CFPB Says States Can Extend Disclosure Laws to Commercial Financing

States can continue extending disclosure laws covering lending to businesses.

The Consumer Financial Protection Bureau (CFPB) said in a Tuesday (March 28) preemption determination that such state laws are not inconsistent with or preempted by the federal Truth in Lending Act, the CFPB said in a Tuesday press release.

“After analyzing public comments on its preliminary determination, the CFPB affirms there is no conflict because the state laws extend disclosure protections to businesses and entrepreneurs that seek commercial financing,” the CFPB said in the release.

This preemption determination comes after an industry trade association asked the CFPB in 2022 to determine whether New York’s commercial financing disclosure law is preempted by the Truth in Lending Act, according to the press release.

The federal Truth in Lending Act covers consumers but not businesses. At the state level, New York, California, Utah and Virginia have enacted disclosure laws that cover lenders’ commercial financing transactions with businesses, the release said.

After receiving the inquiry from the trade association, the CFPB made a preliminary determination that the federal law did not preempt the New York law. The regulator also requested public comment on whether it should finalize that determination regarding New York and the other three states, per the release.

That led to Tuesday’s preemption determination, with the CFPB saying in the release that states have broad authority to establish resident protections.

“The state laws reviewed by the CFPB concern protections for businesses to ensure they can understand the credit terms available to them,” the CFPB said in the release. “This is beyond the scope of the Truth in Lending Act’s statutory consumer credit purposes. The CFPB’s decision affirms that the four states’ commercial financing disclosure laws do not conflict with the Truth in Lending Act.”

In a recent application of the Truth in Lending Act, the CFPB hit U.S. Bank with a $37.5 million consent order for illegally accessing customers’ credit reports and personal information to open accounts without their permission.

U.S. Bank attached sales goals to employees’ job requirements and offered them incentives for selling multiple accounts to customers, including checking and savings accounts, credit cards and lines of credit, the CFPB said in July 2022.

The CFPB found that the bank violated the Consumer Financial Protection Act, the Fair Credit Reporting Act, the Truth in Lending Act and the Truth in Savings Act.