CFPB Poised To Conclude TILA Does Not Preempt State … – Mondaq

On December 15, 2022, the Consumer Financial Protection Bureau (CFPB) published a notification of intent to make a preemption determination and requested public comment. In the Federal Register notice, the CFPB reported that it has received a request from a trade association to make a determination that the Truth in Lending Act (TILA) preempts certain requirements under the New York commercial financing disclosure law (N.Y. Fin. Serv. Law §§ 801 et seq.) (the “New York law”). The CFPB indicated that it has made a preliminary conclusion that the New York law is not preempted by TILA, and that the CFPB is considering whether to make a preemption determination with respect to similar state laws in California, Utah, and Virginia. Comments may be submitted to the CFPB and are due by January 20, 2023.
In a related blog post, the CFPB announced that it has preliminarily determined that the New York law is not preempted by TILA because the New York law regulates commercial financing transactions rather than consumer-purpose transactions.
TILA expressly authorizes the CFPB to determine whether state laws are preempted by TILA, and TILA provides that it preempts state laws “relating to the disclosure of information in connection with credit transactions” only to the extent of specific provisions in state laws that are inconsistent with TILA's provisions. An example of a preempted state law is one that requires use of the same term used in TILA but with a different meaning.
The New York law requires that certain disclosures must be made in connection with covered commercial financing transactions. In January 2021, the Small Business Finance Association (SBFA) asked the CFPB to determine that TILA preempts the New York law with respect to its use of the terms “finance charge” and “annual percentage rate” (APR). The SBFA noted that the New York law includes a different method for calculating APR and a different definition for the term “finance charge” than those provided in TILA and expressed concern that those differences “will cause confusion for small business owners and consumers, and frustrate the purpose of TILA.”
The CFPB responded with its preliminary view that TILA does not preempt the New York law's use of the terms “finance charge,” “APR,” or “estimated APR” because those terms are not contradictory as required by the TILA preemption provision. The CFPB further explained that the New York law does not frustrate the purpose of TILA because TILA governs consumer disclosures and the New York law governs commercial transactions. The CFPB requests comments on whether it should finalize its preliminary determination that the New York law—as well as the laws in California, Utah, and Virginia that prescribe disclosures in certain commercial transactions—are not preempted by TILA. In particular, the CFPB asks commenters to provide information about any relevant differences in the California, Utah, and Virginia laws that would affect the CFPB's preemption analysis and final determination.
If the CFPB formally adopts its current position that TILA does not preempt state commercial financing disclosure laws, commercial financing providers will continue to face the challenge of having to comply with a patchwork of state laws, including state-specific technical requirements such as the calculation of APR and finance charges for purposes of a state's commercial financing disclosure law. Impacted providers may want to consider submitting comments on particular conflicts between TILA and any of the state laws.
For more information about the California commercial financing disclosure law and its implementing regulations, see our series of client alerts on the topic:
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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