The Vermont Statutes Online

Title 8 : Banking and Insurance

Chapter 073 : Licensed Lenders, Mortgage Brokers, Mortgage Loan Originators, Sales Finance Companies, and Loan Solicitation Companies

• § 2247. Commercial financing [Effective July 1, 2027]

  (a) Definitions. As used in this section:

  (1) “Commercial financing” means a sales-based financing or factoring transaction.

  (2) “Factoring transaction” means an accounts receivable purchase transaction that includes an agreement to purchase, transfer, assign, 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. A purchase of accounts receivable in connection with the purchase and sale of substantially all of the assets of a business or line of business shall not be deemed to be a factoring transaction.

  (3) “Finance charge” means the cost of financing as a dollar amount. It includes any charge payable directly or indirectly by the recipient and imposed directly or indirectly by the provider as an incident to or a condition of the extension of financing. It includes all charges that would be included under 12 C.F.R. Part 1026.4 as if the transaction were subject to 12 C.F.R. Part 1026.4. In addition, the finance charge shall include any charges as determined by the Commissioner. For the purposes of a factoring transaction, the finance charge includes the discount taken on the face value of the accounts receivable.

  (4) “Provider” means a person who provides or will provide commercial financing to a recipient or who extends a specific offer of commercial financing to a person or to the person’s authorized representative. A provider also includes a person who solicits prospective recipients of commercial financing or who presents specific offers of commercial financing on behalf of a third party.

  (5) “Recipient” means a person that receives or applies for commercial financing or is made a specific offer of commercial financing by a provider. A recipient may also be an authorized representative of such person.

  (6) “Sales-based financing” means a transaction that is repaid by the recipient to the provider, 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. Sales-based financing also includes a true-up mechanism where the financing is repaid as a fixed payment but provides for a reconciliation process that adjusts the payment to an amount that is a percentage of sales or revenue. Sales-based financing also includes transactions structured as a sale or assignment of future accounts receivable, future revenue, or future sales.

  (7) “Solicit prospective recipients of commercial financing” means, for compensation or gain or with the expectation of compensation or gain, to:

  (A) solicit prospective recipients for commercial financing;

  (B) offer, broker, directly or indirectly arrange, place, or find commercial financing for a prospective recipient;

  (C) obtain commercial financing for a prospective recipient or offer to obtain commercial sales-based financing for a recipient from a provider;

  (D) initiate prospective recipients’ interest or inquiry in commercial financing by online marketing, direct response advertising, telemarketing, or other similar contact;

  (E) engage in the business of selling information identifying a prospective recipient of commercial financing;

  (F) generate or augment information identifying a prospective recipient of commercial financing for other persons; or

  (G) refer prospective Vermont recipients to other persons for commercial financing.

  (8) “Specific offer” means the specific terms of commercial 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.

  (b) License requirement.

  (1) A provider shall not provide commercial financing to a person in this State, extend a specific offer of commercial financing to a person in this State, or solicit prospective recipients of commercial financing extended by such provider, unless the provider is licensed as a lender under this chapter.

  (2) A provider shall not solicit prospective recipients of commercial financing on behalf of a third party or present or extend specific offers of commercial financing on behalf of a third party unless the provider holds a loan solicitation license under this chapter and such third party is licensed as a lender under this chapter or exempt from the licensing requirements under this section pursuant to subdivision (3) or (4) of this subsection.

  (3) A lender license, commercial lender license, or loan solicitation license shall not be required under this section for any of the following:

  (A) a state agency, political subdivision, or other public instrumentality of a state;

  (B) a federal agency or other public instrumentality of the United States;

  (C) a depository institution or a financial institution as defined in subdivision 11101(32) of this title; or

  (D) a seller of goods or services that finances the sale of such goods or services to a recipient.

  (4) This section shall not apply to commercial financing transactions of $1,000,000.00 or more that are not primarily for personal, family, or household use.

  (5) For purposes of this section, subsection 2201(d) of this title shall not apply.

  (c) Personal, family, or household use. A commercial financing offered, extended, or otherwise provided primarily for personal, family, or household use, for the purpose of regulation under this chapter, shall also be deemed to be a loan for purposes of this chapter. Any commercial financing deemed to be a loan under this subsection shall be governed by and subject to applicable provisions of this title, including this section, and 9 V.S.A. chapters 4, 59, and 61.

  (d) Certain automatic debts prohibited. A provider shall not establish a mechanism for automatically debiting a recipient’s deposit account unless the provider holds a validly perfected security interest in the recipient’s account under Title 9A, with a first priority against the claims of all other persons.

  (e) Confessions of judgment. A commercial financing contract that contains a confession of judgment provision or any similar provision is void and unenforceable.

  (f) Choice of law, jurisdiction, and venue; arbitration. Where a provider enters into a contract or agreement with a recipient to provide commercial financing, such contract or agreement shall be governed exclusively by Vermont law, and any cause of action arising under such contract or agreement shall be brought in a court in this State. Any provision in the contract or agreement providing that the law of any other jurisdiction shall govern or mandating that any such action be brought outside this State shall be unenforceable by any party other than the recipient. Where a contract between a provider and recipient contains an arbitration provision, such contract shall not require face-to-face arbitration proceedings outside this State. If the contract requires face-to-face arbitration proceedings outside this State, such provision is unenforceable by any party other than the recipient. The enforceability of the remaining provisions of the arbitration agreement and the method of selecting a forum for the conduct of the arbitration proceedings are as provided in the Vermont Arbitration Act, 12 V.S.A. chapter 192, the Federal Arbitration Act, 9 U.S.C. §§ 1–16, and any applicable rules of arbitration. The provider shall pay any arbitrators’ expenses or fees, or any other expenses or administrative fees incurred in the conduct of any such arbitration proceedings.

  (g) Sales-based financing disclosure requirements.

  (1) A provider shall provide the following disclosures to a recipient at the time of extending a specific offer of sales-based financing:

  (A) The total amount of the commercial financing, and the disbursement amount, if different from the financing amount, after any fees deducted or withheld at disbursement.

  (B) The finance charge.

  (C) 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, and determined in accordance with the federal Truth in Lending Act, Regulation Z, 12 C.F.R. § 1026.22, as may be amended, based on the estimated term of repayment and the projected periodic payment amounts, regardless of whether such act or such regulation would require such a calculation. The estimated term of repayment and the projected periodic payment amounts shall be calculated based on a projection of the volume of the recipient’s sales or revenue. The projected volume of sales or revenue may be calculated using the historical method, as described in subdivision (i) of this subdivision (g)(1)(C), or the opt-in method, as described in subdivision (ii) of this subdivision (g)(1)(C).

  (i) A provider using the historical method shall use an average historical volume of sales or revenue on which the financing’s payment amounts are based and by which the estimated annual percentage rate is determined. The provider shall fix the historical time period to be used to calculate the average historical volume of sales or revenue and use such period for all disclosure purposes for all sales-based financing products offered by the provider. The fixed historical time period shall either be the time period immediately preceding the specific offer or, alternatively, a time period consisting of the same number of months with the highest sales or revenue volume within the past 12 months. The fixed historical time period shall be at least one month and shall not exceed 12 months.

  (ii) A provider using the opt-in method shall determine the estimated annual percentage rate, the estimated term, and the projected payments using a projected sales or revenue volume that the provider elects for each disclosure. Upon a finding by the Commissioner that the use of projected sales or revenue volume by the provider has resulted in an unacceptable deviation between the estimated and actual annual percentage rates, the Commissioner shall require the provider to use the historical method. The Commissioner may consider unusual and extraordinary circumstances impacting the provider’s deviation between estimated and actual annual percentage rates in making such finding.

  (D) The total repayment amount, which is the disbursement amount plus the finance charge.

  (E) The estimated term is the period of time required for the periodic payments, based on the projected sales volume, to equal the total amount required to be repaid.

  (F) The payment amounts, based on the projected sales volume:

  (i) for payment amounts that are fixed, the payment amounts and frequency (for example, daily, weekly, or monthly), and, if the payment frequency is other than monthly, the amount of the average projected payments per month; or

  (ii) for payment amounts that are variable, a payment schedule or a description of the method used to calculate the amounts and frequency of payments, and the amount of the average projected payments per month.

  (G) 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.

  (H) Were the recipient to elect to pay off or refinance the commercial financing prior to full repayment, the provider shall disclose:

  (i) whether the recipient would be required to pay:

  (I) any finance charges other than interest accrued since the last payment; if so, disclosure of the percentage of any unpaid portion of the finance charge and maximum dollar amount the recipient could be required to pay; and

  (II) any additional fees not already included in the finance charge; and

  (ii) a description of collateral requirements or security interests, if any.

  (2) The provider shall obtain the recipient’s signature on the disclosures required by this subsection before finalizing the application for the sales-based financing.

  (3) A provider shall not provide sales-based financing to a recipient without first providing the disclosures required by this subsection and obtaining the recipient’s signature on such disclosures.

  (4) The Commissioner may prescribe the format for the disclosures required by this subsection.

  (h) Factoring transaction disclosure requirements.

  (1) A provider shall provide the following disclosures to a recipient at the time of extending a specific offer for a factoring transaction:

  (A) The amount of the receivables purchase price paid to the recipient and, if different from the purchase price, the amount disbursed to the recipient after any fees deducted or withheld at disbursement.

  (B) The finance charge.

  (C) The estimated annual percentage rate, using the words “annual percentage rate” or the abbreviation “APR,” calculated according to the federal Truth in Lending Act, Regulation Z, 12 C.F.R. § 1026 Appendix J, as a “single advance, single payment transaction,” regardless of whether such act or such regulation would require such a calculation. To calculate the estimated annual percentage rate, the purchase amount is considered the financing amount, the purchase amount minus the finance charge is considered the payment amount, and the term is established by the payment due date of the receivables. As an alternate method of establishing the term, the provider may estimate the term for a factoring transaction as the average payment period, based on its historical data over a period not to exceed the previous 12 months, concerning payment invoices paid by the party owing the accounts receivable in question.

  (D) The total payment amount, which is the purchase amount plus the finance charge.

  (E) A description of all other potential fees and charges that can be avoided by the recipient.

  (F) A description of the receivables purchased and any additional collateral requirements or security interests.

  (2) The provider shall obtain the recipient’s signature on the disclosures required by this subsection before finalizing the application for the factoring transaction.

  (3) A provider shall not provide commercial financing to a recipient in a factoring transaction without first providing the disclosures required by this subsection and obtaining the recipient’s signature on such disclosures.

  (4) The Commissioner may prescribe the format for the disclosures required by this subsection.

  (i) Disclosures required if recipient required to pay off existing commercial financing as condition. If as a condition of obtaining commercial financing the provider requires the recipient to pay off the balance of existing commercial financing from the same provider, the provider shall disclose to the recipient:

  (1) The amount of the new commercial financing used to pay off the portion of the existing commercial financing that consists of prepayment charges required to be paid and any unpaid interest expense that was not forgiven at the time of renewal. 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 amount of the renewal used to pay off existing financing 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.

  (2) If the disbursement amount will be reduced to pay down any unpaid portion of the outstanding balance, the actual dollar amount by which such disbursement amount will be reduced.

  (j) Rulemaking. The Commissioner is authorized to adopt rules the Commissioner determines are consistent with the purposes of this section, or appropriate for the effective administration of this section, including:

  (1) Rules in connection with the calculation or determination of any metric required to be disclosed to a recipient.

  (2) Rules necessary to develop and prescribe disclosure formatting to be used by providers that allows for recipients to easily compare financing options in a clear and conspicuous manner. Such rules may include the designation and method for disclosing the information required in this section, or approving adequate forms and methods already used by providers.

  (3) Rules that define the terms used in this section if the Commissioner determines such rules are necessary and appropriate to interpret and implement the provisions of this section.

  (4) Rules necessary for the enforcement of this section. (Added 2025, No. 142 (Adj. Sess.), § 60, eff. July 1, 2027.)