Effective May 9, 2023, the State of Georgia has implemented a new commercial financing disclosure law, SB 90, with the intent to modify Chapter 1 of Title 10 of the Georgia Code. SB 90 is designed to necessitate commercial financing disclosures for providers engaged in over five commercial financing transactions annually within Georgia completed on or after January 1, 2024.
In an effort to elucidate the legislation, it's essential to clarify a few terminologies found within SB 90. "'Commercial financing transaction' means a business purpose transaction: (A) Under which a person extends a business a commercial loan or a commercial open-end credit plan; or (B) That is an accounts receivable purchase transaction."
An 'Advance fee' is identified as any consideration evaluated or collected prior to the conclusion of a commercial financing transaction by a broker.
Furthermore, a 'Broker' is defined as an individual who, in expectation of compensation, organizes a commercial financing transaction between a third party and a state-based business, which would be legally binding if executed.
A 'Provider' means a person who consummates more than five commercial financing transactions in this state during any calendar year, with some other stipulations.
SB 90 stipulates exemptions for federally insured financial institutions as well as transactions exceeding particular monetary thresholds. The disclosure requirements outlined in the act include the total amount of funds provided, disbursed, and paid to the provider, the total dollar cost, the manner and frequency of payments, and any prepayment costs or discounts.
Additionally, the Act sets forth regulations for brokers, banning the assessment of advance fees, false or deceptive representations, and requiring third-party payments for actual services rendered.
SB 90 authorizes the Attorney General to accept and respond to complaints, and provides for monetary penalties.
Here is what the bill says about penalties:
(h) A person who violates a provision of this Code section is subject to a civil penalty of $500.00 per violation, not to exceed $20,000.00 for all violations arising from the use of the same transaction documentation or materials.
(i) A person who violates a provision of this Code section after receiving written notice of a prior violation is subject to a civil penalty of $1,000.00 per violation, not to exceed $50,000.00 for all violations arising from the use of the same transaction documentation or materials.
It is our opinion that the only way to stop some of the business practices in the commercial financing space is to enforce monetary penalties so this will be impactful on the industry.
Even though the Governor had until May 8th to veto the law, his signature was not required for it to take effect. The bills' sponsors were: Senators Dixon of the 45th, Gooch of the 51st, Albers of the 56th, Still of the 48th, and Kennedy of the 18th.
This regulatory change is expected to introduce more transparency into commercial financing transactions within the state, by making it obligatory for entities involved in such transactions to provide clear and detailed disclosures. This is seen as a significant step towards ensuring fair and equitable commercial financing practices in Georgia.