Bill Summary for H 662 (2023-2024)

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Summary date: 

Apr 17 2023

Bill Information:

View NCGA Bill Details2023-2024 Session
House Bill 662 (Public) Filed Monday, April 17, 2023
AN ACT TO ENACT THE SMALL BUSINESS TRUTH IN FINANCING ACT.
Intro. by Balkcom, Ross, Cairns.

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Bill summary

Enacts Article 26 to GS Chapter 53 to be cited as the "Small Business Truth in Financing Act." Sets forth 13 defined terms. Excludes from the scope of the Article: financial institutions (including its holding company, subsidiaries, and affiliates under common ownership, direction, or control); lenders regulated under Chapter 23 (Farm Credit System) of Title 12 of the US Code; persons that make no more than five commercial financing transactions in the State in a 12-month period; a motor vehicle dealer or any affiliate, employee, or agent of a dealer or any person or entity providing financing for the purchase of a motor vehicle or a recreation vehicle; any officer or employee of an entity above when acting within the scope of their employment; and a person that is presenting a financing offer on behalf of an exempt person. Extends the exemption to persons providing technology 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 extended by the exempt entity. Exempts the following transactions from the scope of the Article: commercial financing transactions secured by real property; commercial financing transactions over $500,000; leases of goods, as defined by the Uniform Commercial Code; and the sale, lease, rental, or subscription of a motor vehicle by a licensed motor vehicle dealer. Also exempts consumer finance companies licensed and doing business under Article 15 (North Carolina Consumer Finance Act) of GS Chapter 53 or doing business pursuant to GS Chapter 25A (Retail Installment Sales Act). Establishes required disclosures by providers  to recipients based on types of financing as follows. Defines a provider as a person that extends a specific offer (as defined) of commercial financing to a recipient, including that made on behalf of a third party. 

Mandates that a prover give 10 described disclosures to a recipient at the time of extending a specific offer of sales-based financing, defined as a type of financing in which the recipient's repayment is based on the recipient'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 provider to calculate the recipient's projected sales volume, of which the provider must elect one to use for all of its sales-based financing and notify the Commissioner of Banks (Commissioner) of its election. 

Mandates that a provider give 10 described disclosures to a recipient 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 provider give 10 described disclosures to a recipient 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 recipient, (2) the amount scheduled to be drawn by the recipient, (3) the finance charge, (4) the annual percentage rate, and (5) the total repayment amount or the draw amount plus the finance charge. Details two methods, the total credit method and the comparable method, for the calculation of the finance charge, the annual percentage rate, the total repayment amount, and the payment amount, and requires notifying the Commissioner of Banks of its election. Sets out factors to be considered by the Commissioner when determining whether the deviations between disclosed estimates are too great.

Mandates that a provider give seven described disclosures to a recipient 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 recipient for goods the recipient has supplied, or services the recipient 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 recipient, (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 provider give 10 described disclosures to a recipient 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 provider give two described disclosures to a recipient at the time of extending a specific offer of new commercial financing, where the provider requires the recipient to pay off some or all of the balance of an existing commercial financing from the same provider 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 recipient as a separate document from all other information to be signed by the recipient, and requires the provider to obtain the recipient's signature before proceeding with the transaction. Prohibits providers from using the term "rate" in describing a metric other than the APR or estimated APR in additional information presented to the recipient. Sets out when the term "interest" can be used and provides for the appropriate use of the term "annual percentage rate/APR." Allows, when the Commissioner determines that the laws of another state require commercial financing disclosures that meet or exceed the Article's requirements, the use of any commercial financing disclosure form that the other state approves.

Requires providers to register with the Commissioner of Banks. Details requirements for registration. Sets the application and renewal fee at $1,000; requires renewal every five years. Charges covered entities with filing correcting amendments to material registration information. 

Requires filing a correcting amendment to information in documents filed with the Commissioner any time information becomes inaccurate or incomplete.

Allows recipients to file complaints with the Commissioner and allows the Commissioner to investigate providers.

Makes confidential information obtained by the Commissioner under the Article but allows the Commissioner to enter into agreements with specified entities to share otherwise confidential information. Privacy and confidentiality requirements continue to apply to disclosed information. 

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) order a provider to cease and desist from violations of the Article and (2) 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.

Applies to transactions occurring beginning 60 days after the act becomes law.