Small Business Lending Disclosure Act of 2021
Bill: S.3235 | Sponsor: Sen. Menendez, Robert (D-NJ)
Policy area: Finance and Financial Sector

Summary:
Small Business Lending Disclosure Act of 2021
This bill applies specified commercial lending protections to small business lending and extends the Consumer Financial Protection Bureau's regulatory authority regarding consumer financial products and services to include small business financing. Among other requirements, lenders offering financial products to small businesses must disclose the terms of the financing upon extending an offer and are prohibited from charging certain additional fees on a refinanced or modified loan.

To apply the Truth in Lending Act to small business financing, 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 
Act of 2021''.

SEC. 2. 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, 
                sole proprietorship, 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;
                    ``(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.
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