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Pennsylvania recently introduced a Commercial Finance Disclosure Law following the lead of other states with laws requiring consumer-like disclosures in certain commercial loans, states that include California, Connecticut, Florida, Georgia, New York, Virginia, and Utah. The law facing the Pennsylvania House, HB 1 7 9 2, is substantially similar to a bill introduced in a prior legislative session.
Unlike other states, Pennsylvania’s approach does not propose comprehensive multi-section legislation. Instead, it proposes an abbreviated, two-section amendment to Pennsylvania’s Loan Interest and Protection Law, a law focused primarily on consumer lending protection in residential mortgage lending and that supplements other existing lending laws.
House Bill 1 7 9 2 proposes to expand the reach of the Pennsylvania Loan Interest and Protection Law to include quote “a person who extends a specific offer of commercial financing to a recipient” end quote, and would require the lender to disclose consumer-type information to small businesses at the time of the financing offer. The proposal would also require a signature from the small business for each disclosure before executing the commercial financing transaction.
In this case, a small business is defined as “a business of fewer than five hundred employees that is presented a specific commercial financing offer by a [lender].” The term Person under the Pennsylvania Loan Interest and Protection Law appears to have little limitation, if any. The disclosures required include the total amount of funds to be provided, the total dollar cost of the financing, the term, payment terms, prepayment policies, and the total cost of the financing expressed as an annualized rate. There is no loan amount reference, unlike other commercial financing disclosure laws.
What materially differentiates House Bill 1792 from other Commercial Finance Disclosure Laws to date is that it expressly provides for a private right of action, in addition to regulatory enforcement and penalties. This means a borrower may commence an action against the lender for disclosure violations and could collect attorneys’ fees in such an action. A private right of action currently exists under the Pennsylvania Loan Interest and Protection Law, and the bill amendment adding the commercial finance disclosure requirements does not negate it. Accordingly, a violation of commercial finance disclosure requirements would provide a private right of action as one of several remedies. It remains unclear if the bill’s sponsors intended this deviation from other Commercial Finance Disclosure Laws or whether a private right of action was an unintended consequence of adding provisions to the Pennsylvania Loan Interest and Protection Law and will be addressed in the coming legislative session.
As of the date of this episode, many other states have proposed forms of commercial financing laws this legislative session - with varying degrees of success. While Illinois, Kansas, and North Carolina have all passed laws, Maryland's bill failed to pass. Multiple bills in Texas, Mississippi, and Missouri also failed. Bills remain pending in New Jersey from the carry-over session. Proposed commercial financing laws have also been proposed at the federal level.
As with other legal updates, we’re closely monitoring developments in this area and remain ready to assist clients in navigating these laws.
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