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Utah to regulate smaller commercial non-real estate secured financings

BY: Stephen Ornstein
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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.

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