SMALL BUSINESS TRUTH IN FINANCING.

View NCGA Bill Details2021
House Bill 969 (Public) Filed Tuesday, May 11, 2021
AN ACT TO ENACT THE SMALL BUSINESS TRUTH IN FINANCING ACT.
Intro. by Gailliard, Setzer.

Status: Ref to the Com on Commerce, if favorable, Finance, if favorable, Rules, Calendar, and Operations of the House (House action) (May 12 2021)
H 969

Bill Summaries:

  • Summary date: May 13 2021 - More information

    Enacts Article 26 to GS Chapter 53 to be cited as the "Small Business Truth in Financing Act." Sets forth 14 defined terms. Excludes from the scope of the Article: financial institutions, lenders regulated under Chapter 23 (Farm Credit System) of Title 12 of the US Code, and persons that make no more than five commercial financing transactions in the State in a 12-month period. Extends the exemption to persons providing technology services, including licensing software and technology support services, for commercial financing to a person exempt to the extent the person is acting only in that capacity and has no interest in the commercial financing. Exempts the following transactions from the scope of the Article: commercial financing transactions secured by real property; commercial financing transactions over $500,000; and leases of goods, as defined by the Uniform Commercial Code. Establishes required disclosures by covered lenders based on types of financing as follows. Defines a covered lender as a person that extends a specific offer (as defined) of commercial financing to a borrower, including that made on behalf of a third party. 

    Mandates that a covered lender provide 10 described disclosures to a borrower at the time of extending a specific offer of sales-based financing, defined as a type of financing in which the borrower's repayment is based on the borrower's volume of sales or revenue, including (1) the total amount of the commercial financing; (2) the finance charge; (3) the estimated annual percentage rate; and (4) the total repayment amount, or the disbursement amount plus the finance charge. Details two methods, the historical method and the opt-in method, for the covered lender to calculate the borrower's projected sales volume, of which the lender must elect one to use for all of its sales-based financing and notify the Commissioner of Banks of its election. 

    Mandates that a covered lender provide 10 described disclosures to a borrower at the time of extending a specific offer of closed-end financing, defined as a type of commercial financing consisting of a closed-end extension of credit, secured or unsecured, including equipment financing. Required disclosures include: (1) the total amount of the commercial financing; (2) the finance charge; (3) the annual percentage rate; (4) the total repayment amount, or the disbursement amount plus the finance charge; and (5) a description of any collateral requirements or security interests.

    Mandates that a covered lender provide 10 described disclosures to a borrower at the time of extending a specific offer of open-end financing, defined as a type of commercial financing consisting of an agreement for one or more extensions of open-end credit, secured or unsecured, as described. Required disclosures include: (1) the maximum amount of credit available to the borrower, (2) the amount scheduled to be drawn by the borrower, (3) the finance charge, (4) the annual percentage rate, and (5) the total repayment amount or the draw amount plus the finance charge.

    Mandates that a covered lender provide seven described disclosures to a borrower at the time of extending a specific offer for a factoring transaction, defined as a type of commercial financing that includes an agreement to purchase, transfer, or sell a legally enforceable claim for payment held by a borrower for goods the borrower has supplied, or services the borrower has rendered, that have been ordered but for which payment has not yet been made. Required disclosures include: (1) the purchase amount or the amount of accounts receivable purchased from the borrower, (2) the finance charge, (3) the estimated annual percentage rate, (4) the total repayment amount or the purchase amount plus the finance charge, and (5) a description of the receivables purchased and any additional collateral requirements or security interests. 

    Mandates that a covered lender provide 10 described disclosures to a borrower at the time of extending a specific offer of commercial financing other than sales-based financing, open-end financing, closed-end financing, or a factoring transaction. Required disclosures include: (1) the total amount of the commercial financing; (2) the finance charge; (3) the annual percentage rate; (4) the total repayment amount, or the disbursement amount plus the finance charge; and (5) a description of any collateral requirements or security interests.

    Mandates that a covered lender provide two described disclosures to a borrower at the time of extending a specific offer of new commercial financing, where the covered lender requires the borrower to pay off some or all of the balance of an existing commercial financing from the same covered lender as a condition of obtaining new commercial financing. Required disclosures include: (1) the amount of the new commercial financing that will be used to pay off any prepayment charge or unpaid interest and (2) the amount by which the disbursement amount will be reduced if that amount will be reduced to pay off a portion of the balance. 

    Requires all mandated disclosures under the Article to be presented to the borrower as a separate document from all other information to be signed by the borrower, and requires the lender to obtain the borrower's signature before proceeding with the transaction. Prohibits covered lenders from using the term "rate" in describing a metric other than the APR or estimate APR in additional information presented to the borrower.

    Requires covered lenders to register with the Commissioner of Banks (Commissioner). Details requirements for registration, including filing the application through the Nationwide Multistate Licensing System and Registry (NMLS) subject to the applicant's attestation and containing specified required content. Sets the application and renewal fee at $1,000; requires renewal every three years. Provides for application approval, renewal, and abandoned applications. Charges covered entities with filing correcting amendments to material registration information. 

    Authorizes the Commissioner to examine covered lenders for compliance at the expense of the covered lender, as specified. Authorizes the Commissioner to receive complaints from borrowers regarding a covered lender and examine covered lenders pursuant to such complaints. 

    Details confidentiality of information obtained by the Commissioner and authorized information sharing. Requires the Commissioner to report enforcement actions and other relevant information to the NMLS. Authorizes the Commissioner to release a list of registered persons to the public and aggregated financial data of registrants. 

    Empowers the Commissioner to adopt rules to enforce the Article, with a right for an aggrieved person to appeal to the State Banking Commission for review within 20 days of adoption or issuance. Authorizes the Commissioner to take the following enforcement actions for violations of the Article, subject to notice and opportunity for hearing: (1) revoke, suspend, or refuse to renew a covered lender's registration; (2) order a covered lender to cease and desist from providing commercial financing; and (3) assess a civil penalty of up to $2,000 per violation or $10,000 for each willful violation. Specifies that these powers are in addition to other enforcement powers of the Commissioner.

    Details service of process under the Article. Requires registration through the NMLS. Allows the Commissioner to participate in the NMLS.

    Effective May 1, 2022. 


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