Utah Governor Signs Commercial Finance Registration and Disclosure Act | Troutman pepper
On March 24, the Governor of Utah signed the Trade Finance Registration and Disclosure Act (CFRDA) in law. Under the CFRDA, effective January 1, 2023, commercial finance providers must register with the Utah Department of Financial Institutions (Department) and provide certain information.
Utah’s registration requirement is the first applicable to providers of accounts receivable purchase transactions (commonly known as merchant cash advances, or MCAs), as the governor of Virginia has yet to sign off HB1027who also has registration and disclosure requirements.
Utah is also the third state to create trade finance disclosure requirements applicable to accounts receivable purchase transactions, following New York and California. New York and California’s requirements have not yet gone into effect due to regulatory delays, but unlike New York and California, Utah does not require disclosure of APR or similar rates.
Who should register?
The CFRDA requires a “provider” of trade finance transactions to register with the Ministry each year and pay a fee, unless an exemption applies.
A “commercial finance transaction” includes a commercial loan, an indefinite commercial credit plan and an accounts receivable purchase transaction.
A “provider” is a person who provides more than five commercial finance transactions in Utah in a calendar year. A supplier also includes a person who, under an agreement with a deposit-taking institution, offers one or more commercial financing products offered by the deposit-taking institution via an online platform that it administers.
However, there are several CFRDA exemptions for certain entities and types of transactions, including:
- Deposit-taking institutions and certain regulated subsidiaries and service companies;
- Money transmitters licensed under Utah law;
- Commercial mortgages;
- Silver purchase obligations;
- Commercial loans and open-ended credit plans of $50,000 or more to motor vehicle dealerships or rental companies;
- Trade finance transactions offered in connection with the sale of a product that the person manufactures, licenses or distributes; and
- Trade finance transactions over $1,000,000.
Therefore, although depository institutions and certain regulated subsidiaries are exempt from the CFRDA, certain banking partners who administer an online platform under an agreement with a depository institution may be required to register if they ” offer » one or more products supplied by the agent. institution. The term “offer” is not defined.
Registration will require registering with the National Multi-State Licensing System and Registry (NMLS), providing certain vendor information, and disclosing information about certain control persons relating to specified criminal convictions. However, the Department may issue a rule requiring additional information.
What are the disclosure requirements?
The CFRDA requires a provider to provide certain information before conducting a trade finance transaction. Unlike California and New York, Utah will not require APR or similar rate disclosure.
For all trade finance transactions, the CFRDA requires the following information:
- The amount of funds provided to the Company under the trade finance transaction and the amount paid to the Company, if less than the amount of funds provided;
- The total amount to be paid to the supplier;
- The total dollar cost of the trade finance transaction, which is the difference between the amount provided to the business and the amount payable to the supplier;
- The method, frequency and amount of each payment, or the estimated amount of an initial payment if the payments vary;
- Information on costs or discounts associated with prepayment; and
- All amounts provided to the company under the agreement which will be paid by the supplier to a broker.
The agreement should also include a description of how the variable payments are calculated and the circumstances under which the payments may vary.
For open-ended commercial credit plans, information must also be provided after any disbursement of funds. These disclosure requirements apply to a trade finance transaction occurring after January 1, 2023. The Ministry may also require additional disclosures.