March 29, 2023
The Consumer Financial Protection Bureau said state disclosure laws covering lending to businesses in California, New York, Utah, and Virginia are not preempted by the federal Truth in Lending Act.
Details: The CFPB said there is no conflict because TILA is intended to ensure that credit terms are disclosed in a meaningful way to consumers, but the state laws extend disclosure protections to businesses and entrepreneurs that seek commercial financing.
Background: California, New York, Utah, and Virginia have in recent years enacted laws that apply TILA-like disclosures to commercial loans with contradictory annual-percentage-rate requirements. The CFPB last year preliminarily determined that TILA does not preempt the New York law because TILA governs consumer credit while the state law governs commercial credit.
ICBA Position: In a January comment letter, ICBA said the CFPB was incorrect in its determination. ICBA said:
Precedence dictates that a different definition of a term used in TILA creates a contradictory construct that requires preemption.
This contradiction is significant—even if one law governs commercial credit and the other consumer credit—because APR is a widely used and understood term and imposing two APR requirements would be a public disservice.
The CFPB should narrowly preempt the New York law and ask the state to use different terminology that does not conflict with TILA.