Alston & Bird Consumer Finance Blog


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.

Utah to regulate smaller commercial non-real estate secured financings

A&B Abstract:

We wanted to apprise you of a significant development impacting the commercial non-real estate secured lending arena which until recently has been lightly regulated by the states.  On March 24, 2022, Utah Governor Spence Cox signed into law S.B. 183, the “Commercial Financing Registration and Disclosure Act” (the “Act”) which, commencing on January 1, 2023, requires certain “providers” of non-real estate secured loans in amounts of $1 million or less (referred to as “commercial financing transactions”) to (i) register with the Utah Department of Financial Institutions (the “UDFI”) and (ii) provide certain disclosures to borrowers prior to the consummation of the transaction. Utah becomes the third state to regulate smaller commercial non-real estate secured financings, joining California and New York State which have enacted similar type of laws, but neither of which are yet effective, pending implementing regulations. Further, Utah becomes a rare state to require registration in connection with the origination of commercial purpose transactions.

Applicability of the Utah Law:

As a threshold matter, the Act applies to “providers” of “commercial financing transactions.” The Act defines “provider” as “a person who consummates more than five “commercial financing transactions” in Utah during any calendar year, including certain brokers who assist depository institutions offer “commercial financing products via an online platform.” Depository institutions and Utah-licensed money transmitters are exempt from the Act. The Act defines “commercial financing transaction” as a “business purpose transaction under which a person extends a business or commercial loan or a commercial open-end credit plan; or that is an accounts receivable purchase transaction [i.e., merchant cash advance transaction].” Notably, the Act does not apply to consumer purpose transactions, commercial transactions secured by real estate, transactions in excess of $1 million or transactions of at least $50,000 where the recipient of the funding is a motor vehicle dealer.

Notable Requirements of the Utah Law:

Effective January 1, 2023, the Act requires “providers” to register with the UDFI and maintain such registration annually. Further, prior to consummation of the commercial financing, “providers” must, among other things, disclose to borrowers: (i) the total amount of funds provided to the business; (ii) the total amount of funds disbursed to the business; (iii) the total amount paid to the “provider” under the financing; (iv) the manner, frequency and amount of each payment (or if the amount of each payment may vary, the manner, frequency and estimated amount of the initial payment); (v) information regarding prepayment of the financing; and (vi) the amount the “provider” paid to the broker, if applicable. It is anticipated that the UDFI will prescribe the specific form of the disclosures in a forthcoming rulemaking.

A person who violates the Act is subject to a civil penalty of $500 per violation, not to exceed $20,000 for all violations arising from use of the same transaction documentation or materials. Violators are exposed to civil penalties of up to $50,000 for repeat offenses after receiving notice of a prior violation.  However, violations do not impair the enforceability of the financings or create a private right of action.

Again, the Act does not apply to consumer purpose transactions, real estate-secured transactions or transactions with loan amounts greater than $1 million—or if the “provider” makes five or fewer Utah commercial financings in any calendar year.


Notwithstanding these broad exemptions, this development in Utah is part of a growing trend among states to regulate small balance commercial purpose lending. Several other state legislatures are considering similar legislation which should be monitored carefully.