Utah Passes Commercial Financing Registration and Disclosure Act and Updates Definition of “Control”

Utah recently enacted Senate Bill 183 (S.B. 183), which creates the Commercial Financing Registration and Disclosure Act (CFRDA) and updates the definition of “control” for financial institutions under the Financial Institutions Act. 

The CFRDA will take effect January 1, 2023, and requires a person engaging in commercial financing transactions in Utah to register with the Utah Department of Financial Institutions (Department), and renew that registration annually. For purposes of the CFRDA, a “commercial financing transaction” is defined as a business purpose transaction under which a person extends a commercial loan or a commercial open-end credit plan to a business, or that is an accounts receivable purchase transaction.

In addition to the registration requirements, the CFRDA also requires that a provider who engages in commercial financing, before consummating a transaction, disclose certain terms to the borrower. The required disclosures do not include a rate or APR, but include, among other requirements, the following:

• The total amount of funds provided under the terms of the commercial financing transaction;
• The total amount to be paid to the provider of the financing under the terms of the transaction;
• The total dollar cost of the commercial financing transaction;
• The manner, frequency, and amount of each payment;
• A description of any prepayment costs or discounts; and
• A description of the methodology for calculating any variable payment amount and the circumstances that may cause a payment amount to vary.

The CFRDA contains a number of exemptions from its requirements, including for the following:

• A depository institution;
• A commercial financing transaction secured by real property:
• A commercial financing transaction that is a purchase-money obligation; 
• A commercial financing transaction that is an open-end credit plan for $50,000 or more to a motor vehicle dealer or rental company;
• A commercial financing transaction in connection with the sale of a product or service that the person manufactures, licenses, or distributes;
• A commercial financing transaction of more than $1,000,000; and
• A provider that consummates five or fewer commercial financing products in Utah in a 12 month period.

The CFRDA does not create a private right of action, but it does permit the Department to impose civil penalties of up to $1,000 per violation, not to exceed $50,000 for all violations arising from the use of the same transaction documentation or materials.

Separately, S.B. 183 also updates the definition of what constitutes “control” of a financial institution to include the power to vote 25% or more of any class of voting securities of a financial institution (previously this percentage was 20%).  It also creates a new rebuttable presumption that a person has control of a financial institution if the person “has the power, directly or indirectly, or through or in concert with one or more persons, to vote more than 10% but less than 25% of any class of voting securities of a financial institution.” These provisions are effective May 4, 2022.