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On September 24, California Governor Gavin Newsom signed into law a package of consumer protection laws, with three bills aimed directly at collection practices. These new laws introduce significant changes in the areas of commercial debt collection practices, medical debt reporting, and civil actions for money judgments.

Continue Reading California Enacts New Debt Collection Legislation

To keep you informed of recent activities, below are several of the most significant federal and state events that have influenced the Consumer Financial Services industry over the past week:

Federal Activities

State Activities

Continue Reading Troutman Pepper Weekly Consumer Financial Services Newsletter – July 30, 2024

To keep you informed of recent activities, below are several of the most significant federal and state events that have influenced the Consumer Financial Services industry over the past week:

Federal Activities

State Activities

Continue Reading Troutman Pepper Weekly Consumer Financial Services Newsletter – April 22, 2024

To help you keep abreast of relevant activities, below find a breakdown of some of the biggest events at the federal and state levels to impact the Consumer Finance Services industry this past week:

Continue Reading Troutman Pepper Weekly Consumer Financial Services Newsletter

To help you keep abreast of relevant activities, below find a breakdown of some of the biggest events at the federal and state levels to impact the Consumer Finance Services industry this past week:

Continue Reading Troutman Pepper Weekly Consumer Financial Services Newsletter

On April 5, the Georgia legislature sent SB 90 (Act) to Governor Kemp for signature. The Act aims to amend Chapter 1 of Title 10 of the Georgia Code to require commercial financing disclosures.

What Is A Commercial Financing Transaction Under SB 90?

SB 90 imposes requirements related to “commercial financing transactions.”

Under the Act, a “commercial financing transaction” means a business purpose transaction under which a person extends a business a commercial loan or a commercial open-end credit plan or that is an accounts receivable purchase transaction.

A “business purpose” transaction is one where the proceeds that a business receives are provided to the business or intended to be used to carry on the business.

Who Does SB 90 Apply To?

Under the Act, a provider is a person who consummates more than five commercial financing transactions in the state during any calendar year. A provider also includes “a person who, under a written 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.”

SB 90 has exemptions for federally insured financial institutions, providers with no more than five commercial financing transactions in 12 months, commercial financing transactions secured by real estate, commercial financing transactions of more than $50,000 to motor vehicle dealers, and commercial financing transactions of more than $500,000.

What Are The Disclosure Requirements?

SB 90 requires disclosure of the following:

  • The total amount of funds provided to the business under the terms of the commercial financing transaction;
  • The total amount of funds disbursed to the business as a result of any fees deducted or withheld at disbursement, any amount paid to the provider to satisfy a prior balance, and any amount paid to a third party on behalf of the business;
  • The total amount paid to the provider;
  • The total dollar cost of the commercial financing transaction, calculated by finding the difference between the total amount of funds provided and the total amount paid by the provider;
  • The manner, frequency, and amount of each payment. If the payment is variable, the manner, frequency, and estimated amount of the initial payment; and
  • A statement of whether there are any costs or discounts associated with prepayment.

The disclosure requirements apply to any commercial financing transaction consummated on or after January 1, 2024.

What Are The Broker Requirements?

Under SB 90, a broker means a person who, for compensation, arranges a commercial financing transaction between a third party and a business in the state.

The Act prohibits any broker from assessing or soliciting an advance fee from a business to provide services as a broker. The Act would not prohibit a broker from soliciting a potential business to pay for actual services necessary to apply for a commercial financing transaction, including, credit checks or appraisals, where such payment is made by check or money order payable to an independent third-party.

The Act further prohibits brokers from making false or deceptive representations in its business dealings.

What Remedies Apply?

The Act provides that the Attorney General may receive and act on complaints received under the Code section. The Act further provides for monetary penalties. No private right of action exists under the Act.

Recently, multiple states have had disclosure regulations for commercial financing transactions either enacted (see discussions on New York and Utah) or proposed (see discussions on Missouri, Illinois, Florida, and Connecticut). Troutman Pepper will continue to monitor and report on developments in this area.

On March 2, Florida State Representative Doug Bankston introduced HB1353, the Florida Commercial Financing Disclosure Law, that would mandate covered commercial financing companies provide consumer-like disclosures for certain commercial financing transactions. The law would also define and prohibit specific acts by brokers of those transactions, including the collection of advance fees. New York, California, Utah and Virginia have each enacted legislation, discussed here, here, here, and here, imposing additional requirements on small business financing transactions. We expect that additional states will continue to push legislation forward in this area, as legislators in Connecticut, Illinois (discussed here), Maryland and Missouri (discussed here) have introduced bills this year.

The Florida law would apply to multiple types of commercial financing, including commercial loans, lines of credit, and accounts receivable purchase transactions, subject to certain exceptions. For example, like California and New York, the Florida law contains an exception for banks. For any covered transaction, the Florida law would require disclosure of:

  • The total amount of commercial financing, and if different from the financing amount, the disbursement amount after any deductions or withholdings, which must be itemized;
  • The total amount owed to the financing company;
  • The total cost of the financing;
  • The manner, frequency and amount of each payment, or if there are variable payments an estimated initial payment and the methodology used to calculate variable payments and when payments may vary; and
  • Certain information related to prepayment rights and penalties.

If enacted, the law will apply to transactions beginning January 1, 2024.

On February 16, Illinois State Representative Hoan Huynh (D) introduced HB3064, the Small Business Truth in Lending Act, that would impose certain mandatory disclosure requirements for commercial financing transactions and require registration of small business finance companies and brokers. Illinois follows the lead of states such as New York, California, Utah, and Virginia which have each enacted legislation imposing additional requirements on small business financing transactions. The differences between the state requirements creates an increasingly complex multi-state regulatory environment for small business finance companies. We expect that additional states will continue to push legislation forward in this area, as legislators in Connecticut, Maryland, and Missouri have also introduced bills this year.

The Illinois bill would impose disclosure requirements on broad categories of commercial financing, including closed-end commercial financing, open-end commercial financing, sales-based commercial financing, factoring transactions, and “other forms” of commercial financing. Much like the requirements in New York and California, the Illinois bill provides for some variations in the disclosure requirements depending on the transaction type. For closed-end financing, the bill would require the following:

  • The total amount of commercial financing, and if different from the financing amount, the disbursement amount after any deductions or withholdings;
  • The finance charge;
  • The percentage rate calculated in accordance with the federal Truth in Lending Act;
  • The total repayment amount, which is the disbursement amount plus the finance charge;
  • The term of the financing;
  • The payment amounts or a description of the methods used to calculate the amounts and frequency and the amounts of the average projected payments per month;
  • A description of all other potential fees and charges not included in the finance charge, including draw fees, late payment fees, and returned payment fees;
  • Any fees that would be assessed for a prepayment in full; and
  • A description of collateral requirements or security interests, if any.

The bill does contain exceptions for certain financing providers such as banks and certain types of financing such as commercial mortgages and transactions of more than $2,500,000. However, much like California and New York, certain bank partners may not be exempt, as the exemptions appear to carve out some technology providers that have an arrangement to obtain an interest in the financing after origination, even if the transaction was originated by a bank.

Troutman Pepper routinely assists clients in assessing the applicability of and complying with commercial disclosure laws and will continue to monitor the developments in state and federal regulation of commercial finance.

To help you keep abreast of relevant activities, below find a breakdown of some of the biggest events at the federal and state levels to impact the Consumer Finance Services industry this past week:

Federal Activities

State Activities

Federal Activities:

  • On February 3, while delivering remarks at the American Bar Association Business Law Section Derivatives and Futures Law Committee Winter Meeting, Commodities Futures and Trading Commission (CFTC) Chairman Rostin Benham noted that “there remains a gap in crypto cash market regulation for non-security tokens, and [he] believes the CFTC is well positioned to fill this specific gap if Congress so chooses.” For more information, click here.
  • On February 3, the U.S. District Court for the Northern District of Illinois dismissed with prejudice claims that Townstone Financial, Inc. and its owner violated Equal Credit Reporting Act by engaging in discriminatory marketing and applicant outreach practices. For more information, click here.
  • On February 1, a U.S. District Court for the Southern District of New York federal judge granted Coinbase, Inc.’s (Coinbase) motion to dismiss a putative class-action lawsuit that alleged Coinbase and its founder enabled Coinbase users to buy and sell 79 different unregistered securities in the form of digital assets (tokens) in violation of federal securities laws due to Coinbase’s purported failure to register with the Securities and Exchange Commission as a securities exchange. The class consisted of “all persons or entities that transacted in the Tokens” on Coinbase’s exchange platform between October 8, 2019 through March 11, 2022 — the class-action lawsuit filing date. Specifically, the class argued that Coinbase was a “statutory seller” of unregistered securities under Section 12(a)(1) of the Securities Act. Under the U.S. Supreme Court decision Pinter v. Dahl, a defendant constitutes a “statutory seller” if the defendant (1) passed title, or other interest in the security, to the buyer for value; and (2) solicited the purchase of a security motivated in part by the defendant’s own financial interests. The court granted Coinbase’s motion to dismiss for two reasons: (1) Coinbase could not obtain title of the tokens under the terms of use agreement it entered with its customers, which stated: “Title to Digital Currency shall at all times remain with you and shall not transfer to Coinbase,” and (2) although the class alleged that Coinbase promoted the sale of the tokens by participating in “airdrops” of the tokens and providing news updates on the price movements of the tokens, the class failed to allege that its selling and purchasing of the tokens resulted from Coinbase’s “direct solicitation.” For more information, click here.
  • On February 1, the Office of the Comptroller of the Currency (OCC) issued a bulletin to inform banks and OCC examining personnel that the loan origination threshold for reporting Home Mortgage Disclosure Act data on closed-end mortgage loans has changed. Due to a recent court decision, the threshold for reporting is now 25 closed-end mortgage loans originated in each of the two preceding calendar years. For more information, click here.
  • On February 1, the Department of Justice filed a complaint on behalf of the Federal Trade Commission (FTC) against GoodRX for allegedly violating the FTC Act and the Health Breach Notification Rule by failing to notify consumers that it was disclosing their personal health information to third parties for advertising purposes. For more information, click here.
  • On January 30, digital news provider Axios reported that crypto-lending firm Gemini Trust Company LLC (Gemini) led its customers to believe that the Federal Deposit Insurance Corporation (FDIC) fully insured its stablecoin, GUSD, and its interest-bearing cryptocurrency deposit product, Gemini Earn. The terms of use agreement Gemini entered with its customers contains an FDIC insurance section that expressly asserts that digital assets held on its platform are not FDIC-insured: “Digital Assets held in your Digital Asset account, including your Gemini Dollars [GUSD], are not subject to deposit insurance protection, including but not limited to, FDIC insurance or Securities Investor Protection Corporation protections.” However, according to the Axios report, Gemini seemingly reassured its customers that their GUSD and Gemini Earn deposits were safe and secure. Genesis Global Capital LLC (Genesis), the entity responsible for providing interest payments to Gemini Earn accountholders, filed for bankruptcy on January 20 after announcing its decision to pause withdrawals of Gemini Earn deposits. At the time of its bankruptcy filing, Genesis possessed approximately $900 million worth of Gemini Earn deposits. For more information about the Axios report, click here.
  • On January 30, Senators Elizabeth Warren (D-MA), John Kennedy (R-LA), and Roger Marshall (R-KS) issued a letter to Silvergate Bank concerning Silvergate’s role in transferring FTX customer funds to FTX’s partner firm and cryptocurrency hedge fund Alameda Research. The 2023 letter constitutes a follow-up response to the senators’ December 5, 2022 letter sent to Silvergate. Notably, the 2023 letter describes Silvergate’s response to the 2022 letter as “evasive and incomplete” and lacking “information needed to assess the extent to which Silvergate is responsible for the improper transfer of FTX customer funds to Alameda … .” For more information, click here.
  • On January 30, Federal Housing Administration (FHA) announced that it will expand and enhance its set of loss mitigation options used to help borrowers struggling to make mortgage payments on their FHA-insured mortgages. The enhancements will extend FHA’s COVID-19 loss mitigation options to all eligible borrowers who fall behind on their mortgage payments, regardless of the cause of their delinquency. The updates also will enable mortgage servicers to use the full 30% of FHA’s partial claim option, rather than the previously permitted 25%, to help maximize the number of borrowers able to retain their homes. Although the changes become effective on April 30, mortgage servicers may begin immediately offering these options to borrowers. For more information, click here.
  • On January 27, the Federal Reserve Board issued a policy statement to promote a level playing field for all banks with a federal supervisor, regardless of deposit insurance status. The statement makes clear that Fed-supervised uninsured and insured banks will be subject to the same limitations on activities, including novel banking activities, such as crypto-asset-related activities. For more information, click here.
  • On January 27, the FDIC released a list of 17 administrative enforcement action orders taken against banks and individuals in December 2022; currently, no administrative hearings occur in February 2023. The administrative enforcement actions in those orders consisted of one order to pay civil money penalty, two consent orders, one combined personal consent order and order to pay, two Section 19 orders, four prohibition orders, and seven orders of termination of insurance. For more information, click here.
  • On January 27, the Biden administration issued a blog titled, “The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks.” In the blog, the administration pinpointed certain risks currently associated with digital assets and how the administration intends to limit the extent by which consumers, as well as financial institutions, are subject to those risks. For example, the administration examined “misuses of customers’ assets” and potential disclosure requirement solutions that would enable investors to “make more informed decisions about financial risks” associated with digital asset investing. For more information, click here.
  • On January 26, Representative French Hill (R-AK), the inaugural chairman of the newly established subcommittee of the U.S. House Financial Services Committee — the Subcommittee on Digital Assets, Financial Technology, and Inclusion — delivered remarks on CNBC‘s Squawk Box and noted that although “blockchain is not ready for real-time payments,” “blockchain and distributed ledger technologies are part of [the future of fintech].” For more information, click here.
  • On January 26, the International Swaps and Derivatives Association (ISDA) published a whitepaper concerning a new standard for trading digital asset derivatives through the ISDA Digital Asset Derivatives Definitions, intended to establish an “unambiguous contractual framework” to reduce credit and market risk in digital asset derivatives transaction by setting clear provisions for execution and settlement. For more information, click here.

State Activities:

  • On February 3, the New Jersey Bureau of Securities (NJ Bureau) issued cease-and-desist orders to MetaCapitals Ltd., Cresttrademining Ltd., and Forex Market Trade, and accused each company of either selling unregistered securities, making materially misleading statements of material fact to New Jersey residents, or acting as a broker-dealer in violation of state securities laws. According to the NJ Bureau, each of these companies engaged in “pig butchering” scams that require a fraudster to gain a victim’s trust before manipulating the victim to invest his/her funds into a phony investment controlled by the fraudster. For more information related to the cease-and-desist order entered against MetaCapitals Ltd., click here. For more information related to the cease-and-desist order entered against Cresttrademining Ltd., click here. For more information related to the cease-and-desist order entered against Forex Market Trade, click here.
  • On February 2, the Supreme Court of Illinois held that the five-year statute of limitations in Illinois Code Section 13-205 applies to actions filed under the Biometric Information Privacy Act (BIPA). The plaintiff filed a class-action lawsuit against his former employer, alleging that his employer violated sections of the BIPA regulating the retention and deletion of biometric information, as well as sections governing the consensual collection and disclosure of biometric identifiers and information, when it scanned the plaintiff’s fingerprints. The plaintiff’s employer moved to dismiss the complaint as untimely, arguing that the one-year limitations period in another section of the Illinois Code applied. The circuit court found that the five-year statute of limitations applied, noting that although the BIPA is a privacy statute, the one-year statute applies in cases where publication of biometric data is at issue, which, as the court found, was not the case with the plaintiff’s claims. The appellate court decided, however, that the one-year statute of limitations was appropriately applied to claims where publication or disclosure of biometric data is an element of the claim. Ultimately, the Illinois Supreme Court determined the BIPA claims were subject to a five-year limitations period. For more information, click here.
  • On February 1, District of Columbia Mayor Muriel Bowser signed B25-0015 — the Public Health Emergency Credit Alert Extension Congressional Review Emergency Amendment Act of 2023. The bill extends certain requirements and limitations on credit reporting agencies and users of credit reports. Among other things, the bill requires credit reporting agencies to accept a personal statement from a consumer, indicating that the consumer experienced financial hardship due to a public emergency and notifying residents of the right to request a personal statement. Additionally, the bill prohibits users of information from considering adverse information in a report resulting from the consumer’s action or inaction during the public health emergency. The bill allows consumers a private right of action for violations of the provisions contained therein. The bill will remain in effect for 90 days. For more information, click here.
  • On February 1, the Superintendent of Financial Services Adrienne Harris announced that the New York State Department of Financial services completed the process for adopting new commercial financing regulation 23 NYCRR 600. The regulation applies to multiple types of commercial financing products and requires providers to issue disclosures when “extending a specific offer” for various types of commercial financing. For more information, click here.
  • On January 30, the California Department of Financial Protection and Innovation (DFPI) announced that it commenced enforcement actions against multiple debt collectors for unlicensed activity under the Debt Collection Licensing Act and unlawful and deceptive acts or practices in violation of the California Consumer Financial Protection Law. The desist-and-refrain orders allege that, among other things, the named companies attempted to collect debts that a consumer did not owe, made false claims of pending lawsuits, unlawfully threatened to seize property, and failed to provide validation notices as required by federal law. In addition to thwarting the subject companies’ continued violations of the state’s consumer protection laws, the DFPI also seeks penalty payments, totaling $120,000. For more information, click here.
  • On January 26, the California Department of Motor Vehicles (CA DMV) announced its collaboration with liquid proof-of-stake-based blockchain Tezos and crypto-software developer firm Oxhead Alpha to launch a proof-of-concept blockchain to create digital representations of auto titles through non-fungible tokens (NFTs), which will enable the CA DMV to remove persistent points of friction in the auto title process. For more information about NFTs, click here. For more information about the CA DMV’s collaborative auto title project, click here.