Looking Forward to 2021

As of press time for this article, the outcome of the election is unclear, but the implications for the equipment finance industry are clear. 2021 will not be a year of dramatic change in fiscal policy. Instead, from an economic perspective, the likely outcomes range from incremental change to the status quo. There will be no dramatic change to the tax code and there are unlikely to be any major changes to the health care system. The largest bills to come out of Congress for the rest of 2020 and 2021 will likely be basic funding of government operations and responses to the ongoing pandemic.

When looking forward to 2021—and let’s face it, most of us are ready for 2020 to be over—it’s illustrative to think about what the most likely developments will be for the equipment finance industry.

Section 1071

Section 1071 of Dodd Frank has hung over the commercial finance industry for more than a decade now and may soon surpass the lease accounting project as the longest spinning broken record for our industry. However, the CFPB has advanced this rule significantly in 2020 and that pace is likely to continue in 2021.

As a reminder, once in force, Section 1071 will require certain commercial finance providers to inquire of, and collect from, their small business customers certain demographic information. If the recent proposal by the CFPB resembles any future final rule, the regulations will be more expansive that the original statute envisioned and could require the disclosure of pricing information for transactions subject to reporting. While true leases appear to be headed for an exemption, and ELFA is still advocating for many other changes in the proposal, there is no doubt that this rule, once in place, will dramatically change the normal course of business for small business finance. ELFA members should be reviewing these proposals as they are issued and contemplating how they will adapt. Many of these changes will require software changes and application process changes that may take time to implement.

Tax Policy

During the process of developing the Tax Cuts and Jobs Act passed in 2017, many provisions had to be phased out to fit the size 13 ambitions of the tax writers into a size 10 budget window. As a result, many provisions phase out or change in the coming years. The two most impactful for our industry are likely to be the change in the methodology for calculating the limitation on business interest to no longer account for depreciation and amortization, and the phase down of 100% expensing. There will be much discussion about extending these provisions but that’s no sure bet. Now is the time to let ELFA know if you have concerns about either of these provisions changing.

With regard to the interest deductibility standard going from an EBITDA standard to an EBIT standard, this has been somewhat surprising in its lack of impact to date, and it will be interesting to hear from members what the impact of the further change would be. 100% expensing has, especially when combined with the corporate rate reduction, caused the propensity to finance to go down somewhat so this has been a mixed bag for the industry.

Infrastructure

No article about the legislative outlook for Washington would be complete without a tip of the hat to infrastructure. It is a running joke in Washington that every week is infrastructure week and 2021 will be no different. Whether or not the stars align for this to come together in 2021 and the size of any legislation both remain to be seen, but infrastructure will definitely be an area that will get a lot of discussion and attention as an area for potential bipartisan compromise.