(As first published in nvla LeaseWire)
The amount of regulation covering vehicle leasing and finance businesses is staggering, particularly if you operate in multiple states. You need to be aware of the distinction between commercial and consumer leasing with respect to disclosure laws, whether you need a dealer’s license or a leasing license in every state you are doing business, or possibly a sales finance or other lender’s license depending upon the lease structure. Banks or lenders to leasing companies should be aware that a morass of regulations apply to these borrowers and they may be subject to penalties and fines down the road if not compliant which will affect the portfolio.
At the NVLA Annual Meeting in Tucson, AZ this past October, I provided an update on various new or changing regulations that affect the leasing business. This article provides an overview of my presentation and an update where necessary concerning:
- Commercial Finance Disclosure;
- The Small Business Data Collection Rule; and
- The Corporate Transparency Act.
- Commercial Finance Disclosure
These new disclosure statutes require lenders that make loans to commercial entities to give disclosures modeled upon the Truth in Lending Act, similar to what applies to installment sales under Regulation Z. Many of these new disclosure laws exempt true leases from mandatory disclosures. Be aware though, that just because you create a transaction by filling in a form entitled “Lease”, it does not mean the substance of the transaction is necessarily a lease—it may be a loan depending on various factors concerning the financial aspects of the transaction.
States that have passed commercial finance disclosures laws in the last few years include:
- New York
- Virginia (sales-based financing only)
Each of those states have different requirements to analyze and determine applicability, so you may need to look into this depending on your business.
Other states that have or are considering similar legislation include:
- New Jersey
- North Carolina
- The Small Business Data Collection Rule
Covered financial institutions will be required to collect certain specific data points for reporting to the CFPB under the Dodd-Frank Act to determine practices related to lending to minority and women owned small businesses.
A covered financial institution is one that engages in financial activity and includes both depository and non-depository institutions such as online lenders, platform lenders, independent and captive equipment and vehicle finance companies and commercial finance companies. Motor vehicle dealers are exempt from compliance under the rule. Depending on your company’s activities it may be exempt.
Covered credit transactions are extensions of credit for business, commercial or agricultural purposes such as lines of credit and loans. True leases are among the transactions exempt from coverage.
Generally, the rule requires collection of data from businesses with $5 million or less in gross annual revenue for the preceding fiscal year
Compliance with the rule is staggered based upon the number of transactions a financial institution originates. Financial institutions that originate at least 100 covered transactions in each of 2024 and 2025 are required to comply by January 1, 2026. Financial institutions with 2,500 or more originations annually must comply by October 1, 2024, while those that originate less will have compliance deadlines by April 1, 2025.
- The Corporate Transparency Act
Entities formed in the United States before January 1, 2024 may be subject to this federal reporting, with certain exceptions. This means LLCs, corporations and other entities formed by filing a document with the secretary of state or its equivalent in a state may be subject to this law. For entities formed before January 1, 2024, a filing needs to be made before January 1, 2025. For entities formed after January 1, 2024, they will have 30 days to file. The filing is to be made with the Financial Crimes Enforcement Network (FINCEN) to provide information on the beneficial ownership of entities. The purpose is to protect the integrity of the U.S. financial system and to uncover entities that are engaged in money laundering, drug trafficking and other types of criminal activity. Exempt entities include banks, credit unions, broker dealers and other entities that are otherwise regulated by the government. Entities with 20 or less employees are subject to filing, entities with more employees may be exempt. Reporting entities are required to report information concerning each beneficial owner of the company that owns or controls more than 25% of the company. There are rules to determine who is a beneficial owner.
You should investigate whether your entity is subject to the foregoing laws. Failure to comply with the disclosure and filing requirements may subject both the entity and its owners to civil and/or criminal fines and penalties.
Be careful, the laws are complex and different. Don’t assume that the law in one state is the same in another. Consult counsel. Don’t delay as it may be costly in the long run.
Sloan Schickler is a partner in the commercial finance law firm, Schickler & Schickler PLLC. Schickler, a veteran vehicle leasing, finance and bank attorney and the attorneys in her firm have decades of experience representing and protecting lessors, banks, captive and independent finance companies in all facets of the vehicle leasing and financing business. She has served as the NVLA Legal and Legislative counsel since 2017, is currently the only woman on the board of directors and is a supporter of Leasing News and sits on its Advisory Board. Sloan can be reached at email@example.com or 212-262-5297.