On Tuesday, March 28th, 2023, the Consumer Financial Protection Bureau (CFPB) announced that commercial financing disclosure laws in California, New York, Utah, and Virginia are not preempted by the federal Truth in Lending Act (TILA).
TILA is a consumer protection law intended to promote the informed use of consumer credit. Under TILA, disclosures about the terms and costs of loans are required to standardize the way in which borrowing costs are calculated and disclosed. Through standardization, it is believed that consumers should be better able to compare lending options. In recent years, California, New York, Utah, and Virginia have enacted laws that require lenders to include disclosures in their commercial financing transactions with businesses. Commercial financing transactions, however, are not covered by TILA.
In 2022, the CFPB received a request from an industry trade association to determine whether New York’s commercial financing disclosure law is preempted by TILA. The CFPB determined that New York’s law is not preempted by TILA because the NY law regulates commercial financing transactions rather than consumer-purpose transactions.
Congress adopted a narrow standard for TILA preemption that displaces State law only in the case of “inconsistency” and only to the extent necessary to resolve the inconsistency. CFPB further confirmed their agreement that the standard to consider is “conflict preemption,” which only applies if the state law makes it impossible to comply, or if it is an obstacle for complying with the federal law. This means that States have broad authority to establish their own protections for their residents, both within and outside the scope of TILA. At the request of the California Attorney General, CFPB emphasized Reg. Z Commentary that, “Generally, State law requirements that call for the disclosure of items of information not covered by the Federal law, or that require more detailed disclosures, are not preempted.”
Relevant here, commercial financing transactions to businesses – and any disclosure associated with such transactions – are beyond the scope of TILA’s statutory purposes, which concern consumer credit, according to the CFPB. The CFPB’s decision affirms that the four states’ commercial financing disclosure laws do not conflict with TILA.
Read the CFPB’s preemption determination here.