SB2677 - Relating to disclosures for certain commercial sales-based financing transactions and the registration of commercial sales-based financing brokers; authorizing a fee and providing a civil penalty.

  89R8940 BCH-D     By: Perry S.B. No. 2677       A BILL TO BE ENTITLED   AN ACT   relating to disclosures for certain commercial sales-based   financing transactions and the registration of commercial   sales-based financing brokers; authorizing a fee and providing a   civil penalty.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Title 5, Finance Code, is amended by adding   Chapter 398 to read as follows:   CHAPTER 398. COMMERCIAL SALES-BASED FINANCING   SUBCHAPTER A. GENERAL PROVISIONS           Sec. 398.001.  DEFINITIONS. In this chapter:                 (1)     "Commercial sales-based financing" or "commercial   sales-based financing transaction" means an extension of   sales-based financing to a recipient by a provider, the proceeds of   which the recipient does not intend to use primarily for personal,   family, or household purposes.                 (2)     "Commercial sales-based financing broker" means a   person, other than a financer, who, for compensation or the   expectation of compensation, offers commercial sales-based   financing to a recipient or offers to obtain commercial sales-based   financing for a recipient from a provider.                 (3)     "Disbursement amount" means the amounts paid to   the recipient or on the recipient's behalf. The term does not   include any finance charges that are deducted or withheld at   disbursement.                 (4)     "Finance charge" means the cost of commercial   sales-based financing expressed as a dollar amount. The term   includes a charge payable, directly or indirectly, by the recipient   that is imposed, directly or indirectly, by the provider of the   financing as an incident to, or a condition of, the extension of   financing.                 (5)     "Financer" means a person who provides or will   provide commercial sales-based financing to a recipient.                 (6)     "Person" means an individual, corporation,   partnership, limited liability company, joint venture,   association, joint stock company, trust, sole proprietorship or   other unincorporated organization, or other similar entity.                 (7)     "Provider" means a person who extends a specific   offer of commercial sales-based financing to a person applying for   that financing or the person's authorized representative. The term   includes a commercial sales-based financing broker.                 (8)     "Recipient" means a person, or the authorized   representative of a person, who applies for commercial sales-based   financing and is made a specific offer of commercial financing by a   provider. The term does not include a person acting as a commercial   sales-based financing broker.                 (9)     "Sales-based financing" means a transaction that   is repaid by the recipient to the provider of the financing:                       (A)     as a percentage of sales or revenue, in which   the payment amount may increase or decrease according to the volume   of sales made or revenue received by the recipient; or                       (B)     according to a fixed payment mechanism that   provides for a reconciliation process that adjusts the payment to   an amount that is a percentage of sales or revenue.                 (10)     "Specific offer" means the specific terms of   commercial sales-based financing. The term includes a price or   amount quoted to a recipient by a person providing the financing   based on information obtained from or about the recipient that, if   accepted by the recipient, would be binding on the provider,   subject to specific requirements in the financing terms.                 (11)     "Total repayment amount" means the sum of the   disbursement amount and finance charge.           Sec.   398.002.     EXEMPTIONS. This chapter does not apply to a   provider that is:                 (1)     a bank, out-of-state bank, bank holding company,   credit union, federal credit union, out-of-state credit union, or   any subsidiary or affiliate of those financial institutions;                 (2)     a person acting in the capacity of a technology   services provider to an entity exempt under this section as part of   the entity's commercial sales-based financing program if the person   has no interest, arrangement, or agreement to purchase any interest   in the commercial sales-based financing extended in connection with   the program;                 (3)     a lender regulated under the Farm Credit Act of   1971 (12 U.S.C. Section 2001 et seq.); or                 (4)  a person who extends or brokers:                       (A)     a commercial sales-based financing   transaction secured by real property;                       (B)     a lease, as defined by Section 2A.103,   Business & Commerce Code;                       (C)     a purchase-money obligation, as defined by   Section 9.103, Business & Commerce Code;                       (D)     a commercial sales-based financing   transaction entered into under a commercial sales-based financing   agreement or commercial open-end credit plan of $50,000 or more in   which the recipient is:                             (i)     a dealer, as defined by Section   503.001, Transportation Code; or                             (ii)     a motor vehicle rental company or an   affiliate of a motor vehicle rental company; or                       (E)     a commercial sales-based financing   transaction in connection with the sale of products or services   that:                             (i)     the person manufactures, licenses, or   distributes; or                             (ii)     a parent company, subsidiary, or   affiliate of the person described by Subparagraph (i) manufactures,   licenses, or distributes.           Sec.   398.003.     APPLICATION OF OTHER LAW. (a) A sales-based   financing transaction is not a form of an account purchase   transaction for purposes of Section 306.103, regardless of the   principal amount of the advance.           (b)     Fees and charges paid, or charged under, a sales-based   financing transaction are considered interest for usury purposes   under state law, regardless of the principal amount of the advance.           Sec.   398.004.     ADMINISTRATION OF CHAPTER; RULEMAKING. (a)   The Texas Department of Banking shall administer, implement, and   enforce this chapter.           (b)     The Finance Commission of Texas shall adopt rules as   necessary to administer and implement this chapter.   SUBCHAPTER B. REGULATION AND DISCLOSURE REQUIREMENTS           Sec.   398.051.     DISCLOSURES. (a) If a provider extends a   specific offer of commercial sales-based financing of more than   $500,000 to a recipient in this state, the provider shall disclose   to the recipient:                 (1)  the total amount of the financing;                 (2)  the disbursement amount;                 (3)  the finance charge;                 (4)  the total repayment amount;                 (5)     the estimated period for the periodic payments to   equal the total repayment amount under the terms of the financing;                 (6)  the payment amounts as follows:                       (A)     if the payment amounts are fixed, the amounts   and the frequency of payments; or                       (B)  if the payment amounts are variable:                             (i)     a payment schedule or a description of   the method used to calculate the amounts and frequency of payments;   and                             (ii)     the amount of the average projected   payments per month;                 (7)     a description of all other potential fees and   charges not included in the finance charge, including draw fees,   late payment fees, and returned payment fees;                 (8)     any finance charge the recipient will be required   to pay if the recipient pays off or refinances the commercial   sales-based financing before the transaction is repaid in full;                 (9)     any additional fees, not included in the finance   charge, the recipient will be required to pay if the recipient pays   off or refinances the commercial sales-based financing before the   transaction is repaid in full; and                 (10)     a description of collateral requirements or   security interests, if applicable.           (b)     If, as a condition of obtaining commercial sales-based   financing, the provider requires the recipient to pay off the   outstanding balance of an existing commercial sales-based   financing from the same provider, the provider shall disclose to   the recipient:                 (1)     the amount of the new commercial sales-based   financing used to pay off the portion of the outstanding balance of   the existing commercial sales-based financing that consists of:                       (A)  prepayment charges required to be paid; and                       (B)     any unpaid interest expense that was not   forgiven at the time of renewal of the transaction; and                 (2)     if the disbursement amount will be reduced to pay   down any unpaid portion of the outstanding balance, the actual   dollar amount by which the disbursement amount will be reduced.           Sec.   398.052.     SIGNATURE. The provider shall obtain the   recipient's signature on the disclosures required by Section   398.051 before finalizing the application for the commercial   sales-based financing transaction.           Sec.   398.053.     BROKER REGISTRATION. (a) A person may not   engage in business as a commercial sales-b [Text truncated for display. Full text available on LegiScan.]