On June 26, 2023, Florida Governor Ron DeSantis took a significant step towards ensuring transparency and consumer protection in the commercial financing industry by signing the Florida Commercial Financing Disclosure Law (FCFDL) into effect. This landmark legislation introduces comprehensive disclosure requirements for covered commercial financing transactions. It outlines specific prohibitions for brokers, including collecting advance fees.
Coverage and Disclosure Requirements in FCFDL
The FCFDL applies to various types of commercial financing, including commercial loans, lines of credit, and accounts receivable purchase transactions, with certain exceptions. For all covered transactions, the law necessitates the following disclosures:
Total Financing Amount: This includes the comprehensive amount of commercial financing.
Disbursement Amount: If different from the financing amount, this includes the disbursement amount after any deductions or withholdings, which must be itemized.
Total Amount Owed: This indicates the sum payable to the financing company.
Cost of Financing: The law mandates a clear breakdown of the total cost associated with the financing.
Payment Details: Specifics regarding payment frequency, mode, and amount must be provided. In cases where payments vary, an estimated initial payment and the methodology for calculating variable payments should be outlined. Additionally, information on when payments may vary is required.
Prepayment Rights: The law also requires disclosure of information related to prepayment rights and any associated penalties.
Exemptions and Legal Implications
The FCFDL offers exemptions for specific transactions and entities, which include federally insured Florida and federal “depository institutions,” commercial mortgages, individual transactions exceeding $500,000, and transactions involving providers selling or leasing products manufactured, licensed, or distributed by that provider or related companies.
However, the exception for Florida and federal depository institutions and related parties may raise constitutional concerns under the Commerce Clause of the U.S. Constitution. This is a topic that may draw legal scrutiny in the future.
Comparative Analysis to Other States with Disclosure Requirements
In comparison to related statutes in California and New York, the FCFDL imposes more limited disclosure requirements. Enforcement of the FCFDL is entrusted solely to the Attorney General. They can employ voluntary compliance, administrative proceedings, or judicial action to ensure adherence. Fines are capped at $20,000 in total ($50,000 in cases of repeated violations after prior notice). Notably, the FCFDL does not grant a private right of action.
Legislative Trends and Future Implications
The enactment of the FCFDL places Florida among a growing number of states, including New York, California, Utah, and Virginia, in taking substantial steps toward regulating and disclosing commercial financing transactions. This legislative trend suggests that additional states may follow suit, with Connecticut, Illinois, Maryland, and Missouri already considering similar bills.
The Florida Commercial Financing Disclosure Law signals a significant stride toward transparency and consumer protection in commercial financing. By mandating detailed disclosures and prohibiting certain practices, the law aims to create a fairer playing field for businesses seeking financing. As the landscape of commercial financing regulations continues to evolve, it is imperative for industry stakeholders to stay informed and adapt to new requirements.
CFGMS ISO Partners Enjoy a Direct Line to Compliance Department
If CFGMS ISOs have any questions or need guidance regarding existing or newly enacted disclosure laws in Florida, California, New York, Virginia, Utah, Connecticut, Georgia, or any upcoming states, they can directly contact compliance@cfgms.com for assistance. VP of Compliance & Data Assurance, Dan Taylor is readily available to assist.
VP of Compliance & Data Assurance, Dan Taylor, can be reached at compliance@cfgms.com