December 21, 2022 – Jonathon D. Nelson, General Counsel for Dedicated Financial GBC
The Consumer Financial Protection Bureau (CFPB) has published a notice of intent to make a preemption determination in the Federal Register, and is seeking comments from the public until January 20, 2023. The notice is in regards to the New York commercial finance disclosure law that was recently passed, in addition to similar laws in California, Utah, and Virginia. Each of those laws have a significant impact on all commercial financiers as they add a layer of compliance requirements.
The CFPB’s notice was published as a result of a formal request made by a non-profit advocacy organization dedicated to ensuring small businesses have access to working capital. That organization asked the CFPB to make the determination that the New York law was preempted by the Truth In Lending Act (TILA) (15 U.S.C. § 1601(a)) to ensure uniformity in financing disclosures. As it stands, the New York law has a definition of “finance charge” that is different than TILA’s definition of that same term, and the New York law utilizes an Annual Percentage Rate (APR) calculation that is different than the APR formula found in TILA.
Since there is a different definition of a very important term, plus a different APR calculation, it is very likely that small businesses will be misled or confused when they are comparing offers for financing. The differences found in the New York law will frustrate the purpose of TILA: ensure uniformity in financing disclosures. Uniformity is very important because it allows small businesses to accurately compare offers for financing and then make an informed decision.
As a result, the CFPB should reach the determination that the New York law is preempted by TILA pursuant to the Supremacy Clause of the United States Constitution (U.S. Const. art. VI., § 2). However, the CFPB states in its notice that it has made a preliminary conclusion that the New York law is not preempted by TILA.
Please voice your opinion on the matter by submitting a respectful comment to the CFPB’s notice before January 20, 2023. If you care about small businesses and recognize that small businesses are a vital part of the economy, please let the CFPB know that small businesses deserve accurate, clear, and uniform financing disclosures so they can continue to grow. Additionally, if you are not currently involved in a non-profit advocacy organization, please get involved. Organizations such as the one that sent the request to the CFPB are able to effectively speak on very important topics and ensure that their members’ collective voice is heard by decision-makers.
“The whole is greater than the sum of its parts.” ~ Aristotle
The CFPB notice in the Federal Register can be found at: https://www.federalregister.gov/documents/2022/12/15/2022-27059/intent-to-make-preemption-determination-under-the-truth-in-lending-act-regulation-z