Utah enacts disclosure requirements for small business credit

On March 24, Utah Governor Spencer Cox signed into law SB 183, a bill that contains certain business transaction disclosure requirements applicable to prescribed providers of many forms of “small” business credit. Utah joins California and New York in adopting these legal commercial finance disclosure requirements. However, there are some important nuances in the Utah law that may make it slightly less onerous than the provisions enacted in California and New York, none of which are in effect as of the date of publication of this Customer Alert.

SB 183, the Commercial Finance Registration and Disclosure Act (CFRDA), creates a new legislative regime set forth in UT § 7-27-101 et seq. The specific disclosure requirements apply to “trade finance transactions” defined as a transaction for a commercial purpose (e.g. a non-consumer transaction) under which “a person makes a commercial or commercial loan or open-ended commercial credit; or which is an accounts receivable purchase transaction.” Like the laws of California and New York, the concept of “broker” is also included in the enacted legislative scheme: it is important to note that in With respect to Utah law, the definition of “provider” includes an “online platform” that a person administers pursuant to a written agreement with a deposit-taking institution that offers such person’s trade finance products. depository institution.

Specific requirements

The law exempts certain entities from its scope, including: a deposit-taking institution (including a subsidiary or service company of a deposit-taking institution; a supplier that consumes five or fewer trade finance products in state over a 12-month period; one commercial finance transaction secured by real estate; and one commercial finance transaction over $1 million. This contrasts with California, where commercial transactions over $500 $000 are not subject to state law, and unlike New York, where business transactions over $2.5 million are excluded from coverage.

Unlike legal requirements in California and New York, Utah has a registration requirement. It is important to note that as of January 1, 2023, a trade credit provider subject to legal requirements must register with the Utah Department of Financial Institutions (UT DFI) and maintain that registration annually.

In addition to a registration requirement, the law requires that before “consuming” a trade finance transaction, a provider must disclose the terms of the proposed trade finance transaction under rules which have not yet been written and adopted by UT DFI. Disclosures should include information regarding:

  • Total amount of funds disbursed to the company

  • Total amount of funds disbursed to the company

  • Total amount payable to the supplier under the trade finance transaction

  • The method and frequency of each payment (and in the event that the amount of each payment may vary, the method, frequency and estimated amount of the initial payment)

The statutory text of the act states that the required disclosures must be provided after January 1, 2023, although this assumes that the regulations required by law will be in place and operational by that time. Note that there was a similar requirement in comparable New York law that was not followed by the New York State Department of Financial Services.

The law also provides that the UT DFI may receive complaints from the public regarding violations of the law.

Finally, the law provides a statutory civil penalty of $500 per violation, which shall not exceed $20,000 for all violations arising from the use of the same documents or transaction elements.

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