On March 24, Utah Governor Spencer Cox signed SB 183, the Commercial Finance Registration and Disclosure Act (“CFRDA”). This makes Utah the third state to pass a commercial finance disclosure law, after California and New York. However, Utah’s disclosure law does not include an “APR” disclosure requirement. The APR’s disclosure requirements have proven difficult to implement and have delayed the effective dates of disclosure laws in California and New York.
Effective January 1, 2023, the CFRDA requires a commercial finance provider in Utah to register with the Nationwide Multistate Licensing System and Registry (“NMLS”) and with the Department of Utah Financial Institutions (“DFI”). Additionally, in a trade finance transaction that occurs on or after January 1, 2023, the provider must disclose certain information to a company that will receive financing before a trade finance transaction is completed. This information includes:
- The total amount of financing given to the company.
- The total amount of funding provided to the business, if different from the amount provided.
- The total amount that the company must pay to the supplier.
- The total dollar cost of the trade finance transaction, which is the difference between the amount the company must pay the supplier and the total amount of financing provided to the company.
- The manner, frequency and amount of each payment, or whether payment amounts may vary, the manner and frequency of payments and an estimate of the amount of the first payment.
- A statement as to whether prepayment may increase or decrease the cost of the trade finance transaction, including references to all relevant provisions of the trade finance transaction agreement.
- Any part of the financing that the supplier pays to a broker.
In addition, if payment amounts may vary, the funding agreement should describe the method of calculating a variable payment amount and the circumstances that may cause a payment to vary. The IFD may prescribe the form of the required disclosures.
The CFRDA applies to open and closed loans and accounts receivable purchase transactions (i.e. merchant cash advance transactions) for business purposes. It does not apply to a transaction of more than $1,000,000 or to a transaction of at least $50,000 when the beneficiary of the financing is a motor vehicle dealer. Deposit-taking institutions, approved funds transfer companies and occasional service providers are exempt. Each violation of the CFRDA disclosure requirements is subject to a civil penalty of $500 ($1,000 for a violation after notification of a prior violation), up to $20,000 for all violations resulting from use of the same documents or transaction elements (up to $50,000 after notice of a prior violation). Each violation of the CFRDA registration requirement is subject to an administrative penalty of $500 per Utah office of the violator, or $500 if the violator does not offer commercial financing from a Utah office.
California passed its Business Financial Disclosure Act in 2018. However, this law is still not in effect and awaits final regulation. New York passed its Commercial Financial Disclosure Act in 2020. However, the New York Department of Financial Services has yet to pass regulations, citing the complexity of disclosure requirements. Since Utah’s CFRDA does not include APR disclosure, it is unlikely that Utah’s law will face similar delays in its implementation.