Maryland Joins Other States Offering Commercial Finance Disclosure Laws: Truth-Like Disclosures in Commercial Lending | Miles and Stockbridge PC

Earlier this month, Maryland State Senator Benjamin K. Kramer introduced Senate Bill 825, “Consumer Credit – Commercial Finance Transactions.” While it’s not clear from the title of the bill, it contains legislation substantially similar to the Commercial Financial Disclosure Act (CFDL) passed in New York last year. (NEW YORK Fin. To serve. Law § 801 and following.). Modeled after New York’s CFDL, the Senate proposal would require certain commercial finance providers to disclose information about consumer loans, similar to certain federal Truth in Lending Act disclosures made to consumers in consumer loan framework. The bill further directs the Office of the Commissioner of Financial Regulation to adopt regulations that may be adopted by the rules of the New York Department of Financial Services relating to the CFDL.

Commercial loans up to $2,500,000 would be subject to the disclosure requirements of the law, unless an exemption applies. Although Senate Bill 825 is substantially similar to New York’s CFDL, one notable difference concerns the exemptions. Under New York law and the Maryland Senate bill, a “financial institution” is exempt from compliance. New York defines “financial institution” very broadly to include virtually all federal and state banks, credit unions, and credit unions licensed to do business in New York. In contrast, Senate Bill 825 provides no definition of “financial institution”. The Financial Institutions Section of the Maryland Code, where the text of Senate Bill 825 will be housed if enacted, provides a definition: “Financial institution” is defined as “any financial institution of the type supervised under of [the Financial Institutions] article whether or not it has a state charter. (Md. Code Ann., Fin. Inst., § 1-101(j)). Due to the limitation of the exemption to supervised financial institutions, the proposed exemption under Maryland law may exempt fewer entities than the statutory exemption under New York law.

In our last report, we provided an update on pending laws and are now providing another update. New York and California are two states that have adopted similar CFDLs. The effective dates of these laws await the development of final rules in their respective states. Similar CFDL legislation has been introduced in other states. Although these laws have a similar theme, they are not identical. A number of proposed laws would apply mandatory disclosures to all commercial loans regardless of loan size, unless an exemption applies. As of the date of this article, states with similar disclosure laws include Connecticut (2021 Senate Bill 745 (failed)), Mississippi (2022 Senate Bill 2629 (failed); 2022 Senate Bill 1178 (failure)), Missouri (2022 Senate Bill 963), New Jersey (2022 Senate Bill 819), North Carolina (2021 House Bill 969), Pennsylvania (2021 House Bill 1793), and Utah (2022 House Bill 183) . Shortly before this publication, House Bill 1211 was introduced in the Maryland House of Delegates as a companion bill to Senate Bill 825. It contains no material changes from Senate Bill 825 as introduced.

Miles & Stockbridge is closely monitoring developments in this area and remains ready to help customers navigate these proposed changes.

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