Connecticut is, by all accounts, about to become the latest state to jump on the disclosure bandwagon. The law would take effect on January 1, 2024. There have been a few mistaken reports that the law has already been enacted but, at least as of this writing, the bill is still on the governor’s desk and will not become law until he signs it.

So, we might be a bit preemptive here, but it’s better to be prepared. Here are the highlights of the bill and an important amendment, both of which would apparently be part of the new law if passed.

Here is a link to the latest bill text:

• https://legiscan.com/CT/text/SB01032/2023 (Original Bill)
• https://www.cga.ct.gov/2023/amd/S/pdf/2023SB-01032-R00SB-AMD.pdf (Amendment)

Here are the highlights of the bill and amendment:

1. As stated above, if passed, this law will become effective January 1, 2024.
2. Critically, the bill defines “commercial financing” as “any extension of sales-based financing in an amount not exceeding two hundred fifty thousand  dollars, the proceeds of which the recipient does not intend to use  primarily for personal, family or household purposes”. This means the law deals solely with merchant cash advances, similar to Virginia, and nothing more.
3. ‘Provider”, a defined term includes “broker”, also a defined term. This is an important distinction from other states’ disclosure laws.
4. [Amendment] Waivers of right to notice, hearing or court order are unenforceable.
5. [Amendment] A provider may not revoke, withdraw or modify a specific offer made after July 1, 2024 until midnight of the third calendar day after the date of the specific offer.
6. [Amendment] Providers and brokers must register with the Banking Commissioner no later than October 1, 2024 and shall obtain authority to transact business in Connecticut. Registration fee is $1000, and the annual renewal fee is $500.

EXEMPTIONS:

1. Financial institutions or their affiliates;
2. Tech companies providing services to exempt institutions;
3. Lender regulated under the Farm Credit Act;
4. Real property secured transactions;
5. True leases;
6. Purchase money obligations;
7. Persons who make five commercial transactions or fewer in Connecticut in any 12-month period;
8. Certain car dealers; and
9. A person or provider who extends or brokers a commercial financing transaction in connection with the sale of products or services that such person or provider manufactures, licenses or distributes, or whose parent company, subsidiary or affiliate manufactures, licenses or distributes.

SUMMARY OF REQUIRED DISCLOSURES:

1. Total amount of financing, and the disbursement amount, if different from the total amount of financing, after any fees are deducted;
2. Finance charge;
3. APR, calculated pursuant to 12 CFR 1026.22 (Reg Z) based on the estimated term of repayment and projected payment amounts;
4. Total repayment amount (disbursement amount plus finance charge);
5. Estimated time period for periodic payments to equal the total amount to be repaid;
6. Payment amounts;
7. A description of other potential fees and charges, including draw fees, late fees, and returned payment fees;
8. Any finance charge the recipient will have to pay if the recipient elects to pay off or refinance the commercial financing prior to full payment, and any   required additional fees;
9. A description of collateral or security interests, if any; and
10. Whether a broker is being paid in connection with the financing and, if so, the amount of compensation to the broker.

These laws, if passed, will impact the merchant cash advance industry only. The somewhat unique changes will still be of significant interest to those in that space.

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