HB700 - Relating to disclosures for certain commercial sales-based financing transactions, the effect of certain commercial sales-based financing contract provisions, and the registration of commercial sales-based financing brokers and providers; authorizing a fee and providing a civil penalty.

      H.B. No. 700         AN ACT   relating to disclosures for certain commercial sales-based   financing transactions, the effect of certain commercial   sales-based financing contract provisions, and the registration of   commercial sales-based financing brokers and providers;   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 who, for compensation or the expectation of compensation,   obtains commercial sales-based financing for 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)     "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.                 (6)     "Provider" means a person who provides or will   provide commercial sales-based financing to a recipient or who   extends a specific offer of commercial sales-based financing to a   person applying for that financing or the person's authorized   representative.                 (7)     "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 sales-based   financing by a provider. The term does not include a person acting   as a commercial sales-based financing broker.                 (8)     "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.                 (9)     "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.                 (10)     "Total repayment amount" means the sum of the   disbursement amount and finance charge.           Sec.   398.002.     APPLICABILITY OF CHAPTER. This chapter   applies to a provider or a commercial sales-based financing broker   who offers, obtains, or provides commercial sales-based financing   services over the Internet to or for a recipient of this state,   regardless of whether the provider or broker maintains a physical   presence in this state.           Sec.   398.003.     EXEMPTIONS. This chapter does not apply to a   provider or broker 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 exempt 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 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                       (D)     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.   398.004.     APPLICATION OF OTHER LAW. 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.           Sec.   398.005.     ADMINISTRATION OF CHAPTER; RULEMAKING. (a)   The Office of Consumer Credit Commissioner shall administer,   implement, and enforce this chapter.           (b)     Except as provided by Subsection (d), the Office of   Consumer Credit Commissioner may:                 (1)  bring enforcement actions for:                       (A)     violations of rules adopted under Subsection   (c);                       (B)     failures to make disclosures required by   Section 398.051; or                       (C)     failures to register as required by Section   398.053;                 (2)  terminate or suspend registrations; and                 (3)  assess civil penalties.           (c)     The Finance Commission of Texas shall adopt rules   applicable to providers and commercial sales-based financing   brokers that identify unlawful, unfair, deceptive, or abusive acts   or practices related to a transaction subject to this chapter.   Rules adopted under this subsection must identify and prohibit   specific acts or practices by providers or brokers that:                 (1)  the commission considers unfair because:                       (A)     the act or practice causes or is likely to   cause substantial injury to a recipient that the recipient cannot   reasonably avoid; and                       (B)     the injury outweighs the benefits to   recipients or to market competition;                 (2)     are material acts or practices that will or likely   will mislead a recipient who, given the circumstances, has a   reasonable interpretation of the act or practice;                 (3)     materially interfere with a recipient's ability to   understand a term or condition of a commercial sales-based   financing transaction; or                 (4)  take unreasonable advantage of:                       (A)     a recipient's lack of understanding of the   material risks, costs, or conditions of the commercial sales-based   financing transaction; or                       (B)     a recipient's inability to protect the   recipient's interest in selecting or using a commercial sales-based   financing product.           (d)     The Finance Commission of Texas may not adopt a maximum   annual percentage rate, finance charge, or fee for commercial   sales-based financing transactions.   SUBCHAPTER B. REGULATION AND DISCLOSURE REQUIREMENTS           Sec.   398.051.     DISCLOSURES. (a) If a provider extends a   specific offer of commercial sales-based financing of less than $1   million 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:                   [Text truncated for display. Full text available on Congress.gov.]