Small Business Lending Disclosure and Broker Regulation Act of 2020

I 116TH CONGRESS 2D SESSION H. R. 7889 To apply the Truth in Lending Act to small business financing, to regulate brokers and require the licensing of brokers, and for other purposes. IN THE HOUSE OF REPRESENTATIVES JULY 30, 2020 Ms. VELA´ZQUEZ introduced the following bill; which was referred to the Committee on Financial Services A BILL To apply the Truth in Lending Act to small business financ- ing, to regulate brokers and require the licensing of brokers, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Small Business Lend- 4 ing Disclosure and Broker Regulation Act of 2020’’. 5 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 2 •HR 7889 IH TITLE I—SMALL BUSINESS 1 FINANCING 2 SEC. 101. APPLICATION OF THE TRUTH IN LENDING TO 3 SMALL BUSINESS FINANCING. 4 (a) IN GENERAL.—The Truth in Lending Act (15 5 U.S.C. 1601 et seq.) is amended by adding at the end 6 the following: 7 ‘‘CHAPTER 6—SMALL BUSINESS 8 FINANCING 9 ‘‘191. Definitions. ‘‘192. Application of this title to small business financing. ‘‘193. Additional disclosures. ‘‘194. Restrictions on double-dipping. ‘‘195. Additional provisions. ‘‘§ 191. Definitions 10 ‘‘In this chapter: 11 ‘‘(1) CLOSED-END COMMERCIAL CREDIT.—The 12 term ‘closed-end commercial credit’— 13 ‘‘(A) means a closed-end extension of cred- 14 it, secured or unsecured, including financing 15 with an established principal amount and in- 16 cluding equipment financing that does not meet 17 the definition of a lease under the Uniform 18 Commercial Code (U.C.C.—§ 2A–103(j)) the 19 proceeds of which the recipient does not intend 20 to use primarily for personal, family or house- 21 hold purposes; and 22 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 3 •HR 7889 IH ‘‘(B) includes financing with an established 1 principal amount and duration. 2 ‘‘(2) CONSUMER FINANCIAL PRODUCT OR SERV- 3 ICE.—The term ‘consumer financial product or serv- 4 ice’ has the meaning given that term under section 5 1002 of the Consumer Financial Protection Act of 6 2010. 7 ‘‘(3) DIRECTOR.—The term ‘Director’ means 8 the Director of the Bureau. 9 ‘‘(4) FACTORING.—The term ‘factoring’ means 10 a transaction that includes an agreement to pur- 11 chase, transfer, or sell a legally enforceable claim for 12 payment held by a recipient for goods the recipient 13 has supplied or services the recipient has rendered 14 that have been ordered but for which payment has 15 not yet been made. 16 ‘‘(5) FINANCE CHARGE.— 17 ‘‘(A) IN GENERAL.—The term ‘finance 18 charge’ means the cost of financing as a dollar 19 amount, and includes any charge payable di- 20 rectly or indirectly by the recipient of the fi- 21 nancing and imposed directly or indirectly by 22 the provider of the financing as an incident to 23 or a condition of the extension of financing. 24 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 4 •HR 7889 IH ‘‘(B) CALCULATION IN OPEN-END COM- 1 MERCIAL CREDIT PLANS.—In any open-end 2 commercial credit plan, the finance charge shall 3 be computed assuming the maximum amount of 4 credit available to the recipient, in each case, is 5 drawn and repaid at the minimum rate. 6 ‘‘(C) CALCULATION IN FACTORING TRANS- 7 ACTIONS.—In any factoring transaction, the fi- 8 nance charge shall include the discount taken 9 on the face value of the accounts receivable. 10 ‘‘(D) CALCULATION IN LEASE FINANCING 11 TRANSACTIONS.—In any lease financing trans- 12 action, the finance charge shall include the sum 13 of the lease payments and, if there is a fixed- 14 price purchase option or a purchase option with 15 a price that can be calculated at the time of 16 disclosure, the purchase price listed in the con- 17 tract that the lessee may pay to acquire the 18 leased goods at the end of the lease, minus— 19 ‘‘(i) if the finance company selects, 20 manufactures, or supplies the goods to be 21 leased, the price that the finance company 22 would sell the goods in a cash transaction; 23 or 24 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 5 •HR 7889 IH ‘‘(ii) if the finance company does not 1 select, manufacture, or supply the goods to 2 be leased, the price the finance company 3 will pay to acquire the property to be 4 leased. 5 ‘‘(E) INCLUSION OF CERTAIN PREPAY- 6 MENT CHARGES.— 7 ‘‘(i) IN GENERAL.—If, as a condition 8 of obtaining the offered commercial financ- 9 ing the provider requires the recipient to 10 pay off the balance of an existing loan or 11 advance from the same provider, any pre- 12 payment charge or penalty required to be 13 paid on the existing financing shall be in- 14 cluded as a financing charge. 15 ‘‘(ii) TREATMENT WHEN REPAYMENT 16 AMOUNT IS CALCULATED AS A FIXED 17 AMOUNT.—For purposes of clause (i), for 18 financing for which the total repayment 19 amount is calculated as a fixed amount, 20 the prepayment charge is equal to the 21 original finance charge multiplied by the 22 required prepayment amount as a percent- 23 age of the total repayment amount, minus 24 any portion of the total repayment amount 25 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 6 •HR 7889 IH forgiven by the provider at the time of pre- 1 payment. 2 ‘‘(6) OPEN-END COMMERCIAL CREDIT PLAN.— 3 The term ‘open-end commercial credit plan’ means 4 any small business financing provided by a person 5 under a plan in which the person reasonably con- 6 templates repeat transactions, which prescribes the 7 terms of such transactions, and which provides for 8 a finance charge which may be computed from time 9 to time on the outstanding unpaid balance. 10 ‘‘(7) PROVIDER.—The term ‘provider’ mean a 11 person who offers or provides small business financ- 12 ing. 13 ‘‘(8) RECIPIENT.—The term ‘recipient’ means a 14 person who is presented an offer of small business 15 financing. 16 ‘‘(9) SALES-BASED FINANCING.—The term 17 ‘sales-based financing’— 18 ‘‘(A) means a transaction where there is 19 an extension of financing to a recipient that is 20 repaid by the recipient, over time, as a percent- 21 age of sales or revenue, in which the payment 22 amount may increase or decrease according to 23 the volume of sales made or revenue received by 24 the recipient; and 25 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 7 •HR 7889 IH ‘‘(B) includes transactions with a ‘true-up 1 mechanism’. 2 ‘‘(10) SMALL BUSINESS.—The term ‘small busi- 3 ness’ has the meaning given the term ‘small-business 4 concern’ under section 3 of the Small Business Act 5 (15 U.S.C. 632). 6 ‘‘(11) SMALL BUSINESS FINANCING.—The term 7 ‘small business financing’— 8 ‘‘(A) means any line of credit, closed-end 9 commercial credit, sales-based financing, or 10 other non-equity obligation or alleged obligation 11 of a partnership, corporation, cooperative, asso- 12 ciation, or other entity that is $2,500,000 or 13 less; and 14 ‘‘(B) does not include any obligation or al- 15 leged obligation of an individual that is pri- 16 marily for personal, family, or household pur- 17 poses. 18 ‘‘(12) SPECIFIC OFFER.—The term ‘specific 19 offer’ means the specific terms of small business fi- 20 nancing, including price or amount, that is quoted to 21 a recipient, based on information obtained from, or 22 about the recipient, which, if accepted by a recipient, 23 shall be binding on the provider, as applicable, sub- 24 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 8 •HR 7889 IH ject to any specific requirements stated in such 1 terms. 2 ‘‘§ 192. Application of this title to small business fi- 3 nancing 4 ‘‘(a) IN GENERAL.—This title shall apply to small 5 business financing made to a small business to the same 6 extent as this title applies to extensions of credit made 7 to a consumer. 8 ‘‘(b) RULEMAKING.—The Director shall issue such 9 rules as may be required to carry out this chapter. 10 ‘‘(c) BUREAU AUTHORITY.—For purposes of carrying 11 out this chapter and other Federal laws, including the 12 Consumer Financial Protection Act of 2010, the Bureau 13 shall have the same authority with respect to small busi- 14 ness financing as the Bureau has with respect to consumer 15 financial products and services. 16 ‘‘§ 193. Additional disclosures 17 ‘‘(a) IN GENERAL.—Any provider offering small busi- 18 ness financing to a small business shall disclose the fol- 19 lowing pieces of information to a recipient at the time of 20 extending a specific offer for small business financing: 21 ‘‘(1) FINANCING AMOUNT.—The total amount 22 to be paid to the small business, taking into account 23 all fees and charges to be withheld at disbursement. 24 ‘‘(2) ANNUAL PERCENTAGE RATE.— 25 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 9 •HR 7889 IH ‘‘(A) CLOSED-END COMMERCIAL CREDIT.— 1 With respect to closed-end commercial credit, 2 the annual percentage rate, using only the 3 words ‘annual percentage rate’ or the abbrevia- 4 tion ‘APR’, expressed as a yearly rate, inclusive 5 of any fees and finance charges that cannot be 6 avoided by a recipient. 7 ‘‘(B) OPEN-END COMMERCIAL CREDIT 8 PLANS.—With respect to open-end commercial 9 credit plans, the annual percentage rate, using 10 only the words ‘annual percentage rate’ or the 11 abbreviation ‘APR’, expressed as a nominal 12 yearly rate, inclusive of any fees and finance 13 charges that cannot be avoided by a recipient, 14 based on the maximum amount of credit avail- 15 able to the recipient and the term resulting 16 from making the minimum required payments 17 term as disclosed. 18 ‘‘(C) SALES-BASED FINANCING.— 19 ‘‘(i) IN GENERAL.—With respect to 20 sales-based financing, the estimated annual 21 percentage rate, using the words ‘annual 22 percentage rate’ or the abbreviation ‘APR’, 23 expressed as a yearly rate, inclusive of any 24 fees and finance charges, based on the esti- 25 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 10 •HR 7889 IH mated term of repayment and the pro- 1 jected periodic payment amounts. 2 ‘‘(ii) CALCULATION OF CERTAIN PAY- 3 MENT AMOUNTS.—The estimated term of 4 repayment and the projected periodic pay- 5 ment amounts shall be calculated based on 6 the projection of the recipient’s sales, 7 called the projected sales volume. 8 ‘‘(iii) CALCULATION OF PROJECTED 9 SALES VOLUMES.—For purposes of clause 10 (ii), the projected sales volume may be cal- 11 culated— 12 ‘‘(I) according to a method de- 13 fined by the Director based on the re- 14 cipient’s historical sales volume over a 15 defined period of time that is used for 16 all sales-based financing transactions 17 by that provider; or 18 ‘‘(II) by another method defined 19 by the provider and approved by the 20 Director, with ongoing monitoring by 21 the Director for accuracy based on a 22 comparison of the annual percentage 23 rate as disclosed to the recipient and 24 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 11 •HR 7889 IH as calculated retrospectively upon re- 1 payment of the financing. 2 ‘‘(D) FACTORING.— 3 ‘‘(i) IN GENERAL.—With respect to 4 factoring, the estimated annual percentage 5 rate, using that term. 6 ‘‘(ii) CALCULATION.—To calculate the 7 estimated annual percentage rate under 8 clause (i)— 9 ‘‘(I) the purchase amount shall 10 be considered the financing amount; 11 ‘‘(II) the purchase amount minus 12 the total cost of financing shall be 13 considered the payment amount; and 14 ‘‘(III) the term is established by 15 the payment due date of the receiv- 16 ables. 17 ‘‘(iii) ALTERNATE METHOD TO ESTI- 18 MATE TERM.—Notwithstanding clause 19 (ii)(III), a provider may estimate the term 20 for a factoring transaction as the average 21 payment period, its historical data over a 22 period not to exceed the previous twelve 23 months, concerning payment invoices paid 24 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 12 •HR 7889 IH by the party owing the accounts receivable 1 in question. 2 ‘‘(3) PAYMENT AMOUNT.—With respect to 3 small business financing other than factoring— 4 ‘‘(A) for payment amounts that are fixed— 5 ‘‘(i) the payment amounts and fre- 6 quency (e.g., daily, weekly, monthly); and 7 ‘‘(ii) if the term is longer than one 8 month and payment frequency is other 9 than monthly, the average total monthly 10 payment amount; or 11 ‘‘(B) for payment amounts that are vari- 12 able— 13 ‘‘(i) a full payment schedule or a de- 14 scription of the method used to calculate 15 the amounts and frequency of payments; 16 and 17 ‘‘(ii) if the term is longer than one 18 month, the estimated average total month- 19 ly payment amount. 20 ‘‘(4) TERM.—For financing other than fac- 21 toring, the term of the small business financing, ei- 22 ther in months or in years, or, if the term is not 23 fixed, the estimated term, calculated using the same 24 VerDate Sep 11 2014 04:30 Aug 22, 2020 Jkt 099200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H7889.IH H7889 kjohnson on DSK79L0C42PROD with BILLS 13 •HR 7889 IH assumptions used to calculate the estimated annual 1 percentage rate. 2 ‘‘(5) FINANCE CHARGE.—The finance charge of 3 the small business financing, broken down to show 4 what expenses and fees are included in the finance 5 charge. 6 ‘‘(6) PREPAYMENT COST OR SAVINGS.—In the 7 event that a recipient elects to pay off or refinance 8 the small business financing prior to full repayment, 9 the provider must disclose— 10 ‘‘(A) whether the recipient would be re- 11 quired to pay any finance charges other than 12 interest accrued since the recipient’s last pay- 13 ment; and 14 ‘‘(B) if the recipient is required to pay the 15 finance charges described under subparagraph 16 (A), the percentage of any unpaid porti [Text truncated for display. 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