Connecticut State capital

(As first published in Leasing News)  On June 7, 2023, the Connecticut State Legislature passed an Act Requiring Certain Financing Disclosures, Senate Bill No. 1032 (“Law”).  The Law (click to view) was signed by the governor and will go into effect on July 1, 2024. This makes Connecticut the sixth state to pass a law requiring commercial finance disclosures. Unlike California and New York’s commercial disclosure laws, the Connecticut Act does not require disclosure of the annual percentage rate.

While the bill bears some similarity to those passed in other states, it is limited in application to the merchant cash advance business so that the result is most similar to that of Virginia.

Under the Law, commercial financing means transactions of an extension of “sales-based financing” in an amount of $250,000 or less, provided it is for business purposes and not for personal, family or household purposes.

Sales-based financing is defined as a transaction repaid over time based upon sales or revenue or according to a fixed payment mechanism that adjusts based on sales or revenue. Thus, the law is limited to merchant cash advance business or any other transactions that resemble such format.

Transactions and entities exempt from the disclosure requirements are:

  • Banks, credit unions, technology providers to exempt entities, lenders regulated under the federal Farm Credit Act;
  • Transactions secured by real property;
  • Those who extend or broker a lease as defined under the Connecticut Uniform Commercial Code(“UCC”);
  • Providers of purchase-money obligations as defined under the UCC;
  • Those who extend commercial financing credit 5 times or less in the state during a 12-month period;
  • Providers of open-end credit plans of at least $50,000 to a dealer or a rental car company or affiliate;
  • Persons who extend or broker commercial financing transactions for the sale of products or services that such person manufactures, licenses or distributes or whose parent company, subsidiary or affiliates manufactures, licenses or distributes.

Providers of transactions are required to give written disclosures when the provider extends a specific offer for sales-based financing.

Information to be disclosed includes:

  • The total amount of financing;
  • The disbursement amount after any deductions or withholding;
  • the finance charge; the total repayment amount which is the disbursement amount plus the finance charge;
  • The estimated time period required for the periodic payments to equal the total repayment amount; the payment amounts;
  • A description of any other potential fees and charges not included in the finance charge; any finance charge the borrower will be required to pay on early termination or a refinancing aside from interest accrued and any additional fees resulting;
  • A description of the collateral or security requirements; whether a broker will be paid directly by the provider and the amount of such compensation.

The Law prohibits provisions in commercial financing contracts that waive the borrower’s right to notice, hearing or court order and such provisions will be unenforceable under the Law. Any offer provided after the effective date of the Law cannot be revoked, withdrawn or modified until midnight of the third calendar day after the offer was made. The Banking Commissioner may accept use of disclosures prepared in accordance with the laws of another state in lieu of the Connecticut disclosures, if the Banking Commissioner determines the other state’s disclosure meets or exceeds the Connecticut disclosure Law requirements.