New Jersey Reintroduces Commercial Financing Disclosure Bill

A New Jersey Senate committee advanced a commercial financing disclosure bill on October 10 after attaching seven amendments, among them a ban on broker fees collected before closing. The measure, S1397, comes from Sen. Troy Singleton, who represents Burlington in District 7. He prefiled it for the 2024-2025 session, and it revives a proposal he introduced in the 2022-2023 session as S819. It would require written cost disclosures on most commercial financing offers made in the state and regulate how brokers sell. It has not passed either chamber.

What the bill covers

As introduced, S1397 applies to open-end financing, closed-end financing, sales-based financing and factoring transactions. Sales-based financing, in the bill’s wording, is a transaction repaid in installments tied to a share of sales or revenue. A fixed payment that gets reconciled to that share later also counts.

When a provider makes a specific offer, it must disclose:

• the total amount and the disbursement after deducted fees;
• the finance charge in dollars;
• an estimated annual percentage rate, calculated under the Regulation Z method (12 CFR 1026.22);
• the total repayment amount, estimated term and payment amounts;
• other fees, any charges on payoff or refinance, and collateral requirements.

For sales-based products, the estimated APR rests on a projection of the merchant’s sales. A provider picks one of two methods and tells the Commissioner of Banking and Insurance which. The historical method averages past sales across a fixed window, anywhere from a single month up to a year. Under the opt-in method it chooses its own projection for each disclosure, submits to a Commissioner review and reports yearly on estimated versus actual APRs. The Commissioner can order a provider back to the historical method if the gap is unacceptable.

What the committee changed

The committee’s October 10 statement lists seven amendments:

1. Providers of factoring and sales-based products may show the merchant either an estimated APR or an estimated yearly cost in dollars.
2. Rules written by the Department of Banking and Insurance should track, to the extent possible, what other states have adopted.
3. The commissioner’s power to order added relief is limited to reckless or willful violations.
4. So is a recipient’s or provider’s right to recover a civil penalty in court.
5. The roster of covered entities changes; the statement does not say how.
6. A broker may not charge a fee that is assessed or collected before closing.
7. A broker may not make misleading or deceptive statements or leave out material facts.

Item 1 matters most for MCA funders and factors. It gives them an alternative to an estimated APR, which the bill as introduced did not offer.

Broker provisions

The introduced text makes a broker who collects any fee or commission from the recipient provide a stand-alone written disclosure. It names each charge, totals them in dollars and shows how much they push the APR up. The committee layered the pre-closing fee prohibition and a conduct standard on top.

Penalties, exemptions and timing

In the introduced text, civil penalties top out at $2,000 for each violation and $10,000 for each willful one. Carved out are financial institutions, deals above $500,000, financing secured by real property, and any provider with no more than five New Jersey transactions over 12 months. The committee altered which entities are covered, so check the current text before relying on that list.

Under section 16, the act takes effect 180 days after enactment. Providers get a further grace period, though: compliance is not required until 120 days after the Commissioner adopts final regulations.

What is unsettled

The bill must still clear the full Senate and the Assembly and then gain the governor’s signature. The Department of Banking and Insurance would still have to write the rules that set form and method. For funders and brokers, the near-term task is to compare these disclosure and broker provisions with the state regimes they already operate under, and to verify current law before citing any state in customer-facing material.

Sources

• New Jersey Legislature, S1397 (Singleton), introduced text, 2024 session. https://pub.njleg.state.nj.us/Bills/2024/S1500/1397_I1.HTM
• New Jersey Legislature, Senate Commerce Committee, Statement to Senate, No. 1397 with committee amendments, October 10, 2024. https://pub.njleg.state.nj.us/Bills/2024/S1500/1397_S1.HTM
• New Jersey Legislature, S819 (Singleton), introduced text, January 18, 2022. https://pub.njleg.state.nj.us/Bills/2022/S1000/819_I1.HTM