[Congressional Bills 118th Congress]
[From the U.S. Government Publishing Office]
[S. 2021 Introduced in Senate (IS)]
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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)
introduced the following bill; which was read twice and referred to the
Committee 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 Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Financing Disclosure
Act of 2023''.
SEC. 2. APPLICATION OF THE TRUTH IN LENDING TO SMALL BUSINESS
FINANCING.
(a) In General.--The Truth in Lending Act (15 U.S.C. 1601 et seq.)
is amended by adding at the end the following:
``CHAPTER 6--SMALL BUSINESS FINANCING
``191. Definitions.
``192. Application of this title to small business financing.
``193. Additional disclosures.
``194. Restrictions on double-dipping.
``195. Additional provisions.
``Sec. 191. Definitions
``In this chapter:
``(1) Closed-end commercial credit.--The term `closed-end
commercial credit'--
``(A) means a secured or unsecured closed-end
extension of credit, including financing with an
established principal amount such as equipment
financing that is not a lease, as defined in section
2A-103 of the Uniform Commercial Code, the proceeds of
which the recipient does not intend to use primarily
for personal, family or household purposes; and
``(B) includes financing with an established
principal amount and duration.
``(2) Consumer financial product or service.--The term
`consumer financial product or service' has the meaning given
the term in section 1002 of the Consumer Financial Protection
Act of 2010 (12 U.S.C. 5481).
``(3) Director.--The term `Director' means the Director of
the Bureau.
``(4) Factoring.--The term `factoring' means a transaction
that includes an agreement to purchase, transfer, or sell a
legally enforceable claim for payment held by a recipient for
goods the recipient has supplied or services the recipient has
rendered that have been ordered but for which payment has not
yet been made.
``(5) Finance charge.--
``(A) In general.--The term `finance charge'--
``(i) means the cost of financing as a
dollar amount; and
``(ii) includes any charge payable directly
or indirectly by the recipient of the financing
and imposed directly or indirectly by the
provider of the financing as an incident to or
a condition of the extension of financing.
``(B) Calculation in open-end commercial credit
plans.--In any open-end commercial credit plan, the
finance charge shall be computed assuming the maximum
amount of credit available to the recipient, in each
case, is drawn and repaid at the minimum rate.
``(C) Calculation in factoring transactions.--In
any factoring transaction, the finance charge includes
the discount taken on the face value of the accounts
receivable.
``(D) Calculation in lease financing
transactions.--In any lease financing transaction, the
finance charge includes the sum of the lease payments
and, if there is a fixed-price purchase option or a
purchase option with a price that can be calculated at
the time of disclosure, the purchase price listed in
the contract that the lessee may pay to acquire the
leased goods at the end of the lease, minus--
``(i) if the finance company selects,
manufactures, or supplies the goods to be
leased, the price that the finance company
would sell the goods in a cash transaction; or
``(ii) if the finance company does not
select, manufacture, or supply the goods to be
leased, the price the finance company will pay
to acquire the property to be leased.
``(E) Inclusion of certain prepayment charges.--
``(i) In general.--If, as a condition of
obtaining the offered commercial financing the
provider requires the recipient to pay off the
balance of an existing loan or advance from the
same provider, any prepayment charge or penalty
required to be paid on the existing financing
shall be included as a financing charge.
``(ii) Treatment when repayment amount is
calculated as a fixed amount.--For purposes of
clause (i), for financing for which the total
repayment amount is calculated as a fixed
amount, the prepayment charge is equal to the
original finance charge multiplied by the
required prepayment amount as a percentage of
the total repayment amount, minus any portion
of the total repayment amount forgiven by the
provider at the time of prepayment.
``(6) Open-end commercial credit plan.--The term `open-end
commercial credit plan' means any small business financing
provided by a person under a plan that--
``(A) the person reasonably contemplates repeat
transactions;
``(B) prescribes the terms of the transactions; and
``(C) provides for a finance charge that may be
computed from time to time on the outstanding unpaid
balance.
``(7) Provider.--The term `provider' mean a person who
offers or provides small business financing.
``(8) Recipient.--The term `recipient' means a person who
is presented an offer of small business financing.
``(9) Sales-based financing.--The term `sales-based
financing'--
``(A) means a transaction for an extension of
financing to a recipient that is repaid by the
recipient, over time, 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; and
``(B) includes transactions with a true-up
mechanism.
``(10) Small business.--The term `small business' has the
meaning given the term `small-business concern' in section 3 of
the Small Business Act (15 U.S.C. 632).
``(11) Small business financing.--The term `small business
financing'--
``(A) means any line of credit, closed-end
commercial credit, sales-based financing, or other non-
equity obligation or alleged obligation of a
partnership, corporation, cooperative, association,
sole proprietorship, or other entity that is not more
than $2,500,000; and
``(B) does not include any obligation or alleged
obligation of an individual that is primarily for
personal, family, or household purposes.
``(12) Specific offer.--The term `specific offer' means the
specific terms of small business financing, including price or
amount, that is quoted to a recipient, based on information
obtained from, or about the recipient, which, if accepted by a
recipient, shall be binding on the provider, as applicable,
subject to any specific requirements stated in such terms.
``Sec. 192. Application of this title to small business financing
``(a) In General.--This title shall apply to small business
financing made to a small business to the same extent that this title
applies to extensions of credit made to a consumer.
``(b) Rulemaking.--The Director shall prescribe regulations
necessary to carry out this chapter.
``(c) Bureau Authority.--For purposes of carrying out this chapter
and other Federal laws, including the Consumer Financial Protection Act
of 2010 (12 U.S.C. 5481 et seq.), the Bureau shall have the same
authority with respect to small business financing as the Bureau has
with respect to consumer financial products and services.
``Sec. 193. Additional disclosures
``(a) In General.--Any provider offering small business financing
to a small business shall disclose the following information to a
recipient at the time of extending a specific offer for small business
financing:
``(1) Financing amount.--The total amount to be paid to the
small business, taking into account all fees and charges to be
withheld at disbursement.
``(2) Annual percentage rate.--
``(A) Closed-end commercial credit.--With respect
to closed-end commercial credit, the annual percentage
rate, using only the words `annual percentage rate' or
the abbreviation `APR', expressed as a yearly rate,
including any fees and finance charges that cannot be
avoided by a recipient.
``(B) Open-end commercial credit plans.--With
respect to open-end commercial credit plans, the annual
percentage rate, using only the words `annual
percentage rate' or the abbreviation `APR', expressed
as a nominal yearly rate, including any fees and
finance charges that cannot be avoided by a recipient,
based on the maximum amount of credit available to the
recipient and the term resulting from making the
minimum required payments term as disclosed.
``(C) Sales-based financing.--
``(i) In general.--With respect to sales-
based financing, the estimated annual
percentage rate, using the words `annual
percentage rate' or the abbreviation `APR',
expressed as a yearly rate, including any fees
and finance charges, based on the estimated
term of repayment and the projected periodic
payment amounts.
``(ii) Calculation of certain payment
amounts.--The estimated term of repayment and
the projected periodic payment amounts shall be
calculated based on the projected sales volume
of the recipient.
``(iii) Calculation of projected sales
volumes.--For purposes of clause (ii), the
projected sales volume may be calculated--
``(I) according to a method defined
by the Director based on the historical
sales volume of the recipient over a
defined period of time that is used for
all sales-based financing transactions
by that provider; or
``(II) by a method other than the
method described in subclause (I) that
is defined by the provider and approved
by the Director, with ongoing
monitoring by the Director for accuracy
based on a comparison of the annual
percentage rate as disclosed to the
recipient and as calculated
retrospectively upon repayment of the
financing.
``(D) Factoring.--
``(i) In general.--With respect to
factoring, the estimated annual percentage
rate, using that term.
``(ii) Calculation.--To calculate the
estimated annual percentage rate under clause
(i)--
``(I) the purchase amount shall be
considered the financing amount;
``(II) the purchase amount minus
the total cost of financing shall be
considered the payment amount; and
``(III) the term is established by
the payment due date of the
receivables.
``(iii) Alternate method to estimate
term.--Notwithstanding clause (ii)(III), a
provider may estimate the term for a factoring
transaction as the average payment period, its
historical data over a period not to exceed the
previous 12 months, concerning payment invoices
paid by the party owing the accounts receivable
in question.
``(3) Payment amount.--With respect to small business
financing other than factoring--
``(A) for payment amounts that are fixed--
``(i) the payment amounts and frequency
(e.g., daily, weekly, monthly); and
``(ii) if the term is longer than one month
and payment frequency is other than monthly,
the average total monthly payment amount; or
``(B) for payment amounts that are variable--
``(i) a full payment schedule or a
description of the method used to calculate the
amounts and frequency of payments; and
``(ii) if the term is longer than one
month, the estimated average total monthly
payment amount.
``(4) Term.--For financing other than factoring, the term
of the small business financing--
``(A) in months or in years; or
``(B) if the term is not fixed, the estimated term,
calculated using the same assumptions used to calculate
the estimated annual percentage rate.
``(5) Finance charge.--The finance charge of the small
business financing, broken down to show what expenses and fees
are included in the finance charge.
``(6) Prepayment cost or savings.--If a recipient elects to
pay off or refinance the small business financing prior to full
repayment, the provider shall disclose--
``(A) whether the recipient would be required to
pay any finance charges other than interest accrued
since the last payment by the recipient;
``(B) if the recipient is required to pay the
finance charges described in subparagraph (A), the
percentage of any unpaid portion of the finance charge
and maximum dollar amount the recipient could be
required to pay; and
``(C) whether the recipient would be required to
pay any additional fee not already included in the
finance charge.
``(7) Collateral requirements.--Any collateral requirement
that will be imposed on the small business in connection with
the small business financing.
``(b) Form of Disclosures.--
``(1) In general.--Disclosures pursuant to this section
shall be disclosed in writing, at the time a specific offer is
made, and in a manner that is clear, conspicuous, complete, and
allows the small business to compare the range of small
business financing options that the small business may be
considering.
``(2) Prominence of disclosures.--In making any disclosure
pursuant to this section, the disclosures required under
paragraphs (1), (2), and (3) of subsection (a) shall be
displayed most prominently.
``Sec. 194. Restrictions on double-dipping
``If a lender of small business financing refinances or modifies an
existing loan with a fixed fee as the primary financing charge, the
lender may not charge a fee on the outstanding principal of the loan
unless there is a tangible benefit to the small business.
``Sec. 195. Additional provisions
``(a) Rule of Construction.--Nothing in this chapter may be
construed to prevent a provider from providing or disclosing additional
information on a small business financing being offered to a recipient
unless the additional information may not be disclosed as part of the
disclosure required by this chapter.
``(b) Use of Terms.--
``(1) Rate.--If other metrics of financing cost are
disclosed or used in the application process of a small
business financing, the metrics shall not be presented as a
rate if they are not the annual interest rate or the annual
percentage rate.
``(2) Interest.--The term `interest', when used to describe
a percentage rate to a recipient or potential recipient, shall
only be used to describe annualized percentage rates, such as
the annual interest rate.
``(c) Requirement To State APR.--If a provider states in writing a
rate of finance charge or a financing amount to a recipient during an
application process for small business financing, the provider shall
also state the annual percentage rate or, in the case of sales-based
financing or factoring, the estimated annual percentage rate, with
equal or greater prominence, using the term `annual percentage rate' or
the abbreviation `APR'.''.
(b) Technical and Conforming Amendment.--The table of chapters for
title I of the Consumer Credit Protection Act is amended by adding at
the end the following:
``6. Small Business Financing............................... 191.''.
(c) Rulemaking Deadline.--Not later than the end of the 2-year
period beginning on the date of enactment of this Act, the Director of
the Bureau of Consumer Financial Protection shall prescribed final
regulations to carry out the amendments made by this section.
(d) Effective Date.--The amendments made by subsection (a) shall
take effect on the date that is 36 months after the date of enactment
of this Act.
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