Since 2018, seven states—California, Connecticut, Florida, Georgia, New York, Utah, and Virginia—have enacted laws requiring specific disclosures in commercial financing transactions. Three of those enactments came in 2023, and similar bills are currently pending in a handful of other states.
While these disclosure laws share the same aim—to encourage competition and provide for a more informed decision-making process—they are quite varied with respect to the transactions and institutions to which they apply as well as the information that must be disclosed. And a single transaction may fall within the scope of multiple statutes, requiring a financial provider to navigate a complex patchwork of differing, and sometimes conflicting, state laws.
Recognizing the risk of increasing non-uniformity among the states, the Uniform Law Commission (“ULC”) announced on January 9, 2024, that it will convene a drafting committee to propose a uniform or model act addressing commercial financing disclosure. The ULC’s decision came after a series of meetings held in March, August, and November of 2023.
To achieve consistency, clarity, and efficiency in the disclosure rules, the drafting committee will consider several issues. To begin with, the committee will evaluate whether certain types of institutions and transactions should be excluded from disclosure requirements altogether. For example, the existing state laws are generally inapplicable to regulated financial institutions such as banks. The committee will consider whether it would be sensible to extend the exclusion to transactions involving an affiliate of a regulated entity or where that entity’s involvement in the transaction is minor and fleeting, such as when a bank oversees an on-line application process.
The committee also intends to keep the mandated disclosures limited to a few targeted data points. To that end, it will undertake an analysis of what information would be most useful to finance recipients and how such information can be efficiently and consistently ascertained by the financing providers. The committee recognizes, however, that one of the principal challenges in mandating disclosure in this area is that commercial transactions can take several forms—e.g., term loans, revolving loans, credit sales, and sales of future receivables. Thus, the committee will evaluate whether and to what extent the disclosure rules should vary depending on the type of financing transaction.
Most of the existing state disclosure laws also impose remedies in the event a financing provider fails to comply. These remedies likewise vary among the states, ranging from fines as low as $500 to as much as $100,000. Some states expressly prohibit a private cause of action in the event of a violation, others do not. One state (California) even provides for criminal sanctions. The drafting committee will assess what remedies are necessary to compel compliance without increasing the cost of doing so, as such costs would likely fall on all parties to the transaction. In the end, the ULC hopes to develop a set of uniform rules that will benefit both financing recipients and providers alike.
