Illinois Becomes Latest State to Introduce Small Business Truth in Lending Act
On February 17, 2023, Illinois Representative Hoan Huynh introduced HB3064, the Small Business Truth in Lending Act, to “protect business owners from predatory business loans.”
The Act would impose disclosure requirements for commercial financing, including “open-end financing, closed-end financing, sales-based financing, factoring transaction, or another form of financing that a recipient does not intend to use the proceeds of primarily for personal, family, or household purposes.” The Act would apply to all transactions occurring on or after January 1, 2024, with exceptions for certain transactions and financing providers, such as banks and commercial mortgages. It is important to note that the exemptions appear to carve out technology providers, which may have an arrangement to obtain an interest in the financing after origination, even if the transaction was originated by a bank. The Act would require closed-end financing to disclose:
the total commercial financing amount and disbursement amount after any amount deducted or withheld after disbursement;
the finance charge;
the annual percentage rate (APR), including any mandatory fees and finance charges, calculated in accordance with the federal Truth in Lending Act;
payments:
if the payment amount is fixed, payment amounts, frequency, and average monthly payment amount if applicable; or
if the payment amount is variable, a full payment schedule or description of the method used to calculate the amount and frequency of payments, and the estimated monthly payment amount if applicable;
in the case of refinancing or pay off before full repayment:
any finance charge other than accrued interest, including the percentage of the unpaid portion of the finance charge and maximum dollar amount; and
any additional fees other than the finance charge;
a description of all other fees that may be avoided by the payer; and
a description of all collateral or security requirements.
The Act comes after similar legislation has been enacted in New York, California, Utah, and Virginia, and introduced in Connecticut, Maryland, and Missouri, thus demonstrating a trend is likely to continue among other states.