Small Business Financing Disclosure Act of 2023

II 118TH CONGRESS 1ST SESSION S. 2021 To amend the Truth in Lending Act to apply that Act to small business financing, and for other purposes. IN THE SENATE OF THE UNITED STATES JUNE 15, 2023 Mr. MENENDEZ (for himself, Mr. BROWN, Mr. WYDEN, and Mr. CARDIN) in- troduced the following bill; which was read twice and referred to the Com- mittee on Banking, Housing, and Urban Affairs A BILL To amend the Truth in Lending Act to apply that Act to small business financing, 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 Fi- 4 nancing Disclosure Act of 2023’’. 5 SEC. 2. APPLICATION OF THE TRUTH IN LENDING TO 6 SMALL BUSINESS FINANCING. 7 (a) IN GENERAL.—The Truth in Lending Act (15 8 U.S.C. 1601 et seq.) is amended by adding at the end 9 the following: 10 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 2 •S 2021 IS ‘‘CHAPTER 6—SMALL BUSINESS 1 FINANCING 2 ‘‘191. Definitions. ‘‘192. Application of this title to small business financing. ‘‘193. Additional disclosures. ‘‘194. Restrictions on double-dipping. ‘‘195. Additional provisions. ‘‘§ 191. Definitions 3 ‘‘In this chapter: 4 ‘‘(1) CLOSED-END COMMERCIAL CREDIT.—The 5 term ‘closed-end commercial credit’— 6 ‘‘(A) means a secured or unsecured closed- 7 end extension of credit, including financing with 8 an established principal amount such as equip- 9 ment financing that is not a lease, as defined 10 in section 2A–103 of the Uniform Commercial 11 Code, the proceeds of which the recipient does 12 not intend to use primarily for personal, family 13 or household purposes; and 14 ‘‘(B) includes financing with an established 15 principal amount and duration. 16 ‘‘(2) CONSUMER FINANCIAL PRODUCT OR SERV- 17 ICE.—The term ‘consumer financial product or serv- 18 ice’ has the meaning given the term in section 1002 19 of the Consumer Financial Protection Act of 2010 20 (12 U.S.C. 5481). 21 ‘‘(3) DIRECTOR.—The term ‘Director’ means 22 the Director of the Bureau. 23 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 3 •S 2021 IS ‘‘(4) FACTORING.—The term ‘factoring’ means 1 a transaction that includes an agreement to pur- 2 chase, transfer, or sell a legally enforceable claim for 3 payment held by a recipient for goods the recipient 4 has supplied or services the recipient has rendered 5 that have been ordered but for which payment has 6 not yet been made. 7 ‘‘(5) FINANCE CHARGE.— 8 ‘‘(A) IN GENERAL.—The term ‘finance 9 charge’— 10 ‘‘(i) means the cost of financing as a 11 dollar amount; and 12 ‘‘(ii) includes any charge payable di- 13 rectly or indirectly by the recipient of the 14 financing and imposed directly or indi- 15 rectly by the provider of the financing as 16 an incident to or a condition of the exten- 17 sion of financing. 18 ‘‘(B) CALCULATION IN OPEN-END COM- 19 MERCIAL CREDIT PLANS.—In any open-end 20 commercial credit plan, the finance charge shall 21 be computed assuming the maximum amount of 22 credit available to the recipient, in each case, is 23 drawn and repaid at the minimum rate. 24 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 4 •S 2021 IS ‘‘(C) CALCULATION IN FACTORING TRANS- 1 ACTIONS.—In any factoring transaction, the fi- 2 nance charge includes the discount taken on the 3 face value of the accounts receivable. 4 ‘‘(D) CALCULATION IN LEASE FINANCING 5 TRANSACTIONS.—In any lease financing trans- 6 action, the finance charge includes the sum of 7 the lease payments and, if there is a fixed-price 8 purchase option or a purchase option with a 9 price that can be calculated at the time of dis- 10 closure, the purchase price listed in the contract 11 that the lessee may pay to acquire the leased 12 goods at the end of the lease, minus— 13 ‘‘(i) if the finance company selects, 14 manufactures, or supplies the goods to be 15 leased, the price that the finance company 16 would sell the goods in a cash transaction; 17 or 18 ‘‘(ii) if the finance company does not 19 select, manufacture, or supply the goods to 20 be leased, the price the finance company 21 will pay to acquire the property to be 22 leased. 23 ‘‘(E) INCLUSION OF CERTAIN PREPAY- 24 MENT CHARGES.— 25 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 5 •S 2021 IS ‘‘(i) IN GENERAL.—If, as a condition 1 of obtaining the offered commercial financ- 2 ing the provider requires the recipient to 3 pay off the balance of an existing loan or 4 advance from the same provider, any pre- 5 payment charge or penalty required to be 6 paid on the existing financing shall be in- 7 cluded as a financing charge. 8 ‘‘(ii) TREATMENT WHEN REPAYMENT 9 AMOUNT IS CALCULATED AS A FIXED 10 AMOUNT.—For purposes of clause (i), for 11 financing for which the total repayment 12 amount is calculated as a fixed amount, 13 the prepayment charge is equal to the 14 original finance charge multiplied by the 15 required prepayment amount as a percent- 16 age of the total repayment amount, minus 17 any portion of the total repayment amount 18 forgiven by the provider at the time of pre- 19 payment. 20 ‘‘(6) OPEN-END COMMERCIAL CREDIT PLAN.— 21 The term ‘open-end commercial credit plan’ means 22 any small business financing provided by a person 23 under a plan that— 24 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 6 •S 2021 IS ‘‘(A) the person reasonably contemplates 1 repeat transactions; 2 ‘‘(B) prescribes the terms of the trans- 3 actions; and 4 ‘‘(C) provides for a finance charge that 5 may be computed from time to time on the out- 6 standing unpaid balance. 7 ‘‘(7) PROVIDER.—The term ‘provider’ mean a 8 person who offers or provides small business financ- 9 ing. 10 ‘‘(8) RECIPIENT.—The term ‘recipient’ means a 11 person who is presented an offer of small business 12 financing. 13 ‘‘(9) SALES-BASED FINANCING.—The term 14 ‘sales-based financing’— 15 ‘‘(A) means a transaction for an extension 16 of financing to a recipient that is repaid by the 17 recipient, over time, as a percentage of sales or 18 revenue, in which the payment amount may in- 19 crease or decrease according to the volume of 20 sales made or revenue received by the recipient; 21 and 22 ‘‘(B) includes transactions with a true-up 23 mechanism. 24 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 7 •S 2021 IS ‘‘(10) SMALL BUSINESS.—The term ‘small busi- 1 ness’ has the meaning given the term ‘small-business 2 concern’ in section 3 of the Small Business Act (15 3 U.S.C. 632). 4 ‘‘(11) SMALL BUSINESS FINANCING.—The term 5 ‘small business financing’— 6 ‘‘(A) means any line of credit, closed-end 7 commercial credit, sales-based financing, or 8 other non-equity obligation or alleged obligation 9 of a partnership, corporation, cooperative, asso- 10 ciation, sole proprietorship, or other entity that 11 is not more than $2,500,000; and 12 ‘‘(B) does not include any obligation or al- 13 leged obligation of an individual that is pri- 14 marily for personal, family, or household pur- 15 poses. 16 ‘‘(12) SPECIFIC OFFER.—The term ‘specific 17 offer’ means the specific terms of small business fi- 18 nancing, including price or amount, that is quoted to 19 a recipient, based on information obtained from, or 20 about the recipient, which, if accepted by a recipient, 21 shall be binding on the provider, as applicable, sub- 22 ject to any specific requirements stated in such 23 terms. 24 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 8 •S 2021 IS ‘‘§ 192. Application of this title to small business fi- 1 nancing 2 ‘‘(a) IN GENERAL.—This title shall apply to small 3 business financing made to a small business to the same 4 extent that this title applies to extensions of credit made 5 to a consumer. 6 ‘‘(b) RULEMAKING.—The Director shall prescribe 7 regulations necessary to carry out this chapter. 8 ‘‘(c) BUREAU AUTHORITY.—For purposes of carrying 9 out this chapter and other Federal laws, including the 10 Consumer Financial Protection Act of 2010 (12 U.S.C. 11 5481 et seq.), the Bureau shall have the same authority 12 with respect to small business financing as the Bureau has 13 with respect to consumer financial products and services. 14 ‘‘§ 193. Additional disclosures 15 ‘‘(a) IN GENERAL.—Any provider offering small busi- 16 ness financing to a small business shall disclose the fol- 17 lowing information to a recipient at the time of extending 18 a specific offer for small business financing: 19 ‘‘(1) FINANCING AMOUNT.—The total amount 20 to be paid to the small business, taking into account 21 all fees and charges to be withheld at disbursement. 22 ‘‘(2) ANNUAL PERCENTAGE RATE.— 23 ‘‘(A) CLOSED-END COMMERCIAL CREDIT.— 24 With respect to closed-end commercial credit, 25 the annual percentage rate, using only the 26 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 9 •S 2021 IS words ‘annual percentage rate’ or the abbrevia- 1 tion ‘APR’, expressed as a yearly rate, includ- 2 ing any fees and finance charges that cannot be 3 avoided by a recipient. 4 ‘‘(B) OPEN-END COMMERCIAL CREDIT 5 PLANS.—With respect to open-end commercial 6 credit plans, the annual percentage rate, using 7 only the words ‘annual percentage rate’ or the 8 abbreviation ‘APR’, expressed as a nominal 9 yearly rate, including any fees and finance 10 charges that cannot be avoided by a recipient, 11 based on the maximum amount of credit avail- 12 able to the recipient and the term resulting 13 from making the minimum required payments 14 term as disclosed. 15 ‘‘(C) SALES-BASED FINANCING.— 16 ‘‘(i) IN GENERAL.—With respect to 17 sales-based financing, the estimated annual 18 percentage rate, using the words ‘annual 19 percentage rate’ or the abbreviation ‘APR’, 20 expressed as a yearly rate, including any 21 fees and finance charges, based on the esti- 22 mated term of repayment and the pro- 23 jected periodic payment amounts. 24 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 10 •S 2021 IS ‘‘(ii) CALCULATION OF CERTAIN PAY- 1 MENT AMOUNTS.—The estimated term of 2 repayment and the projected periodic pay- 3 ment amounts shall be calculated based on 4 the projected sales volume of the recipient. 5 ‘‘(iii) CALCULATION OF PROJECTED 6 SALES VOLUMES.—For purposes of clause 7 (ii), the projected sales volume may be cal- 8 culated— 9 ‘‘(I) according to a method de- 10 fined by the Director based on the 11 historical sales volume of the recipient 12 over a defined period of time that is 13 used for all sales-based financing 14 transactions by that provider; or 15 ‘‘(II) by a method other than the 16 method described in subclause (I) that 17 is defined by the provider and ap- 18 proved by the Director, with ongoing 19 monitoring by the Director for accu- 20 racy based on a comparison of the an- 21 nual percentage rate as disclosed to 22 the recipient and as calculated retro- 23 spectively upon repayment of the fi- 24 nancing. 25 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 11 •S 2021 IS ‘‘(D) FACTORING.— 1 ‘‘(i) IN GENERAL.—With respect to 2 factoring, the estimated annual percentage 3 rate, using that term. 4 ‘‘(ii) CALCULATION.—To calculate the 5 estimated annual percentage rate under 6 clause (i)— 7 ‘‘(I) the purchase amount shall 8 be considered the financing amount; 9 ‘‘(II) the purchase amount minus 10 the total cost of financing shall be 11 considered the payment amount; and 12 ‘‘(III) the term is established by 13 the payment due date of the receiv- 14 ables. 15 ‘‘(iii) ALTERNATE METHOD TO ESTI- 16 MATE TERM.—Notwithstanding clause 17 (ii)(III), a provider may estimate the term 18 for a factoring transaction as the average 19 payment period, its historical data over a 20 period not to exceed the previous 12 21 months, concerning payment invoices paid 22 by the party owing the accounts receivable 23 in question. 24 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 12 •S 2021 IS ‘‘(3) PAYMENT AMOUNT.—With respect to 1 small business financing other than factoring— 2 ‘‘(A) for payment amounts that are fixed— 3 ‘‘(i) the payment amounts and fre- 4 quency (e.g., daily, weekly, monthly); and 5 ‘‘(ii) if the term is longer than one 6 month and payment frequency is other 7 than monthly, the average total monthly 8 payment amount; or 9 ‘‘(B) for payment amounts that are vari- 10 able— 11 ‘‘(i) a full payment schedule or a de- 12 scription of the method used to calculate 13 the amounts and frequency of payments; 14 and 15 ‘‘(ii) if the term is longer than one 16 month, the estimated average total month- 17 ly payment amount. 18 ‘‘(4) TERM.—For financing other than fac- 19 toring, the term of the small business financing— 20 ‘‘(A) in months or in years; or 21 ‘‘(B) if the term is not fixed, the estimated 22 term, calculated using the same assumptions 23 used to calculate the estimated annual percent- 24 age rate. 25 VerDate Sep 11 2014 23:19 Jul 09, 2023 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S2021.IS S2021 pbinns on DSKJLVW7X2PROD with $$_JOB 13 •S 2021 IS ‘‘(5) FINANCE CHARGE.—The finance charge of 1 the small business financing, broken down to show 2 what expenses and fees are included in the finance 3 charge. 4 ‘‘(6) PREPAYMENT COST OR SAVINGS.—If a re- 5 cipient elects to pay off or refinance the small busi- 6 ness financing prior to full repayment, the provider 7 shall disclose— 8 ‘‘(A) whether the recipient would be re- 9 quired to pay any finance charges other than 10 interest accrued since the last payment by the 11 recipient; 12 ‘‘(B) if the recipient is required to pay the 13 finance charges described in subparagraph (A), 14 the percentage of any unpaid portion of the fi- 15 nance charge and max [Text truncated for display. 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