On March 24, the governor of Utah signed into law the Commercial Financing Registration and Disclosure Act. The act generally requires companies that provide certain commercial financing products, including accounts receivable purchase transactions, to register with the Utah Department of Financial Institutions (the department) and make certain disclosures in connection with each commercial financing product. The following provides a general overview of the act.
General
- The act applies to certain types of commercial financing products, including accounts receivable purchase transactions, that are business purposes transactions (meaning the proceeds are provided to a business or are used to carry on the business). The term “accounts receivable purchase transaction” is defined as a transaction in which a business forwards or otherwise sells to a person all or a portion of the business’s accounts or payment intangibles at a discount to the accounts’ or payment intangibles’ expected value.
- The act applies to a person who consummates more than five commercial financing transactions in Utah during any calendar year.
- Commercial financing transactions of more than $1 million are exempt from the act.
- The department is authorized to promulgate regulations implementing the act’s requirements. The act states that it will be enforced by the department and that there is no private right of action. It also states that a violation does not affect the enforceability of any underlying agreement.
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Registration Requirement
- Beginning Jan. 1, 2023, it will be unlawful for a person to engage in a commercial financing transaction as a provider in Utah or with a Utah resident unless the person registers with the department and maintains a valid registration. The registration will have to be renewed annually. A fee will be required as part of the registration/renewal process.
- The department may impose a fine if a provider does not register or renew its registration. The act does not appear to provide the department with the authority to prohibit a provider from doing business in Utah.
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Disclosure Requirements
- Before consummating a commercial financing transaction, a provider must disclose the terms of the commercial financing transaction, including the total amount of funds provided to the business, the total amount to be paid to the provider, the total dollar cost of the commercial financing transaction, the manner/frequency/amount of each payment and any prepayment penalties, among other items.
- The disclosure requirements apply to commercial financing transactions consummated on or after Jan. 1, 2023.
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The overview above was provided by the American Factoring Association, which will be monitoring for any proposed rulemaking by the department associated with the act and keep members informed about developments.
