On June 16, Vermont Governor Phil Scott signed H.648, a wide‑ranging financial services bill that, among other changes, brings sales‑based financing and certain factoring arrangements squarely within the state’s regulated financial services framework. The sales‑based financing provisions were added late in the process, borrowing heavily from the most controversial elements of Texas’s 2025 HB 700 (discussed here) and other state commercial financing disclosure laws, and layering Vermont‑specific requirements on top of existing licensed lender rules. The commercial financing portions of the law are to take effect July 1, 2027.

Scope

The scope of H.648 is notable because it does not stop at revenue-based financing‑style sales‑based financing, but also sweeps in traditional factoring products. Covered providers offering sales‑based financing or purchasing receivables from Vermont merchants will be subject to Vermont licensure and ongoing supervision. Like some other states’ commercial financing disclosure laws, H.648 exempts banks and traditional financial institutions, sellers financing their own goods or services, and larger transactions (e.g., above a $1 million threshold).

Key Restrictions

Most significantly, like Texas, H.648 includes a prohibition on establishing a mechanism for automatically debiting a recipient’s deposit account unless the finance company holds a validly perfected first-priority security interest in “the recipient’s account”. Texas has published regulations interpreting this to mean a first-priority security interest in “all accounts receivable of the recipient” (i.e., in the accounts purchased under the financing agreement) not the recipient’s deposit account. It is unclear whether the Vermont regulator will take a similar approach.

H.648 also requires covered providers or brokers to obtain a Vermont lending license, comply with standardized disclosures — including an APR disclosure — and conduct requirements tailored to sales‑based financing and factoring. The law also bans confessions of judgment in sales‑based financing or factoring contracts. It also mandates that agreements with Vermont merchants be governed exclusively by Vermont law and that disputes be brought in Vermont courts. Where arbitration is required, in‑person proceedings cannot be held outside Vermont.

Takeaways

For revenue-based financing providers and factors, Vermont’s new law is a material development. These providers will need to assess their options in Vermont, including exploring the potential impact of the automatic payment mechanism provision, licensing requirements, and other state-specific requirements.

The Vermont developments underscore the increasingly complex multistate compliance issues facing revenue-based financing providers and factors. We expect this complexity will continue to increase as additional state legislatures and regulators increasingly focus on this space.