CFPB Affirms Consistency of Certain State Disclosure Laws with TILA

Mortgage News April 12, 2023

The Consumer Financial Protection Bureau (CFPB) has declared that the state regulations requiring disclosure for lending to businesses in California, New York, Utah, and Virginia are not superseded by the federal Truth in Lending Act (TILA).

The CFPB scrutinized disclosure regulations in California, New York, Utah, and Virginia to ascertain whether they clashed with and took precedence over the Truth in Lending Act. Following a review of public feedback on its initial decision, the CFPB confirmed that there was no contradiction since the state laws provide disclosure safeguards for businesses and entrepreneurs pursuing commercial loans.

The aim of TILA is to ensure that credit conditions are presented in a clear and comprehensible manner to customers, enabling them to make more informed comparisons between loan alternatives.

Over the past few years, California, New York, Utah, and Virginia have introduced regulations mandating that lenders provide disclosures in their commercial financing dealings with businesses. Such transactions are not subject to TILA.

In 2022, the CFPB was asked by a trade association in the industry to evaluate whether TILA supersedes New York’s commercial financing disclosure regulation. After assessing the request, the CFPB provisionally concluded that TILA does not take precedence over the New York law since it governs commercial financing deals and not consumer-oriented transactions. The CFPB solicited feedback on whether it should confirm its initial determination that the New York regulation, along with comparable ones in California, Utah, and Virginia, are not preempted.

States possess extensive power to create their own safeguards for their citizens, regardless of whether they fall under TILA’s purview or not. TILA only precludes state regulations when there is a direct conflict. The state laws scrutinized by the CFPB aim to safeguard businesses by guaranteeing they have a clear understanding of the credit conditions accessible to them, which goes beyond TILA’s intended purpose of protecting consumers in credit transactions.

The ruling by the CFPB confirms that the commercial financing disclosure regulations of the four states do not clash with TILA.

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