Small Business Financing Disclosure Act of 2023

I 118TH CONGRESS 1ST SESSION H. R. 4192 To apply the Truth in Lending Act to small business financing, and for other purposes. IN THE HOUSE OF REPRESENTATIVES JUNE 15, 2023 Ms. VELA´ZQUEZ (for herself and Ms. WATERS) 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 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 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 2 •HR 4192 IH ‘‘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 closed-end extension of cred- 7 it, secured or unsecured, including financing 8 with an established principal amount and in- 9 cluding equipment financing that does not meet 10 the definition of a lease under the Uniform 11 Commercial Code (U.C.C.—§ 2A–103(j)) the 12 proceeds of which the recipient does not intend 13 to use primarily for personal, family or house- 14 hold purposes; and 15 ‘‘(B) includes financing with an established 16 principal amount and duration. 17 ‘‘(2) CONSUMER FINANCIAL PRODUCT OR SERV- 18 ICE.—The term ‘consumer financial product or serv- 19 ice’ has the meaning given that term under section 20 1002 of the Consumer Financial Protection Act of 21 2010. 22 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 3 •HR 4192 IH ‘‘(3) DIRECTOR.—The term ‘Director’ means 1 the Director of the Bureau. 2 ‘‘(4) FACTORING.—The term ‘factoring’ means 3 a transaction that includes an agreement to pur- 4 chase, transfer, or sell a legally enforceable claim for 5 payment held by a recipient for goods the recipient 6 has supplied or services the recipient has rendered 7 that have been ordered but for which payment has 8 not yet been made. 9 ‘‘(5) FINANCE CHARGE.— 10 ‘‘(A) IN GENERAL.—The term ‘finance 11 charge’ means the cost of financing as a dollar 12 amount, and includes any charge payable di- 13 rectly or indirectly by the recipient of the fi- 14 nancing and imposed directly or indirectly by 15 the provider of the financing as an incident to 16 or a condition of the extension of financing. 17 ‘‘(B) CALCULATION IN OPEN-END COM- 18 MERCIAL CREDIT PLANS.—In any open-end 19 commercial credit plan, the finance charge shall 20 be computed assuming the maximum amount of 21 credit available to the recipient, in each case, is 22 drawn and repaid at the minimum rate. 23 ‘‘(C) CALCULATION IN FACTORING TRANS- 24 ACTIONS.—In any factoring transaction, the fi- 25 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 4 •HR 4192 IH nance charge shall include the discount taken 1 on the face value of the accounts receivable. 2 ‘‘(D) CALCULATION IN LEASE FINANCING 3 TRANSACTIONS.—In any lease financing trans- 4 action, the finance charge shall include the sum 5 of the lease payments and, if there is a fixed- 6 price purchase option or a purchase option with 7 a price that can be calculated at the time of 8 disclosure, the purchase price listed in the con- 9 tract that the lessee may pay to acquire the 10 leased goods at the end of the lease, minus— 11 ‘‘(i) if the finance company selects, 12 manufactures, or supplies the goods to be 13 leased, the price that the finance company 14 would sell the goods in a cash transaction; 15 or 16 ‘‘(ii) if the finance company does not 17 select, manufacture, or supply the goods to 18 be leased, the price the finance company 19 will pay to acquire the property to be 20 leased. 21 ‘‘(E) INCLUSION OF CERTAIN PREPAY- 22 MENT CHARGES.— 23 ‘‘(i) IN GENERAL.—If, as a condition 24 of obtaining the offered commercial financ- 25 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 5 •HR 4192 IH ing the provider requires the recipient to 1 pay off the balance of an existing loan or 2 advance from the same provider, any pre- 3 payment charge or penalty required to be 4 paid on the existing financing shall be in- 5 cluded as a financing charge. 6 ‘‘(ii) TREATMENT WHEN REPAYMENT 7 AMOUNT IS CALCULATED AS A FIXED 8 AMOUNT.—For purposes of clause (i), for 9 financing for which the total repayment 10 amount is calculated as a fixed amount, 11 the prepayment charge is equal to the 12 original finance charge multiplied by the 13 required prepayment amount as a percent- 14 age of the total repayment amount, minus 15 any portion of the total repayment amount 16 forgiven by the provider at the time of pre- 17 payment. 18 ‘‘(6) OPEN-END COMMERCIAL CREDIT PLAN.— 19 The term ‘open-end commercial credit plan’ means 20 any small business financing provided by a person 21 under a plan in which the person reasonably con- 22 templates repeat transactions, which prescribes the 23 terms of such transactions, and which provides for 24 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 6 •HR 4192 IH a finance charge which may be computed from time 1 to time on the outstanding unpaid balance. 2 ‘‘(7) PROVIDER.—The term ‘provider’ mean a 3 person who offers or provides small business financ- 4 ing. 5 ‘‘(8) RECIPIENT.—The term ‘recipient’ means a 6 person who is presented an offer of small business 7 financing. 8 ‘‘(9) SALES-BASED FINANCING.—The term 9 ‘sales-based financing’— 10 ‘‘(A) means a transaction where there is 11 an extension of financing to a recipient that is 12 repaid by the recipient, over time, as a percent- 13 age of sales or revenue, in which the payment 14 amount may increase or decrease according to 15 the volume of sales made or revenue received by 16 the recipient; and 17 ‘‘(B) includes transactions with a ‘true-up 18 mechanism’. 19 ‘‘(10) SMALL BUSINESS.—The term ‘small busi- 20 ness’ has the meaning given the term ‘small-business 21 concern’ under section 3 of the Small Business Act 22 (15 U.S.C. 632). 23 ‘‘(11) SMALL BUSINESS FINANCING.—The term 24 ‘small business financing’— 25 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 7 •HR 4192 IH ‘‘(A) means any line of credit, closed-end 1 commercial credit, sales-based financing, or 2 other non-equity obligation or alleged obligation 3 of a partnership, corporation, cooperative, asso- 4 ciation, sole proprietorship, or other entity that 5 is $2,500,000 or less; and 6 ‘‘(B) does not include any obligation or al- 7 leged obligation of an individual that is pri- 8 marily for personal, family, or household pur- 9 poses. 10 ‘‘(12) SPECIFIC OFFER.—The term ‘specific 11 offer’ means the specific terms of small business fi- 12 nancing, including price or amount, that is quoted to 13 a recipient, based on information obtained from, or 14 about the recipient, which, if accepted by a recipient, 15 shall be binding on the provider, as applicable, sub- 16 ject to any specific requirements stated in such 17 terms. 18 ‘‘§ 192. Application of this title to small business fi- 19 nancing 20 ‘‘(a) IN GENERAL.—This title shall apply to small 21 business financing made to a small business to the same 22 extent as this title applies to extensions of credit made 23 to a consumer. 24 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 8 •HR 4192 IH ‘‘(b) RULEMAKING.—The Director shall issue such 1 rules as may be required to carry out this chapter. 2 ‘‘(c) BUREAU AUTHORITY.—For purposes of carrying 3 out this chapter and other Federal laws, including the 4 Consumer Financial Protection Act of 2010, the Bureau 5 shall have the same authority with respect to small busi- 6 ness financing as the Bureau has with respect to consumer 7 financial products and services. 8 ‘‘§ 193. Additional disclosures 9 ‘‘(a) IN GENERAL.—Any provider offering small busi- 10 ness financing to a small business shall disclose the fol- 11 lowing pieces of information to a recipient at the time of 12 extending a specific offer for small business financing: 13 ‘‘(1) FINANCING AMOUNT.—The total amount 14 to be paid to the small business, taking into account 15 all fees and charges to be withheld at disbursement. 16 ‘‘(2) ANNUAL PERCENTAGE RATE.— 17 ‘‘(A) CLOSED-END COMMERCIAL CREDIT.— 18 With respect to closed-end commercial credit, 19 the annual percentage rate, using only the 20 words ‘annual percentage rate’ or the abbrevia- 21 tion ‘APR’, expressed as a yearly rate, inclusive 22 of any fees and finance charges that cannot be 23 avoided by a recipient. 24 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 9 •HR 4192 IH ‘‘(B) OPEN-END COMMERCIAL CREDIT 1 PLANS.—With respect to open-end commercial 2 credit plans, the annual percentage rate, using 3 only the words ‘annual percentage rate’ or the 4 abbreviation ‘APR’, expressed as a nominal 5 yearly rate, inclusive of any fees and finance 6 charges that cannot be avoided by a recipient, 7 based on the maximum amount of credit avail- 8 able to the recipient and the term resulting 9 from making the minimum required payments 10 term as disclosed. 11 ‘‘(C) SALES-BASED FINANCING.— 12 ‘‘(i) IN GENERAL.—With respect to 13 sales-based financing, the estimated annual 14 percentage rate, using the words ‘annual 15 percentage rate’ or the abbreviation ‘APR’, 16 expressed as a yearly rate, inclusive of any 17 fees and finance charges, based on the esti- 18 mated term of repayment and the pro- 19 jected periodic payment amounts. 20 ‘‘(ii) CALCULATION OF CERTAIN PAY- 21 MENT AMOUNTS.—The estimated term of 22 repayment and the projected periodic pay- 23 ment amounts shall be calculated based on 24 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 10 •HR 4192 IH the projection of the recipient’s sales, 1 called the projected sales volume. 2 ‘‘(iii) CALCULATION OF PROJECTED 3 SALES VOLUMES.—For purposes of clause 4 (ii), the projected sales volume may be cal- 5 culated— 6 ‘‘(I) according to a method de- 7 fined by the Director based on the re- 8 cipient’s historical sales volume over a 9 defined period of time that is used for 10 all sales-based financing transactions 11 by that provider; or 12 ‘‘(II) by another method defined 13 by the provider and approved by the 14 Director, with ongoing monitoring by 15 the Director for accuracy based on a 16 comparison of the annual percentage 17 rate as disclosed to the recipient and 18 as calculated retrospectively upon re- 19 payment of the financing. 20 ‘‘(D) FACTORING.— 21 ‘‘(i) IN GENERAL.—With respect to 22 factoring, the estimated annual percentage 23 rate, using that term. 24 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 11 •HR 4192 IH ‘‘(ii) CALCULATION.—To calculate the 1 estimated annual percentage rate under 2 clause (i)— 3 ‘‘(I) the purchase amount shall 4 be considered the financing amount; 5 ‘‘(II) the purchase amount minus 6 the total cost of financing shall be 7 considered the payment amount; and 8 ‘‘(III) the term is established by 9 the payment due date of the receiv- 10 ables. 11 ‘‘(iii) ALTERNATE METHOD TO ESTI- 12 MATE TERM.—Notwithstanding clause 13 (ii)(III), a provider may estimate the term 14 for a factoring transaction as the average 15 payment period, its historical data over a 16 period not to exceed the previous twelve 17 months, concerning payment invoices paid 18 by the party owing the accounts receivable 19 in question. 20 ‘‘(3) PAYMENT AMOUNT.—With respect to 21 small business financing other than factoring— 22 ‘‘(A) for payment amounts that are fixed— 23 ‘‘(i) the payment amounts and fre- 24 quency (e.g., daily, weekly, monthly); and 25 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 12 •HR 4192 IH ‘‘(ii) if the term is longer than one 1 month and payment frequency is other 2 than monthly, the average total monthly 3 payment amount; or 4 ‘‘(B) for payment amounts that are vari- 5 able— 6 ‘‘(i) a full payment schedule or a de- 7 scription of the method used to calculate 8 the amounts and frequency of payments; 9 and 10 ‘‘(ii) if the term is longer than one 11 month, the estimated average total month- 12 ly payment amount. 13 ‘‘(4) TERM.—For financing other than fac- 14 toring, the term of the small business financing, ei- 15 ther in months or in years, or, if the term is not 16 fixed, the estimated term, calculated using the same 17 assumptions used to calculate the estimated annual 18 percentage rate. 19 ‘‘(5) FINANCE CHARGE.—The finance charge of 20 the small business financing, broken down to show 21 what expenses and fees are included in the finance 22 charge. 23 ‘‘(6) PREPAYMENT COST OR SAVINGS.—In the 24 event that a recipient elects to pay off or refinance 25 VerDate Sep 11 2014 23:41 Jul 22, 2023 Jkt 039200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H4192.IH H4192 kjohnson on DSK79L0C42PROD with BILLS 13 •HR 4192 IH the small business financing prior to full repayment, 1 the provider must disclose— 2 ‘‘(A) whether the recipient would be re- 3 quired to pay any finance charges other than 4 interest accrued since the recipient’s last pay- 5 ment; 6 ‘‘(B) if the recipient is required to pay the 7 finance charges described under subparagraph 8 (A), the percentage of any unpaid portion of 9 the finance charge and maximum dollar amount 10 the recipient could be required to pay; and 11 ‘‘(C) whether the recipient woul [Text truncated for display. 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