Enhanced Finance Disclosure
Highlighted by the introduction and passage of California SB 1235, there is a movement by state legislators to introduce consumer-like enhanced finance disclosure requirements for commercial transactions.
While the bills differ, the purpose of the proposed new rules concentrates on requiring lenders and other commercial financing companies to provide clear and consistent disclosures with the focus most often on protecting small business owners. ELFA has led the industry in obtaining exemptions for all equipment true leases in California and NY and secured a full suite of ELFA exemptions in every state that has introduced and/or passed disclosure legislation since New York. Those exemptions include UCC 2A True Leases, UCC 9 Purchase Money Obligations, Captive Transactions and Bank Subsidiary and Affiliate Transactions. To date, since CA and NY, 13 states have introduced and/or passed finance disclosure laws - all incorporating ELFA 's full suite of exemptions.
Certain of these states who have passed the disclosure legislation (CA, NY, CT) require disclosure of the annual's percentage rate or APR, all other states with passed legislation (UT, GA , FL, VA) do not. APR is expressed as a nominal yearly rate, inclusive of any fees and finance charges; the finance charge, which means the amount of any and all costs of small business credit, including interest, transaction fees, origination fees, and any third party fees; the payment schedule, which includes the number, amounts, and timing of payments scheduled to repay the obligation, which amounts shall include principal, interest, and any other finance charges incurred after closing; as well as any third party agreements entered into between the entity that provides the small business loan and any broker or other third party involved in the loan, any fees paid pursuant to their involvement, and a description of their relationships and any conflicts of interests. The bill summaries also say that an entity providing a small business loan shall, as applicable and appropriate under the terms of the small business loan, notify a small business concern at least 45 days before the effective date of any increase in the annual percentage rate of the loan and any other change that significantly affects the responsibilities or obligations of the small business concern under the loan.