Alston & Bird Consumer Finance Blog

commercial financing

CFPB Issues Preemption Determination that State Commercial Financing Disclosure Laws Are Not Preempted By TILA

A&B Abstract:

The Consumer Financial Protection Bureau (CFPB) recently announced that it issued a final preemption determination concluding that certain state disclosure laws applicable to commercial financing transactions in California, New York, Utah, and Virginia are not preempted by the federal Truth in Lending Act (TILA). As covered in a previous post, we note that the California, Utah, and Virginia laws have already gone into effect, and New York’s is set to become effective on August 1, 2023.

State Commercial Lending Laws

After examining the state disclosure laws in California, New York, Utah, and Virginia, the CFPB recently affirmed that there is no conflict with TILA because the state laws extend disclosure protections to businesses seeking commercial financing, which are beyond the scope of TILA’s statutory consumer credit protections.  Specifically, the CFPB determined that TILA only preempts state laws under conflict preemption, which the CFPB interprets to mean that TILA preempts state laws only if they are “inconsistent” with TILA.

In California, New York, and Utah, state laws require lenders to issue disclosures in certain commercial financing transactions, the purpose of which is generally defined to mean primarily for other than personal, family, or household purposes.  This is in contrast to TILA’s application to consumer credit, which is extended primarily for personal, family, or household purposes.  In December 2022, the CFPB made a preliminary determination that New York’s commercial financing disclosure law was not preempted by TILA because the state law regulates commercial financial transactions rather than consumer-purpose transactions.

In Virginia, disclosures are required in connection with “sales-based financing,” which is defined generally as a transaction in which the financing is repaid by the recipient based on a percentage of sales or revenue.  “Recipient” means a person whose principal place of business is in Virginia and that applies for sales-based financing and is made a specific offer of sales-based financing by a sales-based financing provider.  Based on these definitions, it appears that the Virginia law would not apply to a consumer credit transaction.  However, the CFPB generally noted that, to the extent state law could apply to a consumer credit transaction, there would still be no inconsistency with TILA.

Accordingly, the CFPB found that the four states’ commercial financing disclosure laws are not inconsistent with and, therefore, not preempted by the federal TILA.


As states continue to propose and enact similar laws requiring disclosures in commercial financing transactions, an argument that federal law preempts such state laws is unlikely to succeed.  Thus, companies should monitor ongoing state regulatory trends in commercial financing transactions to ensure compliance with the consumer-style disclosure requirements that may apply.

New York’s Commercial Finance Disclosure Law Set to Take Effect August 1, 2023

A&B Abstract:

New York is one of the first states that enacted laws requiring consumer-style disclosures for commercial financing transactions (the “New York Law”). Previously, the New York Department of Financial Services (“NYDFS”) issued guidance stating that compliance with the requirements would be delayed until it issued final implementing regulations. Those final regulations were published on February 1, 2023, with an effective date of August 1, 2023 (the “Final Regulations”).

The Final Regulations

The Final Regulations make a few significant changes from the proposed rules, primarily in response to public comments. For example:

  • First, New York’s law will apply only where a recipient’s business is principally managed or directed from the state of New York or where the recipient (if a natural person) is a legal resident of the state of New York. This is a change from positions taken in prior proposed versions of the rule, in which New York would have required the disclosures if either the provider or recipient was located in New York.
  • Second, the Final Regulations clarify that subsidiaries of financial institutions (in addition to the financial institutions themselves) are exempt from the law.
  • Third, the Final Regulations modify notice requirements related to transfers to adhere to UCC norms.
  • Fourth, while the Final Regulations still require broker compensation disclosures, it does not impose strict requirements on the format of those disclosures as originally proposed.
  • Finally, the Final Regulations relaxed strict signature requirements, allowing for disclosures to be provided electronically and by other reasonable means.


New York is among a growing list of states, which include California, Utah, and Virginia, that have enacted laws requiring consumer-style disclosures for commercial financing transactions. As we covered in a previous post, the New York Law has many similarities to the California law that became effective on December 9, 2022. However, New York’s Final Regulations apply to commercial financing transactions of $2.5 million or less, whereas the California regulations apply only to transactions of $500,000 or less. And, as covered in another prior post, Utah also requires registration and disclosures for certain commercial financing transactions of $1 million or less as of January 1, 2023. Notable as well, Virginia has enacted somewhat similar laws applicable to sales-based financing which apply to transactions on or after July 1, 2022. In general, these disclosure laws require specifically formatted lender statements, including the order of the content and respective font sizes. New York has not provided model forms.

While the California, Utah, and Virginia laws have already gone into effect, we expect additional states will also promulgate similar requirements in the future.