice on federal and state consumer and business lending and payments laws, including those that apply to credit cards, installment loans, lines of credit, and point-of-sale finance.

Photo of Caleb Rosenberg Caleb Rosenberg

Caleb is an associate in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and…

Caleb is an associate in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small businesses in the credit and alternative finance products industry.

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Photo of Alan D. Wingfield Alan D. Wingfield

Alan Wingfield helps consumer-facing clients navigate compliance, litigation and regulatory risks posed by the complex web of state and federal consumer protection laws. He is a trusted advisor and tireless advocate, helping clients develop practical compliance and dispute-resolution strategies.