November 2, 2023

Categories: Compliance Regulation, Merchant Cash Advance

In a significant move towards transparency and consumer protection, Georgia has become the fifth U.S. state to enforce small business financing disclosure requirements. These disclosure regulations began in 2018 when California pioneered such legislation. Governor Brian Kemp signed Georgia Senate Bill 90 on May 1, 2023, which is set to take effect on January 1, 2024. This new law amends Georgia’s Fair Business Practices Act, mandating providers of closed-end and open-end commercial financing, as well as accounts receivable purchase transactions of $500,000 or less, to furnish applicants with specific disclosures prior to finalizing a transaction.

Distinctive Features of Georgia’s Senate Bill 90

Georgia’s legislation conclusively determines that a transaction characterized as a purchase of accounts receivable or payment intangibles is not considered a loan under Georgia’s financial institution’s laws, setting it apart. This places Georgia in the ranks of states like California, New York, Utah, and Virginia, each of which has introduced its own commercial finance disclosure law in recent years.

Notably, unlike Utah and Virginia, this new Georgia law will not require providers of financing to obtain a license or register with the state. This signifies a more streamlined approach to compliance for businesses in the state.

Georgia Disclosure Requirements for Compliance

Starting from January 1, 2024, providers of qualifying commercial financing transactions will have to disclose essential terms to applicants. These terms include:

Total funding amount
Total funds disbursed net of fees and costs
Total amount to be paid to the provider
Total dollar cost of the financing
Payment schedule
Description of any prepayment penalties

Unlike the laws in California and New York, Georgia’s law does not require providers to report an annual percentage rate (APR).

Scope of the New Regulatory Disclosure Law

The definition of “providers” under the new law closely aligns with Utah’s Commercial Financing Registration and Disclosure Act. A provider is identified as a person who consummates more than five commercial financing transactions in Georgia during any calendar year. This includes platforms in a bank partnership that offer commercial financing products provided by a depository institution via an online platform.

Exemptions to SB90

The Georgia law includes several exemptions:

Federally insured depository financial institutions and affiliated entities
Providers regulated under the federal Farm Credit Act
Georgia-licensed money transmitters
Providers consummating five or fewer transactions in a 12-month period
Real property-secured transactions
“True” leases
Purchase-money obligations
Captive finance companies
Most auto floorplan loans
Purchases, sales, and advances of healthcare-related receivables owed to a healthcare provider due to a patient’s personal injury

Penalties and Enforcement for Non-Compliance

Violations of the Georgia law may result in civil penalties of $500 per violation. Regulators set these caps at $20,000, with additional penalties for continued violations. Importantly, the law states that a violation does not impair the enforceability of an agreement. Furthermore, it does not provide for a private right of action.

With similar bills pending in other states, Georgia’s new law may not be the last of its kind in this legislative session. Providers and brokers of commercial financing should remain vigilant about evolving regulations in this space.

CFGMS ISO Partners Enjoy a Direct Line to Compliance Department

For any inquiries regarding pre-existing or upcoming disclosure laws pertaining to CFGMS ISOs, we strongly recommend reaching out for assistance and guidance via email at compliance@cfgms.com. Dan Taylor, our Vice President of Compliance & Data Assurance, is dedicated to providing support and ensuring that ISOs are well-prepared.