Perry Bill Puts Sales-Based Financing Fees Under Usury Rules

The text as introduced · 1,683 words

89R8940 BCH-D

By: Perry
S.B. No. 2677

A BILL TO BE ENTITLED

AN ACT

relating to disclosures for certain commercial sales-based

financing transactions and the registration of commercial

sales-based financing brokers; authorizing a fee and providing a

civil penalty.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Title 5, Finance Code, is amended by adding

Chapter 398 to read as follows:

CHAPTER 398. COMMERCIAL SALES-BASED FINANCING

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 398.001. DEFINITIONS. In this chapter:

(1) "Commercial sales-based financing" or "commercial

sales-based financing transaction" means an extension of

sales-based financing to a recipient by a provider, the proceeds of

which the recipient does not intend to use primarily for personal,

family, or household purposes.

(2) "Commercial sales-based financing broker" means a

person, other than a financer, who, for compensation or the

expectation of compensation, offers commercial sales-based

financing to a recipient or offers to obtain commercial sales-based

financing for a recipient from a provider.

(3) "Disbursement amount" means the amounts paid to

the recipient or on the recipient's behalf. The term does not

include any finance charges that are deducted or withheld at

disbursement.

(4) "Finance charge" means the cost of commercial

sales-based financing expressed as a dollar amount. The term

includes a charge payable, directly or indirectly, by the recipient

that is imposed, directly or indirectly, by the provider of the

financing as an incident to, or a condition of, the extension of

financing.

(5) "Financer" means a person who provides or will

provide commercial sales-based financing to a recipient.

(6) "Person" means an individual, corporation,

partnership, limited liability company, joint venture,

association, joint stock company, trust, sole proprietorship or

other unincorporated organization, or other similar entity.

(7) "Provider" means a person who extends a specific

offer of commercial sales-based financing to a person applying for

that financing or the person's authorized representative. The term

includes a commercial sales-based financing broker.

(8) "Recipient" means a person, or the authorized

representative of a person, who applies for commercial sales-based

financing and is made a specific offer of commercial financing by a

provider. The term does not include a person acting as a commercial

sales-based financing broker.

(9) "Sales-based financing" means a transaction that

is repaid by the recipient to the provider of the financing:

(A) 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; or

(B) according to a fixed payment mechanism that

provides for a reconciliation process that adjusts the payment to

an amount that is a percentage of sales or revenue.

(10) "Specific offer" means the specific terms of

commercial sales-based financing. The term includes a price or

amount quoted to a recipient by a person providing the financing

based on information obtained from or about the recipient that, if

accepted by the recipient, would be binding on the provider,

subject to specific requirements in the financing terms.

(11) "Total repayment amount" means the sum of the

disbursement amount and finance charge.

Sec. 398.002. EXEMPTIONS. This chapter does not apply to a

provider that is:

(1) a bank, out-of-state bank, bank holding company,

credit union, federal credit union, out-of-state credit union, or

any subsidiary or affiliate of those financial institutions;

(2) a person acting in the capacity of a technology

services provider to an entity exempt under this section as part of

the entity's commercial sales-based financing program if the person

has no interest, arrangement, or agreement to purchase any interest

in the commercial sales-based financing extended in connection with

the program;

(3) a lender regulated under the Farm Credit Act of

1971 (12 U.S.C. Section 2001 et seq.); or

(4) a person who extends or brokers:

(A) a commercial sales-based financing

transaction secured by real property;

(B) a lease, as defined by Section 2A.103,

Business & Commerce Code;

(C) a purchase-money obligation, as defined by

Section 9.103, Business & Commerce Code;

(D) a commercial sales-based financing

transaction entered into under a commercial sales-based financing

agreement or commercial open-end credit plan of $50,000 or more in

which the recipient is:

(i) a dealer, as defined by Section

503.001, Transportation Code; or

(ii) a motor vehicle rental company or an

affiliate of a motor vehicle rental company; or

(E) a commercial sales-based financing

transaction in connection with the sale of products or services

that:

(i) the person manufactures, licenses, or

distributes; or

(ii) a parent company, subsidiary, or

affiliate of the person described by Subparagraph (i) manufactures,

licenses, or distributes.

Sec. 398.003. APPLICATION OF OTHER LAW. (a) A sales-based

financing transaction is not a form of an account purchase

transaction for purposes of Section 306.103, regardless of the

principal amount of the advance.

(b) Fees and charges paid, or charged under, a sales-based

financing transaction are considered interest for usury purposes

under state law, regardless of the principal amount of the advance.

Sec. 398.004. ADMINISTRATION OF CHAPTER; RULEMAKING. (a)

The Texas Department of Banking shall administer, implement, and

enforce this chapter.

(b) The Finance Commission of Texas shall adopt rules as

necessary to administer and implement this chapter.

SUBCHAPTER B. REGULATION AND DISCLOSURE REQUIREMENTS

Sec. 398.051. DISCLOSURES. (a) If a provider extends a

specific offer of commercial sales-based financing of more than

$500,000 to a recipient in this state, the provider shall disclose

to the recipient:

(1) the total amount of the financing;

(2) the disbursement amount;

(3) the finance charge;

(4) the total repayment amount;

(5) the estimated period for the periodic payments to

equal the total repayment amount under the terms of the financing;

(6) the payment amounts as follows:

(A) if the payment amounts are fixed, the amounts

and the frequency of payments; or

(B) if the payment amounts are variable:

(i) a payment schedule or a description of

the method used to calculate the amounts and frequency of payments;

and

(ii) the amount of the average projected

payments per month;

(7) a description of all other potential fees and

charges not included in the finance charge, including draw fees,

late payment fees, and returned payment fees;

(8) any finance charge the recipient will be required

to pay if the recipient pays off or refinances the commercial

sales-based financing before the transaction is repaid in full;

(9) any additional fees, not included in the finance

charge, the recipient will be required to pay if the recipient pays

off or refinances the commercial sales-based financing before the

transaction is repaid in full; and

(10) a description of collateral requirements or

security interests, if applicable.

(b) If, as a condition of obtaining commercial sales-based

financing, the provider requires the recipient to pay off the

outstanding balance of an existing commercial sales-based

financing from the same provider, the provider shall disclose to

the recipient:

(1) the amount of the new commercial sales-based

financing used to pay off the portion of the outstanding balance of

the existing commercial sales-based financing that consists of:

(A) prepayment charges required to be paid; and

(B) any unpaid interest expense that was not

forgiven at the time of renewal of the transaction; and

(2) if the disbursement amount will be reduced to pay

down any unpaid portion of the outstanding balance, the actual

dollar amount by which the disbursement amount will be reduced.

Sec. 398.052. SIGNATURE. The provider shall obtain the

recipient's signature on the disclosures required by Section

398.051 before finalizing the application for the commercial

sales-based financing transaction.

Sec. 398.053. BROKER REGISTRATION. (a) A person may not

engage in business as a commercial sales-based financing broker for

compensation in this state unless, before conducting business, the

person registers with the Texas Department of Banking. The

registration is effective on receipt by the department of a

completed registration form as provided by Subsection (d) and the

required registration fee and remains effective until renewal.

(b) On or before January 31 of each year after filing an

initial registration, a broker shall file a renewal registration

form with the required renewal registration fee.

(c) The broker shall pay a registration fee on filing an

initial registration and a renewal registration fee on filing a

renewal registration.

(d) The registration or renewal registration form must

include:

(1) the name of the broker;

(2) the name under which the broker transacts

business, if different from the name of the broker;

(3) the address of the broker's principal office,

which may be outside this state; and

(4) the name and address in this state of a designated

agent for service of process.

(e) The Finance Commission of Texas shall:

(1) by rule set the registration fee and registration

renewal fee in amounts sufficient to cover the registration costs;

and

(2) adopt a form to be used for a registration or

renewal registration under this section.

Sec. 398.054. UPDATE OF REGISTRATION STATEMENT. A

commercial sales-based financing broker shall update information

contained in the registration statement not later than the 90th day

after the date on which the information changes.

SUBCHAPTER C. ENFORCEMENT

Sec. 398.101. CIVIL PENALTY. A person who violates this

chapter is subject to a civil penalty of $10,000 for each violation,

not to exceed $100,000 for all aggregated violations.

Sec. 398.102. DECEPTIVE TRADE PRACTICE. A violation of

this chapter is considered a deceptive trade practice under

Subchapter E, Chapter 17, Business & Commerce Code, and is

actionable under that chapter.

Sec. 398.103. PRIVATE RIGHT OF ACTION NOT AUTHORIZED. This

chapter does not create a private right of action against any person

based on compliance or noncompliance with this chapter.

SECTION 2. (a) Not later than January 1, 2026, a person

engaging in business as a commercial sales-based financing broker

on the effective date of this Act must register under Section

398.053, Finance Code, as added by this Act.

(b) Not later than December 1, 2025, the Finance Commission

of Texas shall adopt rules setting the registration and

registration renewal fees and adopting a form for the registration

of commercial sales-based financing brokers as required under

Section 398.053, Finance Code, as added by this Act.

SECTION 3. This Act takes effect September 1, 2025.