[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[H.R. 7889 Introduced in House (IH)]
<DOC>
116th CONGRESS
2d Session
H. R. 7889
To apply the Truth in Lending Act to small business financing, to
regulate brokers and require the licensing of brokers, and for other
purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
July 30, 2020
Ms. Velazquez introduced the following bill; which was referred to the
Committee on Financial Services
_______________________________________________________________________
A BILL
To apply the Truth in Lending Act to small business financing, to
regulate brokers and require the licensing of brokers, and for other
purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Small Business Lending Disclosure
and Broker Regulation Act of 2020''.
TITLE I--SMALL BUSINESS FINANCING
SEC. 101. APPLICATION OF THE TRUTH IN LENDING TO SMALL BUSINESS
FINANCING.
(a) In General.--The Truth in Lending Act (15 U.S.C. 1601 et seq.)
is amended by adding at the end the following:
``CHAPTER 6--SMALL BUSINESS FINANCING
``191. Definitions.
``192. Application of this title to small business financing.
``193. Additional disclosures.
``194. Restrictions on double-dipping.
``195. Additional provisions.
``Sec. 191. Definitions
``In this chapter:
``(1) Closed-end commercial credit.--The term `closed-end
commercial credit'--
``(A) means a closed-end extension of credit,
secured or unsecured, including financing with an
established principal amount and including equipment
financing that does not meet the definition of a lease
under the Uniform Commercial Code (U.C.C.--Sec. 2A-
103(j)) the proceeds of which the recipient does not
intend to use primarily for personal, family or
household purposes; and
``(B) includes financing with an established
principal amount and duration.
``(2) Consumer financial product or service.--The term
`consumer financial product or service' has the meaning given
that term under section 1002 of the Consumer Financial
Protection Act of 2010.
``(3) Director.--The term `Director' means the Director of
the Bureau.
``(4) Factoring.--The term `factoring' means a transaction
that includes an agreement to purchase, transfer, or sell a
legally enforceable claim for payment held by a recipient for
goods the recipient has supplied or services the recipient has
rendered that have been ordered but for which payment has not
yet been made.
``(5) Finance charge.--
``(A) In general.--The term `finance charge' means
the cost of financing as a dollar amount, and includes
any charge payable directly or indirectly by the
recipient of the financing and imposed directly or
indirectly by the provider of the financing as an
incident to or a condition of the extension of
financing.
``(B) Calculation in open-end commercial credit
plans.--In any open-end commercial credit plan, the
finance charge shall be computed assuming the maximum
amount of credit available to the recipient, in each
case, is drawn and repaid at the minimum rate.
``(C) Calculation in factoring transactions.--In
any factoring transaction, the finance charge shall
include the discount taken on the face value of the
accounts receivable.
``(D) Calculation in lease financing
transactions.--In any lease financing transaction, the
finance charge shall include the sum of the lease
payments and, if there is a fixed-price purchase option
or a purchase option with a price that can be
calculated at the time of disclosure, the purchase
price listed in the contract that the lessee may pay to
acquire the leased goods at the end of the lease,
minus--
``(i) if the finance company selects,
manufactures, or supplies the goods to be
leased, the price that the finance company
would sell the goods in a cash transaction; or
``(ii) if the finance company does not
select, manufacture, or supply the goods to be
leased, the price the finance company will pay
to acquire the property to be leased.
``(E) Inclusion of certain prepayment charges.--
``(i) In general.--If, as a condition of
obtaining the offered commercial financing the
provider requires the recipient to pay off the
balance of an existing loan or advance from the
same provider, any prepayment charge or penalty
required to be paid on the existing financing
shall be included as a financing charge.
``(ii) Treatment when repayment amount is
calculated as a fixed amount.--For purposes of
clause (i), for financing for which the total
repayment amount is calculated as a fixed
amount, the prepayment charge is equal to the
original finance charge multiplied by the
required prepayment amount as a percentage of
the total repayment amount, minus any portion
of the total repayment amount forgiven by the
provider at the time of prepayment.
``(6) Open-end commercial credit plan.--The term `open-end
commercial credit plan' means any small business financing
provided by a person under a plan in which the person
reasonably contemplates repeat transactions, which prescribes
the terms of such transactions, and which provides for a
finance charge which may be computed from time to time on the
outstanding unpaid balance.
``(7) Provider.--The term `provider' mean a person who
offers or provides small business financing.
``(8) Recipient.--The term `recipient' means a person who
is presented an offer of small business financing.
``(9) Sales-based financing.--The term `sales-based
financing'--
``(A) means a transaction where there is an
extension of financing to a recipient that is repaid by
the recipient, over time, as a percentage of sales or
revenue, in which the payment amount may increase or
decrease according to the volume of sales made or
revenue received by the recipient; and
``(B) includes transactions with a `true-up
mechanism'.
``(10) Small business.--The term `small business' has the
meaning given the term `small-business concern' under section 3
of the Small Business Act (15 U.S.C. 632).
``(11) Small business financing.--The term `small business
financing'--
``(A) means any line of credit, closed-end
commercial credit, sales-based financing, or other non-
equity obligation or alleged obligation of a
partnership, corporation, cooperative, association, or
other entity that is $2,500,000 or less; and
``(B) does not include any obligation or alleged
obligation of an individual that is primarily for
personal, family, or household purposes.
``(12) Specific offer.--The term `specific offer' means the
specific terms of small business financing, including price or
amount, that is quoted to a recipient, based on information
obtained from, or about the recipient, which, if accepted by a
recipient, shall be binding on the provider, as applicable,
subject to any specific requirements stated in such terms.
``Sec. 192. Application of this title to small business financing
``(a) In General.--This title shall apply to small business
financing made to a small business to the same extent as this title
applies to extensions of credit made to a consumer.
``(b) Rulemaking.--The Director shall issue such rules as may be
required to carry out this chapter.
``(c) Bureau Authority.--For purposes of carrying out this chapter
and other Federal laws, including the Consumer Financial Protection Act
of 2010, the Bureau shall have the same authority with respect to small
business financing as the Bureau has with respect to consumer financial
products and services.
``Sec. 193. Additional disclosures
``(a) In General.--Any provider offering small business financing
to a small business shall disclose the following pieces of information
to a recipient at the time of extending a specific offer for small
business financing:
``(1) Financing amount.--The total amount to be paid to the
small business, taking into account all fees and charges to be
withheld at disbursement.
``(2) Annual percentage rate.--
``(A) Closed-end commercial credit.--With respect
to closed-end commercial credit, the annual percentage
rate, using only the words `annual percentage rate' or
the abbreviation `APR', expressed as a yearly rate,
inclusive of any fees and finance charges that cannot
be avoided by a recipient.
``(B) Open-end commercial credit plans.--With
respect to open-end commercial credit plans, the annual
percentage rate, using only the words `annual
percentage rate' or the abbreviation `APR', expressed
as a nominal yearly rate, inclusive of any fees and
finance charges that cannot be avoided by a recipient,
based on the maximum amount of credit available to the
recipient and the term resulting from making the
minimum required payments term as disclosed.
``(C) Sales-based financing.--
``(i) In general.--With respect to sales-
based financing, the estimated annual
percentage rate, using the words `annual
percentage rate' or the abbreviation `APR',
expressed as a yearly rate, inclusive of any
fees and finance charges, based on the
estimated term of repayment and the projected
periodic payment amounts.
``(ii) Calculation of certain payment
amounts.--The estimated term of repayment and
the projected periodic payment amounts shall be
calculated based on the projection of the
recipient's sales, called the projected sales
volume.
``(iii) Calculation of projected sales
volumes.--For purposes of clause (ii), the
projected sales volume may be calculated--
``(I) according to a method defined
by the Director based on the
recipient's historical sales volume
over a defined period of time that is
used for all sales-based financing
transactions by that provider; or
``(II) by another method defined by
the provider and approved by the
Director, with ongoing monitoring by
the Director for accuracy based on a
comparison of the annual percentage
rate as disclosed to the recipient and
as calculated retrospectively upon
repayment of the financing.
``(D) Factoring.--
``(i) In general.--With respect to
factoring, the estimated annual percentage
rate, using that term.
``(ii) Calculation.--To calculate the
estimated annual percentage rate under clause
(i)--
``(I) the purchase amount shall be
considered the financing amount;
``(II) the purchase amount minus
the total cost of financing shall be
considered the payment amount; and
``(III) the term is established by
the payment due date of the
receivables.
``(iii) Alternate method to estimate
term.--Notwithstanding clause (ii)(III), a
provider may estimate the term for a factoring
transaction as the average payment period, its
historical data over a period not to exceed the
previous twelve months, concerning payment
invoices paid by the party owing the accounts
receivable in question.
``(3) Payment amount.--With respect to small business
financing other than factoring--
``(A) for payment amounts that are fixed--
``(i) the payment amounts and frequency
(e.g., daily, weekly, monthly); and
``(ii) if the term is longer than one month
and payment frequency is other than monthly,
the average total monthly payment amount; or
``(B) for payment amounts that are variable--
``(i) a full payment schedule or a
description of the method used to calculate the
amounts and frequency of payments; and
``(ii) if the term is longer than one
month, the estimated average total monthly
payment amount.
``(4) Term.--For financing other than factoring, the term
of the small business financing, either in months or in years,
or, if the term is not fixed, the estimated term, calculated
using the same assumptions used to calculate the estimated
annual percentage rate.
``(5) Finance charge.--The finance charge of the small
business financing, broken down to show what expenses and fees
are included in the finance charge.
``(6) Prepayment cost or savings.--In the event that a
recipient elects to pay off or refinance the small business
financing prior to full repayment, the provider must disclose--
``(A) whether the recipient would be required to
pay any finance charges other than interest accrued
since the recipient's last payment; and
``(B) if the recipient is required to pay the
finance charges described under subparagraph (A), the
percentage of any unpaid portion of the finance charge
and maximum dollar amount the recipient could be
required to pay; and
``(C) whether the recipient would be required to
pay any additional fees not already included in the
finance charge.
``(7) Collateral requirements.--Any collateral requirement
that will be imposed on the small business in connection with
the small business financing.
``(b) Form of Disclosures.--
``(1) In general.--Disclosures made pursuant to this
section shall be in writing, at the time a specific offer is
made, and in a manner that is clear, conspicuous, complete, and
allows the small business to compare the range of small
business financing options that the small business may be
considering.
``(2) Prominence of disclosures.--In making any disclosure
pursuant to this section, the disclosures required under
paragraphs (1), (2), and (3) of subsection (a) shall be
displayed most prominently.
``Sec. 194. Restrictions on double-dipping
``When a lender of small business financing refinances or modifies
an existing loan with a fixed fee as the primary financing charge, the
lender may not charge a fee on the small business's outstanding
principal unless there is a tangible benefit to the small business.
``Sec. 195. Additional provisions
``(a) Rule of Construction.--Nothing in this chapter may be
construed to prevent a provider from providing or disclosing additional
information on a small business financing being offered to a recipient,
provided however, that such additional information may not be disclosed
as part of the disclosure required by this chapter.
``(b) Use of Terms.--
``(1) Rate.--If other metrics of financing cost are
disclosed or used in the application process of a small
business financing, these metrics shall not be presented as a
`rate' if they are not the annual interest rate or the annual
percentage rate.
``(2) Interest.--The term `interest', when used to describe
a percentage rate to a recipient or potential recipient, shall
only be used to describe annualized percentage rates, such as
the annual interest rate.
``(c) Requirement To State APR.--When a provider states in writing
a rate of finance charge or a financing amount to a recipient during an
application process for small business financing, the provider shall
also state the annual percentage rate or, in the case of sales-based
financing or factoring, the estimated annual percentage rate, with
equal or greater prominence, using the term `annual percentage rate' or
the abbreviation `APR'.''.
(b) Clerical Amendment.--The table of chapters for the Truth in
Lending Act is amended by adding at the end the following:
``6. Small Business Financing ... 191''.
(c) Rulemaking Deadline.--Not later than the end of the 24-month
period beginning on the date of enactment of this Act, the Director of
the Bureau of Consumer Financial Protection shall issue final rules to
carry out the amendments made by this section.
(d) Effective Date.--Chapter 6 of the Truth in Lending Act, as
added by subsection (a), shall take effect after the end of the 36-
month period beginning on the date of enactment of this Act.
TITLE II--REGULATION OF BROKERS
SEC. 201. OFFICE OF BROKER REGULATION.
Section 1013 of the Consumer Financial Protection Act of 2010 (12
U.S.C. 5493) is amended by adding at the end the following:
``(i) Office of Broker Regulation.--There is established in the
Bureau an Office of Broker Regulation, which shall be responsible for
carrying out section 1018.''.
SEC. 202. REGULATION OF BROKERS.
(a) In General.--The Consumer Financial Protection Act of 2010 (12
U.S.C. 5481 et seq.) is amended--
(1) by redesignating section 1018 as section 1019; and
(2) by inserting after section 1017 the following:
``SEC. 1018. REGULATION OF BROKERS.
``(a) Definitions.--In this section:
``(1) Broker.--The term `broker' means a natural person
who--
``(A) is not a creditor or purchaser; and
``(B) solicits and presents offers of commercial
financing on behalf of a third party.
``(2) Director.--The term `Director' means the Director of
the Bureau of Consumer Financial Protection.
``(3) State.--The term `State' means each of the several
States, the District of Columbia, and the territories and
possessions of the United States.
``(4) Other terms.--The terms `small business' and `small
business financing' have the meaning given those terms under
section 193 of the Truth in Lending Act.
``(b) Regulations.--
``(1) In general.--A broker shall, in facilitating
financing offered by a third-party lender for a small
business--
``(A) provide the small business with a disclosure
containing the information described under paragraph
(2); and
``(B) educate the small business on each small
business financing option and ensure that the small
business reasonably understands the cost and terms of
the small business financing as well as the pros and
cons of the small business financing decision before
the small business enters into a contract for such
small business financing.
``(2) Contents of disclosure.--Each disclosure required
under paragraph (1) shall include:
``(A) A list of all small business financing
options for which the small business qualifies through
the broker's services and, with respect to each such
small business financing option, the disclosures
described under section 193 of the Truth in Lending
Act.
``(B) The lowest annual percentage rate option.
``(C) All the lenders to which the broker has sent
or will send small business financing applications on
the small business's behalf.
``(D) All compensation that will be paid to the
broker, including--
``(i) all charges that will be paid
directly or indirectly by the small business;
and
``(ii) whether such compensation paid to
the broker will be paid up front or financed
through the life of the small business
financing.
``(E) All conflicts of interest the broker may
have.
``(F) A break down and explanation of the broker's
fee structure, including--
``(i) any financial or economic interest
the broker has in offering a product to the
small business; and
``(ii) whether the broker will receive a
higher fee for brokering a certain small
business financing over another small business
financing.
``(3) Public disclosure of previous borrower results.--
``(A) Website disclosure.--Each broker shall post
clearly and prominently on the website of the broker
the anonymous and aggregated results of previous small
business borrowers who have obtained small business
financing through the broker's services, in terms of
annual percentage rate and financing product.
``(B) Brokers without websites.--Notwithstanding
subparagraph (A), if a broker does not have a website,
the broker shall disclose the information described in
subparagraph (A) in a paper format, upon request by any
small business borrower.
``(4) Small business complaints with respect to brokers.--
The Director shall--
``(A) collect complaints from small businesses with
respect to their experiences with brokers; and
``(B) make such complaints available to the public
on the website of the Bureau of Consumer Financial
Protection.
``(5) Restriction on best interest claims.--A broker that
is paid higher fees with certain lenders, small business
financing types, or through terms other than the size of the
small business financing may not state that the broker is
acting in the best interest of the potential small business
borrower.
``(6) Prohibition on steering.--A loan originator or broker
may not steer a small business to small business financing that
is not in the small business's best interest.
``(7) Restrictions on certain fees.--
``(A) No fee if parties do not come to an
agreement.--A broker may not charge a small business
any fee if--
``(i) the broker is unable to find the
small business financing; or
``(ii) the small business chooses not to
accept financing through the broker's services.
``(B) Replacement of existing financing.--If a
broker or third-party lender offers an existing small
business customer new financing, neither the broker nor
the third-party lender may charge the small business a
new financing charge for the financing being replaced.
``(c) Broker Licensing and Enforcement.--
``(1) State broker licensing.--A person may only perform
the function of a broker in a State if the person is licensed
as a broker--
``(A) with respect to a State that has a covered
broker licensing law, by the State; or
``(B) with respect to a State that does not have a
covered broker licensing law, by the Bureau.
``(2) Covered broker licensing law.--With respect to a
State, the term `covered broker licensing law' means a State
law that the Director determines meets the following
requirements:
``(A) Licensing.--The law provides for a process to
license brokers operating in the State.
``(B) Prohibition on unlicensed brokers.--The law
prohibits any person from acting as a broker in the
State unless such person is licensed by the State as a
broker.
``(C) Prohibition on licensing certain
individuals.--The law prohibits licensing an individual
as a broker if such individual--
``(i) has had a State license revoked for
cause in any State;
``(ii) has had a Federal license revoked
for cause; or
``(iii) has been convicted of any crime
involving lying, deceit, or misappropriation of
the truth.
``(D) Limitation on broker employees.--The law
prohibits a broker from employing any individual, other
than a clerical employee, who is described under clause
(i), (ii), or (iii) of subparagraph (C).
``(E) Examination.--The law requires a licensed
broker to undergo State audits and provides for
examination of the broker by State regulators.
``(F) Enforcement.--With respect to any violation
of a State law or regulation in connection with
performing the duties of a broker, the law provides
for--
``(i) an initial warning being given to the
broker;
``(ii) a cure period offered to the broker
during which the broker can cure the violation;
and
``(iii) if the broker fails to cure the
violation, civil or criminal penalties which
include--
``(I) the revocation of any broker
license granted to the violator; and
``(II) a ban on the violator being
granted any other professional license
for a period of not less than 5 years.
``(G) Public availability of disciplinary
actions.--The law requires the State agency in charge
of licensing brokers to maintain a website that lists
all disciplinary actions taken against brokers.
``(3) Bureau broker licensing.--Not later than the end of
the 12-month period beginning on the date of enactment of this
section, the Director shall establish a Federal broker
licensing program that, to the extent practicable, meets the
requirements for a covered broker licensing law described under
paragraph (2).
``(4) Effective date.--
``(A) In general.--Subsection (a) shall take effect
after the end of the 2-year period beginning on the
date of enactment of this section.
``(B) Safe harbor.--Notwithstanding subsection (a),
a person acting as broker in a State on the date of
enactment of this section who has applied for a broker
license under a State covered broker licensing law (or,
with respect to a State that does not have a covered
broker licensing law, with the Federal broker licensing
program established under paragraph (3)) may continue
to act as a broker in such State while the application
is pending.
``(d) Rulemaking.--The Director may issue such rules as may be
necessary to carry out this section.
``(e) Penalties.--
``(1) Civil penalties.--Any person who violates a provision
of this section shall--
``(A) be fined not less than $5,000 and not more
than $72,000;
``(B) disgorge any funds or other property obtained
in connection with such violation;
``(C) in the case of an individual licensed as a
broker by the Bureau, have such license suspended for 1
year; and
``(D) in the case of an individual licensed as a
broker by the Bureau who has violated a provision of
this section previously, have such license permanently
revoked.
``(2) Criminal penalty.--Any person who violates a
provision of this section in an egregious manner shall be fined
not more than $5,000,000 or imprisoned not more than 20 years,
or both.
``(3) Liability for employer.--Any person employing a
broker at the time the broker violates a provision of this
section shall--
``(A) be fined not more than $853,062;
``(B) disgorge any funds or other property obtained
in connection with such violation;
``(C) be prohibited from taking any action
involving small business lending or the brokerage
industry for not more than 30 business days; and
``(D) in the case of a violation that was in an
egregious manner, be prohibited from taking any action
involving small business lending or the brokerage
industry for more than 30 business days, which may
include a permanent prohibition on the person taking
any action involving small business lending or the
brokerage industry.
``(4) Federal bar for state violators.--If an individual
has their State broker license revoked by reason of violating a
State law or regulation in connection with performing the
duties of a broker--
``(A) any professional license granted to the
individual by the Federal Government shall be
terminated; and
``(B) the individual may not receive a professional
license from the Federal Government before the end of
the 5-year period beginning on the date of such
revocation.
``(5) State enforcement authority.--An action to enforce a
violation of this section may also be brought by a State
attorney general in any appropriate United States district
court, or any other court of competent jurisdiction.''.
(b) Clerical Amendment.--The table of contents in section 1(b) of
the Dodd-Frank Wall Street Reform and Consumer Protection Act is
amended by striking the item relating to section 1017 and inserting the
following:
``Sec. 1017. Regulation of brokers.
``Sec. 1018. Effective date.''.
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