Truth in Lending; Determination of Effect on State Laws (California, New York, Utah, and Virginia), 19214-19220 [2023-06719]
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addition, permitting access and amendment
to such information could disclose securitysensitive information that could be
detrimental to homeland security.
(c) From subsection (e)(1) (Relevancy and
Necessity of Information) because in the
course of investigations into potential
violations of federal law, the accuracy of
information obtained or introduced
occasionally may be unclear, or the
information may not be strictly relevant or
necessary to a specific investigation. In the
interests of effective law enforcement, it is
appropriate to retain all information that may
aid in establishing patterns of unlawful
activity.
(d) From subsection (e)(2) (Collection of
Information from Individuals) because
requiring that information be collected from
the subject of an investigation would alert the
subject to the nature or existence of the
investigation, thereby interfering with that
investigation and related law enforcement
activities.
(e) From subsection (e)(3) (Notice to
Subjects) because providing such detailed
information could impede law enforcement
by compromising the existence of a
confidential investigation or reveal the
identity of witnesses or confidential
informants.
(f) From subsections (e)(4)(G), (e)(4)(H),
and (e)(4)(I) (Agency Requirements) and (f)
(Agency Rules), because portions of this
system are exempt from the individual access
provisions of subsection (d) for the reasons
noted above, and therefore DHS is not
required to establish requirements, rules, or
procedures with respect to such access.
Providing notice to individuals with respect
to existence of records pertaining to them in
the system of records or otherwise setting up
procedures pursuant to which individuals
may access and view records pertaining to
themselves in the system would undermine
investigative efforts and reveal the identities
of witnesses, and potential witnesses, and
confidential informants.
(g) From subsection (e)(5) (Collection of
Information) because with the collection of
information for law enforcement purposes, it
is impossible to determine in advance what
information is accurate, relevant, timely, and
complete.
(h) From subsection (e)(8) (Notice on
Individuals) because compliance would
interfere with DHS’s ability to obtain, serve,
and issue subpoenas, warrants, and other law
enforcement mechanisms that may be filed
under seal and could result in disclosure of
investigative techniques, procedures, and
evidence.
(i) From subsection (g)(1) (Civil Remedies)
to the extent that the system is exempt from
other specific subsections of the Privacy Act.
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*
*
*
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Mason C. Clutter,
Acting Chief Privacy Officer, U.S. Department
of Homeland Security.
[FR Doc. 2023–06714 Filed 3–30–23; 8:45 am]
BILLING CODE 9111–14–P
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NUCLEAR REGULATORY
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10 CFR Part 50
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Lead-Acid Storage Batteries for
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Correction
In rule document 2023–06285,
appearing on pages 18005 through
18006, in the issue of Monday, March
27, 2023, the subject line is corrected to
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[FR Doc. C1–2023–06285 Filed 3–30–23; 8:45 am]
BILLING CODE 0099–10–D
CONSUMER FINANCIAL PROTECTION
BUREAU
12 CFR Part 1026
[Docket No. CFPB–2022–0070]
Truth in Lending; Determination of
Effect on State Laws (California, New
York, Utah, and Virginia)
Consumer Financial Protection
Bureau.
ACTION: Preemption determination.
AGENCY:
After considering public
comments, the Consumer Financial
Protection Bureau (CFPB) has
determined that commercial financing
disclosure laws in California, New York,
Utah, and Virginia are not preempted by
the Truth in Lending Act.
DATES: This determination is issued on
March 31, 2023.
FOR FURTHER INFORMATION CONTACT:
Christopher Shelton or Anand Das,
Senior Counsels, Legal Division, or Joel
Singerman, Senior Counsel, Office of
Regulations, at 202–435–7700. If you
require this document in an alternative
electronic format, please contact CFPB_
Accessibility@cfpb.gov.
SUPPLEMENTARY INFORMATION:
SUMMARY:
authorized to determine whether there
is an inconsistency.1
In recent years, New York, California,
Utah, and Virginia have enacted laws
that require disclosures for commercial
financing transactions to businesses,
which do not receive TILA disclosures
in those transactions. The CFPB
received a request from a trade
association (the requesting party) that it
determine that TILA preempts New
York’s commercial financing disclosure
law. In response, the CFPB published
for public comment a notification of
intent to make a preemption
determination. In the notification of
intent, the CFPB considered the
requesting party’s initial arguments and
preliminarily found that New York’s
law was not preempted. On the CFPB’s
own motion, the CFPB also provided
notice that it may make parallel findings
regarding the California, Utah, and
Virginia laws.
The CFPB received fifteen comments
on the notification of intent. The
Attorney General of California, two
trade associations, a lender to small
businesses, a group of consumer
advocacy organizations, and a group of
lenders, investors, and small business
advocates all supported the CFPB’s
notification of intent. On the other
hand, the requesting party, several other
trade associations, and a different lender
to small businesses argued that some or
all of the four States’ laws are
preempted.2
After analyzing the comments, the
CFPB has concluded that the State
commercial financing disclosure laws of
California, New York, Utah, and
Virginia are not preempted by TILA.
Congress adopted a narrow standard for
TILA preemption that displaces State
law only in the case of ‘‘inconsistency.’’
This means that States have broad
authority to establish their own
protections for their residents, both
within and outside the scope of TILA.
As relevant here, commercial financing
transactions to businesses—and any
disclosures associated with such
transactions—are beyond the scope of
TILA’s statutory purposes, which
concern consumer credit.
I. Overview of This Proceeding
The Truth in Lending Act (TILA)
ensures that key information about
consumer credit transactions is
disclosed to consumers. TILA preempts
State disclosure laws only if they are
‘‘inconsistent’’ with it. The CFPB is
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1 TILA
section 111(a), 15 U.S.C. 1610(a).
notification of intent is available at 87 FR
76551 (Dec. 15, 2022). The original request is
available at https://www.regulations.gov/document/
CFPB-2022-0070-0002. The comments on the
notification of intent are available at https://
www.regulations.gov/document/CFPB-2022-00700004/comment.
2 The
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II. General Background on the Truth in
Lending Act
Congress enacted TILA in 1968
because it found that ‘‘competition
among the various financial institutions
and other firms engaged in the
extension of consumer credit would be
strengthened by the informed use of
credit.’’ 3 As relevant here, TILA’s stated
purpose is to ‘‘assure a meaningful
disclosure of credit terms so that the
consumer will be able to compare more
readily the various credit terms
available to him and avoid the
uninformed use of credit.’’ 4 TILA
requires creditors to use specified
formulas to determine credit costs and
to provide cost disclosures, including
the ‘‘finance charge’’ and ‘‘annual
percentage rate’’ (APR), to consumers
before consummation of ‘‘consumer
credit’’ transactions. Consumer credit is
credit that is offered or extended
‘‘primarily for personal, family, or
household purposes.’’ 5 Conversely,
TILA expressly does not apply to
‘‘credit transactions involving
extensions of credit primarily for
business, commercial, or agricultural
purposes.’’ 6
In 1968, Congress authorized the
Board of Governors of the Federal
Reserve System (Board) to issue
regulations under TILA.7 In 2010,
Congress transferred the ‘‘consumer
financial protection functions’’ of the
Board to the CFPB as an independent
bureau in the Federal Reserve System.8
3 TILA
section 102(a), 15 U.S.C. 1601(a).
4 Id.
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5 TILA section 103(i), 15 U.S.C. 1602(i); 12 CFR
1026.2(a)(12).
6 TILA section 104(1), 15 U.S.C. 1603(1). There is
a limited exception related to certain requirements
for certain credit cards that is not applicable here.
TILA section 135, 15 U.S.C. 1645; 12 CFR 1026.12.
7 Public Law 90–321, title I, sec. 105, 82 Stat. 146,
148.
8 See sections 1011(a) and 1061(b)(1) of the
Consumer Financial Protection Act of 2010, 12
U.S.C. 5491(a), 5581(b)(1). Additionally, Congress
has provided that ‘‘the deference that a court affords
to the Bureau with respect to a determination made
by the Bureau relating to the meaning or
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The CFPB’s Regulation Z, originally
based on the Board’s Regulation Z,
implements TILA.9
III. Standard for Preemption Under the
Truth in Lending Act
A. TILA
According to TILA section 111(a)(1),
TILA does not ‘‘annul, alter, or affect the
laws of any State relating to the
disclosure of information in connection
with credit transactions, except to the
extent that those laws are inconsistent
with the provisions of [TILA], and then
only to the extent of the
inconsistency.’’ 10
As explained by TILA’s legislative
history, this provision ‘‘sets forth the
basic policy that the Federal statute
does not preempt State legislation.’’ 11
B. Regulation Z
Section 1026.28(a)(1) of the CFPB’s
Regulation Z implements the
inconsistency standard from TILA
section 111(a)(1).12 It is based on an
identical provision in the Board’s
Regulation Z.13 There are three key
sentences in the provision for purposes
of this determination.
The first sentence, tracking TILA
section 111(a)(1), provides that ‘‘State
interpretation of any provision of’’ TILA or its
implementing regulations, aside from certain
provisions related to property appraisals, ‘‘shall be
applied as if the Bureau were the only agency
authorized to apply, enforce, interpret, or
administer the provisions of’’ TILA and its
implementing regulations. TILA sections 103(z),
105(h), 15 U.S.C. 1602(z), 1604(h).
9 12 CFR part 1026.
10 15 U.S.C. 1610(a)(1). This authority pertains to
chapters 1, 2, and 3 of TILA, which are codified as
parts A, B, and C of 12 U.S.C. ch. 41, subch. I. This
determination refers to chapters 1, 2, and 3 of TILA
as ‘‘TILA’’ for convenience. Chapters 4 and 5 of
TILA, which are codified as parts D and E and
known as the Fair Credit Billing Act and Consumer
Leasing Act, respectively, are not implicated here
and have separate preemption provisions.
11 S. Rep. No. 90–392, at 20 (1967); accord H.R.
Rep. No. 90–1040, at 30 (1967).
12 12 CFR 1026.28(a)(1).
13 76 FR 79768, 79806–07 (Dec. 22, 2011); 46 FR
20848, 20906 (Apr. 7, 1981) (codified at 12 CFR
226.28(a)(1)).
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law requirements’’ that are
‘‘inconsistent’’ with TILA and
Regulation Z are preempted.14
The second sentence provides, as an
example, that a ‘‘State law is
inconsistent if it requires a creditor to
make disclosures or take actions that
contradict the requirements of the
Federal law.’’ 15 The term ‘‘creditor’’ is
a defined term in TILA and Regulation
Z, referring to a person extending
‘‘consumer credit.’’ 16
The third sentence, in turn, provides
examples of ‘‘contradictory’’ disclosures
or actions by a creditor: ‘‘A State law is
contradictory if it requires the use of the
same term to represent a different
amount or a different meaning than the
Federal law, or if it requires the use of
a term different from that required in
the Federal law to describe the same
item.’’ 17
Based on Board precedents, the
examples in the third sentence are only
a subset of the second sentence, which
in turn is only a subset of the first
sentence.18 The structure of
§ 1026.28(a)(1) is illustrated by Figure 1:
14 12 CFR 1026.28(a)(1) (first sentence). There are
exceptions that are not relevant here. Id.
15 12 CFR 1026.28(a)(1) (second sentence).
16 12 CFR 1026.2(a)(17)(i). There are other
features of the definition of ‘‘creditor’’ that are not
relevant here. Id.
17 12 CFR 1026.28(a)(1) (third sentence).
18 Put another way, when the second and third
sentences use the word ‘‘if,’’ they do not mean ‘‘if
and only if.’’ (Of course, use of language depends
on context, and there are other statutory and
regulatory contexts where ‘‘if’’ does imply ‘‘if and
only if.’’) An example where the only the first
sentence was applicable (but not the second or
third), because there were no disclosures or actions
by a ‘‘creditor’’—only by certain non-creditor loan
brokers—was 53 FR 3332, 3332–33 (Feb. 5, 1988)
(Indiana). Regarding that 1988 Indiana
determination, see also note 54 below. In 1983, the
Board that explained that sometimes both the first
and second sentences are applicable (but not the
third). That is when the State law does require
disclosures or actions by a ‘‘creditor,’’ but the law
does not ‘‘deal with disclosures of terms and
amounts.’’ 48 FR 4454 (Feb. 1, 1983) (Arizona,
Florida, Missouri, and South Carolina).
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Because none of the four State
commercial financing disclosure laws
involve a TILA ‘‘creditor,’’ i.e., a person
extending consumer credit, the second
and third sentences are not applicable to
those laws, and only the first sentence
is potentially applicable.
The requesting party submitted a
comment arguing that the third sentence
means that State laws are automatically
preempted whenever they use the terms
finance charge and APR to represent
different amounts from Regulation Z.
But this comment reads the third
sentence out of its context. The third
sentence provides examples of the
second sentence’s discussion of
‘‘contradictory’’ disclosures or actions
by ‘‘creditors.’’ Conduct by noncreditors is outside its scope and has to
be analyzed using the overall
inconsistency standard in the first
sentence.19
19 The requesting party’s comment also cites
Regulation Z commentary discussing the third
sentence of 12 CFR 1026.28(a)(1). The commentary
provides two specific examples of types of State
laws that would be preempted under the third
sentence, but these commentary examples do not
affect the present analysis of the regulation. The
first example in the commentary explains that the
third sentence’s bar on a State law that ‘‘requires
the use of the same term to represent a different
amount or a different meaning’’ would include, as
an example, a ‘‘State law that requires use of the
term finance charge, but defines the term to include
fees that the Federal law excludes, or to exclude
fees the Federal law includes.’’ 12 CFR part 1026,
supp. I, comment 28(a)–2.i. The second example
explains that the third sentence’s bar on a State law
that ‘‘requires the use of a term different from that
required in the Federal law to describe the same
item’’ would include, as an example, a ‘‘State law
that requires a label such as nominal annual interest
rate to be used for what the Federal law calls the
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The reading of the third sentence
proffered by the requesting party would
result in implausibly sweeping
preemption. Although the requesting
party focuses its argument on the
finance charge and APR, the reading
would logically prevent State
disclosures—regardless of topic—from
using other Regulation Z disclosure
terms such as ‘‘File #,’’ ‘‘Closing Date,’’
‘‘Deposit,’’ or ‘‘County Taxes,’’ without
aligning with technical Regulation Z
definitions that may have no connection
with the topic of the State disclosures.20
Accordingly, the third sentence does not
govern non-TILA-creditor contexts.
C. Approach When Evaluating
Inconsistency
The notification of intent stated that
the CFPB was considering whether it
should clarify how the CFPB articulates
the standard for TILA preemption and
requested comment on that issue. The
Attorney General of California
commented that the standard should be
understood to align with conflict
preemption.
The CFPB agrees that TILA’s and
Regulation Z’s inconsistency standard
aligns with conflict preemption. In
conflict preemption, there is a conflict
either when it is ‘‘impossible’’ to
comply with both the Federal law and
the State law (the impossibility prong)
or when the State law ‘‘stands as an
annual percentage rate.’’ Id., comment 28(a)–2.ii.
The commentary, like the language in the third
sentence it illustrates, is limited by its context to
disclosures provided by TILA creditors.
20 Id.; 12 CFR 1026.38 (Regulation Z closing
disclosure for mortgage loans).
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obstacle to the accomplishment and
execution of the full purposes’’ of the
Federal law (the obstacle prong).21
There is preemption under the obstacle
prong when ‘‘the purpose of the act
cannot otherwise be accomplished—if
its operation within its chosen field else
must be frustrated and its provisions be
refused their natural effect.’’ 22
The Board’s precedents align with
conflict preemption. With respect to the
impossibility prong, the Board at times
assessed whether ‘‘a creditor can
comply with both the State and Federal
provisions.’’ 23 However, State laws
rarely or never make delivery of TILA
disclosures impossible, so impossibility
does not figure prominently in the
Board’s precedents.
The Board’s consideration of
preemption instead typically focused on
the obstacle prong. When determining
whether disclosures or actions by a
creditor contradicted TILA, the Board
held that a State law is preempted when
‘‘it significantly impedes the operation
of the Federal law or interferes with the
purposes of the Federal statute.’’ 24
When evaluating whether a State law
regulating non-creditors was
inconsistent with TILA, the Board used
similar wording, considering whether
the State law was ‘‘inconsistent with the
purpose of the Federal law’’ and would
‘‘undermine the intent of the Federal
21 Crosby v. Nat’l Foreign Trade Council, 530 U.S.
363, 372–3 (2000) (emphasis added).
22 Id. at 373.
23 56 FR 3005, 3006 (Jan. 28, 1991) (New Mexico).
24 E.g., 48 FR 4454 (Feb. 1, 1983) (Arizona,
Florida, Missouri, and South Carolina).
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scheme.’’ 25 The CFPB understands
these to be applications of the obstacle
prong.
The conclusion that inconsistency
under TILA aligns with conflict
preemption is reinforced by case law.
The District of Columbia Circuit has
applied a conflict-preemption analysis
when considering whether TILA
preempted State law.26 The Ninth
Circuit has observed, in the context of
other statutes that use an
‘‘inconsistency’’ test for preemption,
that ‘‘when the preemption clause uses
the term ‘inconsistent,’ ’’ the analysis
under the preemption clause and the
analysis under conflict preemption
‘‘effectively collapse into one.’’ 27
In order to determine whether State
law ‘‘stands as an obstacle’’ to TILA’s
purposes, it is necessary to carefully
consider those statutory purposes.
Congress has delineated TILA’s main
purposes in purpose provisions. The
relevant purpose provision in most
disclosure contexts, including the
present one, is section 102(a): ‘‘a
meaningful disclosure of credit terms so
that the consumer will be able to
compare more readily the various credit
terms available to him and avoid the
uninformed use of credit.’’ 28 Thus, in
order to be preempted on this basis, a
State law has to frustrate the meaningful
disclosure of credit terms to consumers
that TILA and Regulation Z provide.
The group of consumer advocacy
organizations argued in a comment that
preemption under TILA should not be
based on conflict with the purposes of
TILA. The organizations expressed
concern about the vague way in which
purposes could conceivably be
articulated to preempt State law.
The CFPB notes that evaluating
whether or not State law stands as an
obstacle to a statute’s purposes is a wellestablished prong of conflict
preemption. The CFPB believes that the
purposes of TILA, when carefully
considered, provide appropriate
guideposts for a narrow preemption
standard that respects rather than
undermines State law. When construing
TILA’s purposes, it is important to bear
in mind that Congress’s ‘‘basic policy’’
25 53
FR 3332, 3333 (Feb. 5, 1988) (Indiana).
v. First Gov’t Mortg. & Invs. Corp., 176
F.3d 497, 500 (D.C. Cir. 1999) (considering whether
State law ‘‘would defeat TILA’s purposes’’ or
whether ‘‘joint applicability of the two statutes
would subject [the regulated party] to conflicting
obligations’’).
27 Jones v. Google LLC, 56 F.4th 735, 741 (9th Cir.
2022).
28 15 U.S.C. 1601(a); see also, e.g., id. (‘‘to protect
the consumer against inaccurate and unfair credit
billing and credit card practices’’); 15 U.S.C.
1639b(a)(2) (purposes related to residential
mortgage loan origination).
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26 Williams
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in drafting TILA was ‘‘that the Federal
statute does not preempt State
legislation.’’ 29
D. States’ Ability To Prescribe
Additional Disclosures and Protections
The Attorney General of California
requested that the CFPB emphasize the
statement in the Regulation 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.30 The CFPB agrees that
these are examples of State disclosure
laws that are generally not inconsistent
with TILA or Regulation Z and so are
not preempted.
Relatedly, the group of consumer
advocacy organizations asked the CFPB
to note that TILA does not prevent
States from affording greater protections
to consumers. The CFPB agrees that, in
the words of the District of Columbia
Circuit: ‘‘Nothing in TILA or its
legislative history suggests that Congress
intended the Act’s disclosure regime to
provide the maximum protection to
which borrowers are entitled
nationwide; States remain free to
impose greater protections for
borrowers.’’ 31
E. Limited Extent of Preemptive Effect
TILA section 111(a)(1) provides that,
in a scenario where there is an
inconsistency, State law is preempted
‘‘only to the extent of the
inconsistency.’’ The Attorney General of
California requested that the CFPB
emphasize the principle articulated by
the Board that ‘‘preemption occurs only
in those transactions in which an actual
inconsistency exists between the State
law and the Federal law.’’ 32 The CFPB
agrees. The Board’s approach honors
TILA section 111(a)(1), which intrudes
on State law only so far as is necessary
to prevent inconsistency with TILA. For
example, if an aspect of a State
disclosure form would be inconsistent
with TILA in some transactions, the
State law is only preempted as applied
to those transactions, and even in those
transactions only the relevant aspect of
the State disclosure form is
preempted.33
29 S. Rep. No. 90–392, at 20 (1967); accord H.R.
Rep. No. 90–1040, at 30 (1967).
30 12 CFR part 1026, supplement I, comment
28(a)–3.
31 Williams v. First Gov’t Mortg. & Invs. Corp., 176
F.3d 497, 500 (D.C. Cir. 1999).
32 48 FR 4454, 4455 (Feb. 1, 1983) (Arizona,
Florida, Missouri, and South Carolina).
33 E.g., id. at 4455–57.
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IV. Legal Authority
After establishing the inconsistency
standard discussed above, TILA section
111(a)(1) provides that ‘‘the Bureau
shall determine whether any such
inconsistency exists,’’ upon the
Bureau’s own motion or upon the
request of any creditor, State, or other
interested party.34
Congress added the authority for
preemption determinations to section
111(a)(1) in 1980.35 According to the
legislative history, Congress was
concerned about ‘‘current ambiguities’’
regarding the interaction of TILA and
State laws, which created uncertainty
for creditors seeking to comply, but also
wanted to maintain ‘‘deference to the
laws of the States.’’ 36 Congress retained
the existing inconsistency standard but
conferred authority on the Board, and
later the CFPB, to determine whether
State laws are inconsistent.37
In addition to the CFPB’s authority
under TILA, section 554(e) of the
Administrative Procedure Act
authorizes any agency, in its sound
discretion, to issue a declaratory order
to terminate a controversy or remove
uncertainty.38 As the notification of
intent explained, section 554(e) of the
Administrative Procedure Act provides
34 15 U.S.C. 1610(a)(1). Additionally, if the
Bureau determines that a State-required disclosure
is inconsistent, creditors located in that State may
not make disclosures using the inconsistent term or
form, and they incur no liability under the law of
that State for failure to use such term or form,
notwithstanding that such determination is
subsequently amended, rescinded, or determined
by judicial or other authority to be invalid for any
reason. Id. The CFPB’s procedures for TILA
preemption determinations are set out in Regulation
Z, 12 CFR part 1026, appendix A.
35 Truth in Lending Simplification and Reform
Act of 1980, Public Law 96–221, title VI, sec. 609,
94 Stat. 163, 173.
36 S. Rep. No. 96–73, at 14 (1979); cf. H.R. Conf.
Rep. No. 96–842, at 80–81 (1980) (accepting Senate
version). At the same time, Congress amended TILA
to authorize the Board to make a ‘‘substantially the
same in meaning’’ determination, which is distinct
from a preemption determination and not at issue
in this proceeding, as explained in the discussion
of Virginia below.
37 Although the requesting party requested this
preemption determination, it responded to the
notification of intent with a comment questioning
the CFPB’s authority to determine that State
commercial financing disclosure laws are not
preempted. According to the comment, if TILA does
not preempt the four States’ laws, as the CFPB’s
preliminarily determined, then the CFPB’s
authority to make preemption determinations
should similarly not extend to these laws. However,
TILA authorizes the CFPB to determine ‘‘whether’’
there is an ‘‘inconsistency,’’ which necessarily
includes the authority to reach the conclusion that
there is no inconsistency. Moreover, the comment
does not make any arguments challenging the
CFPB’s independent authority under section 554(e)
of the Administrative Procedure Act, discussed in
the notification of intent and also in the paragraph
below.
38 5 U.S.C. 554(e).
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an additional, independent source of
authority for this proceeding. Agencies
have long used declaratory orders to
address whether or not a law that they
administer preempts a State law.39
Although not required, the CFPB
consulted the Board, Federal Deposit
Insurance Corporation, Federal Trade
Commission, National Credit Union
Administration, and Office of the
Comptroller of the Currency as part of
its deliberative process.
V. California and New York
This part V discusses the California
Commercial Financing Disclosures
Law 40 and New York Commercial
Finance Disclosure Law 41 together, as
they are the most similar of the four
State laws at issue in this proceeding.
A. Provisions of the California and New
York Laws
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Both the California and New York
laws require ‘‘providers’’ to issue
disclosures before consummation of
certain commercial financing
transactions, ‘‘intended by the recipient
for use primarily for other than
personal, family, or household
purposes’’ (California) or ‘‘the proceeds
of which the recipient does not intend
to use primarily for personal, family, or
household purposes’’ (New York).42
These contrast with the relevant TILA
criterion for consumer credit, which is
‘‘primarily for personal, family, or
household purposes.’’ 43 Accordingly,
there was consensus among commenters
that TILA disclosures, on the one hand,
and California or New York disclosures,
on the other, would not both be required
in the context of any single transaction.
The California and New York
disclosures include a ‘‘finance charge’’
and ‘‘annual percentage rate’’ (APR).
These amounts are calculated by
reference to the formulas that would
hypothetically be used under the
CFPB’s Regulation Z in order to
calculate the finance charge and APR, as
if the transactions were consumer credit
transactions, with certain specifications
added by California and New York.44
39 E.g., New York State Comm’n on Cable
Television v. FCC, 749 F.2d 804, 815 (D.C. Cir.
1984).
40 Cal. Fin. Code secs. 22800 to 22805; see also
Cal. Code Regs. tit. 10, ch. 3, subch. 3.
41 N.Y. Fin. Serv. Law secs. 801 to 812; see also
N.Y. Comp. Codes R. & Regs., tit. 23, part 600.
42 Cal. Fin. Code sec. 2280(d) (emphasis added);
N.Y. Fin. Serv. Law sec. 801(b) (emphasis added).
43 15 U.S.C. 1602(i).
44 Cal. Code Regs. tit. 10, secs. 940, 943; N.Y. Fin.
Serv. Law secs. 801(e), 803–807; N.Y. Comp. Codes
R. & Regs., tit. 23, secs. 600.2, 600.3. The California
and New York disclosures use an ‘‘estimated’’
finance charge or APR in some circumstances, but
any difference between estimated and non-
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There was disagreement among
commenters about whether California’s
and New York’s respective
specifications result in different finance
charges and APRs than would be
generated under Regulation Z if it were
hypothetically applicable, or whether
they should instead be viewed as
tailoring the finance charge and APR to
the structures of certain types of
commercial financing arrangements that
are not shared by consumer credit
transactions. For reasons discussed
below, it is not necessary for the CFPB
to resolve that specific debate.
B. Discussion
After considering the comments, the
CFPB concludes that the California or
New York laws are not inconsistent
with TILA and so are not preempted. No
commenter has suggested that
compliance with these State laws as
well as with TILA and Regulation Z is
‘‘impossible.’’ 45 The CFPB also does not
believe that these State laws stand ‘‘as
an obstacle to the accomplishment or
execution’’ of TILA’s purposes.46 As
discussed above, the TILA purpose that
is relevant here is ‘‘a meaningful
disclosure of credit terms so that the
consumer will be able to compare more
readily the various credit terms
available to him and avoid the
uninformed use of credit.’’ 47 TILA
achieves this purpose by requiring
disclosures for consumer credit.
Consumers applying for consumer
credit will continue to receive only
TILA disclosures, which will assure
meaningful disclosure of credit terms
and allow consumers to compare the
terms of consumer credit products,
including their finance charges and
APRs.48
estimated amounts does not affect the CFPB’s
analysis below. Cf. 12 CFR 1026.5(c), 1025.17(c)(2)
(generally allowing use of estimates for Regulation
Z disclosures when information is unavailable).
45 Crosby v. Nat’l Foreign Trade Council, 530 U.S.
363, 372–73 (2000).
46 Id. The CFPB would reach the same conclusion
however this concept is expressed, whether as
‘‘significantly impedes the operation of the Federal
law or interferes with the purposes of the Federal
statute,’’ e.g., 48 FR 4454 (Feb. 1, 1983) (Arizona,
Florida, Missouri, and South Carolina), or
‘‘inconsistent with the purpose of the Federal law,’’
or ‘‘undermin[ing] the intent of the Federal
scheme,’’ 53 FR 3332, 3333 (Feb. 5, 1988) (Indiana).
47 TILA section 102(a), 15 U.S.C. 1601(a).
48 A comment by a lender cited a statement in a
1982 preliminary determination, not ultimately
reflected in the final determination, that ‘‘State
provisions on disclosure of the cost of credit,
analogous to the finance charge or annual
percentage rate disclosures under Regulation Z, will
be reviewed more strictly,’’ because ‘‘these
disclosures are particularly significant.’’ 47 FR
16201, 16202 (Apr. 15, 1982). This statement
simply reflects the fact that the finance charge and
APR are important disclosures in the context of
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Businesses’ understanding of credit
available to them for business purposes
is an important policy issue, but it is not
a purpose of TILA and has been left to
the States to address. As TILA’s
legislative history explains, Congress
decided when enacting TILA in 1968
not to focus on lending to businesses:
‘‘By limiting the bill to the field of
consumer credit, the committee believes
it is providing disclosure requirements
in the area where it is most essential.’’ 49
Commenters advocating for preemption
had a number of complaints about how
businesses might be confused by the
California and New York disclosures.
However, these concerns about the
merits of the State laws are properly
addressed to State legislators or
regulators. It is not appropriate to use
TILA preemption to override States’
judgments regarding how best to
disclose information to businesses,
which is not part of TILA’s purposes.
Commenters advocating preemption
have not shown that consumers—when
shopping for credit that they intend to
use primarily for personal, family, or
household purposes—would somehow
be prevented from understanding the
terms of credit available to them for
those purposes, by State disclosures
provided in different (business-purpose)
transactions. The CFPB notes that
Regulation Z places the responsibility
for ascertaining the borrower’s intended
purpose on the would-be creditor.50 In
any situation where a potential
borrower is shopping for credit
primarily for personal, family, or
household purposes, the borrower
would receive the Federal TILA
disclosures for all potential transactions
for those purposes—not the California
or New York disclosures.51
consumer credit transactions, and it does not
advance the analysis here.
49 S. Rep. No. 90–392, at 7 (1967).
50 12 CFR part 1026, supplement I, comment 3(a)–
1 (‘‘A creditor must determine in each case if the
transaction is primarily for an exempt purpose.’’).
51 Id. Relatedly, some commenters advocating
preemption asserted that consumers who are also
small businesspeople and receive the California or
New York disclosures when applying for
commercial financing will, in their personal lives,
distrust the TILA finance charge and APR because
they do not have consistent meanings across
Federal and State law. However, these comments
did not offer any evidence or other support for the
assumption that these individuals would react to
differences between the State commercial financing
version and TILA consumer credit version with
distrust of the TILA version, rather than an
understanding that different calculations may be
appropriate in the context of different types of
transaction. The CFPB notes that within TILA and
Regulation Z there can be significant differences in
how the finance charge is calculated depending on
the type of consumer credit transaction, but the
CFPB is not aware of this causing distrust by
consumers. As one illustration, compare 15 U.S.C.
1605(a)(4); 12 CFR 1026.4(b)(4) (credit report fees
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TILA coverage depends on the
primary purpose, so it is possible for a
borrower to use the proceeds from a
credit transaction primarily for business
purposes but also to a lesser degree for
personal purposes, in which case TILA
disclosures would not be required. As
noted above, TILA’s disclosure regime
concerned ‘‘the area where it is most
essential,’’ namely ‘‘consumer credit,’’
which is an expansive category but
subject to the primary-purpose
standard.52 Congress could have
required, but did not require, TILA
disclosures whenever any minor portion
of primarily-business credit might be
used for a personal purpose. Given that
Congress did not consider addressing
those transactions to be necessary in
order to achieve its purpose of ensuring
that consumer credit shopping is
informed, such transactions should not
drive an assessment of whether State
disclosure regimes interfere with
Congress’s purposes.
The requesting party submitted a
comment likening the California and
New York laws to an Indiana law that
the Board determined was preempted in
1988, but they are quite different.53 The
Indiana law required finance charge and
APR disclosures in consumer credit
transactions, with amounts that differed
from TILA disclosures provided in the
same transactions.54 In the Board’s
words, the Indiana law would
‘‘undermine the intent of the Federal
scheme by confusing consumers who
will receive two different sets of
disclosures—both purporting to
describe the cost of credit—that contain
different figures described by the same
terminology.’’ 55 This type of concern is
inapplicable in California and New
York, where the consumer will receive
included in finance charge for most consumer
credit products) with 15 U.S.C. 1605(e)(6); 12 CFR
1026.4(c)(7)(iii) (credit report fees generally
excluded from finance charge in transactions
secured by real property). Moreover, even assuming
this scenario were to occur, the CFPB would not
consider the issue to be so significant as to interfere
with TILA’s purpose of enabling consumers to
compare consumer credit products.
52 S. Rep. No. 90–392, at 7 (1967).
53 53 FR 3332, 3332–33 (Feb. 5, 1988) (Indiana).
54 Although the Indiana law did not impose
requirements on creditors, it required loan brokers
to disclose a finance charge and APR to consumers,
which differed from the finance charge and APR
that TILA required creditors to provide to the very
same consumers in the very same consumer credit
transactions. Id. Because the Indiana law regulated
loan brokers rather than creditors, only the first
sentence of § 1026.28(a)(1) (and not the second or
third sentence) governed. But whether it was the
loan broker or the creditor that provided the
Indiana disclosure made little difference, and so
even though the third sentence did not apply, the
situation was analogous to the third sentence’s bar
on creditors providing State disclosures with
differing amounts that contradict TILA disclosures.
55 Id. at 3333.
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only the Federal TILA disclosure forms
when shopping for consumer credit.
Aside from State disclosure forms
provided to borrowers individually,
some comments asserted that
advertisements for commercial
financing that include APRs calculated
using California or New York’s formulas
could cause confusion. As background,
under Regulation Z there is a
requirement that some advertisements
for consumer credit transactions include
the TILA APR.56 However, there is no
parallel requirement under the
California or New York commercial
financing laws that commercial lenders
include any APR-related statements in
advertisements, so the premise of these
comments appears mistaken. To the
extent commercial lenders might
conceivably choose to add the California
or New York APRs to advertisements,
that is not a requirement of those laws
and not a basis to declare those laws’
disclosure requirements to be
inconsistent with TILA. As the first
sentence of § 1026.28(a)(1) states, only
‘‘State law requirements’’ that are
inconsistent are preempted, not wholly
voluntary practices that are independent
of requirements.57 In any event, even
assuming such voluntary practices
could somehow support preemption,
commenters have not provided any
evidence that commercial lenders have
an incentive to use the California or
New York APRs in advertisements,
which the same set of commenters
assert tend to overstate the cost of
credit.58
56 12
CFR 1026.16, 1026.24.
57 The Board at times considered how creditors
were likely to comply with a State law requirement
as context in considering whether the requirement
is preempted. In particular, when the Board was
faced with a State law that used certain terminology
to describe an amount in a disclosure form, but did
not expressly mandate that creditors use the law’s
terminology when labeling the amount in the
disclosure form, the Board operated on the
assumption that creditors would comply by using
the State law’s terminology in their disclosure
forms. 48 FR 4454, 4455 (Feb. 1, 1983) (Arizona,
Florida, Missouri, and South Carolina). For
instance, if Missouri law required creditors to
disclose what the text of the Missouri law called the
‘‘principal balance,’’ the Board assumed that
creditors would go about complying by using the
words ‘‘principal balance’’ in their disclosure
forms, and the Board would not speculate about
whether some synonym might also comply with the
Missouri law. Id. at 4455, 4456–57. But here,
whether creditors choose to add the California or
New York APR to advertisements is independent of
the California and New York requirements to
provide disclosure forms to each commercial
borrower, not a method for complying with the
disclosure-form requirements.
58 Some commenters advocating preemption also
invoked an additional hypothetical. As background,
most consumer credit transactions above $66,400
(as inflation-adjusted annually) are exempt from
TILA and Regulation Z, other than loans secured by
real property, loans secured by personal property
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19219
C. Determinations
For these reasons, the Consumer
Financial Protection Bureau determines
that the California Commercial
Financing Disclosures Law, Financial
Code sections 22800 to 22805, is not
inconsistent with chapters 1, 2, and 3 of
the Truth in Lending Act.
The Consumer Financial Protection
Bureau also determines that the New
York Commercial Finance Disclosure
Law, Financial Services Law sections
801 to 811, is not inconsistent with
chapters 1, 2, and 3 of the Truth in
Lending Act.
VI. Utah
A. Discussion
The Utah Commercial Financing
Registration and Disclosure Act requires
disclosures for certain commercial
financing transactions, which do ‘‘not
include a transaction from which the
resulting proceeds are intended to be
used for personal, family, or household
purposes.’’ 59 Consequently, it is not
preempted for parallel reasons to
California and New York. As an
additional reason, because it does not
require disclosure of a finance charge,
APR, or other TILA-related disclosure,
there would be no occasion for it to be
preempted even if applicable to
consumer credit transactions. The
requesting party acknowledged in its
comment that the Utah law is not
preempted, and no other commenter
provided reasons to support a
determination that it is preempted.
B. Determination
For these reasons, the Consumer
Financial Protection Bureau determines
that the Utah Commercial Financing
Registration and Disclosure Act, Utah
Code sections 7–27–101 to 7–27–301, is
that is a principal dwelling, or private education
loans. 87 FR 63671 (Oct. 20, 2022). The commenters
argued that, if a State were to hypothetically require
disclosures for consumer credit transactions above
the $66,400 threshold, and also hypothetically were
to require APR calculations that differ from
Regulation Z’s, it would be illogical to allow
different APR disclosures depending on loan
amount. However, the CFPB does not need to
resolve whether there would be an inconsistency
between that hypothetical State law and TILA, and
it does not resolve that issue. The hypothesized
scenario presents materially different issues to
weigh compared to the California and New York
laws, given that some consumers seeking credit
primarily for personal, family, or household
purposes might be unsure of what loan amount they
want and so shop for credit above and below the
$66,400 threshold. The California and New York
disclosures would not be given to a consumer
seeking credit primarily for personal, family, or
household purposes of any amount.
59 Utah Code secs. 7–27–101 to 7–27–301; id. sec.
7–27–101(4)(b). Besides disclosures, the statute also
contains certain registration requirements that are
plainly not preempted by TILA. Id. sec. 7–27–201.
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Federal Register / Vol. 88, No. 62 / Friday, March 31, 2023 / Rules and Regulations
not inconsistent with chapters 1, 2, and
3 of the Truth in Lending Act.
VII. Virginia
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A. Discussion
Chapter 22.1 of title 6.2 of the Code
of Virginia requires disclosures in
connection with sales-based financing
to a recipient.60 Based on the definition
of ‘‘sales-based financing,’’ which is tied
to sales or revenue of the recipient, and
the definition of ‘‘recipient,’’ which
must be ‘‘a person whose principal
place of business is in the
Commonwealth,’’ it appears that the
Virginia law would not apply to a
consumer credit transaction as defined
in TILA and Regulation Z.61 To the
extent it could apply to a consumer
credit transaction, there would still be
no basis to find an inconsistency with
TILA. That is because the only TILArelated disclosure term used in the
Virginia law is the finance charge,
which the Virginia law’s implementing
regulation defines in precisely the same
manner as Regulation Z.62 Because there
is no difference in the amount that
would be included in the Virginia
disclosure compared to TILA and
Regulation Z disclosures, there is no
occasion to consider whether a
difference in amount would be
inconsistent with TILA and Regulation
Z.
The requesting party has made an
argument that the Virginia law’s finance
charge disclosure is nevertheless
preempted. However, this argument
appears to rely on a misunderstanding
of an aspect of TILA that is distinct from
the Act’s preemption standard. TILA
section 111(a)(2), which neighbors the
preemption provision in section
111(a)(1), authorizes the CFPB to
determine that a State disclosure ‘‘is
substantially the same in meaning as’’ a
TILA disclosure.63 After the CFPB
makes such a substantially-the-same-inmeaning determination, TILA creditors
can provide the CFPB-endorsed State
disclosure ‘‘in lieu of’’ the TILA
disclosure, except that the finance
charge and APR must still be disclosed
60 Va. Code tit. 6.2, ch. 22.1; see also 10 Va.
Admin. Code secs. 5–240–10 to 5–240–40.
61 ‘‘Sales-based financing’’ is defined as 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. Va.
Code sec. 6.2–2228. 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.
Id.
62 10 Va. Admin. Code sec. 5–240–10.
63 15 U.S.C. 1610(a)(2).
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as provided by TILA.64 However, the
present proceeding involves a
preemption determination, not a
substantially-the-same-in-meaning
determination.
The requesting party’s comment
appears to conflate section 111(a)(2) (or
more specifically the Regulation Z
provision and commentary
implementing section 111(a)(2) 65) with
the distinct question under section
111(a)(1) of whether State disclosures
are preempted as inconsistent with
TILA. The commenter appears to read
section 111(a)(2) to mean that any State
disclosure with a finance charge or APR
is preempted. In fact, all that it does is
guarantee that, when CFPB-endorsed
State disclosures are provided ‘‘in lieu
of’’ the normal TILA disclosures in
consumer credit transactions, those
State disclosure forms will still include
the TILA finance charge and APR, so
that consumers can use them to shop
among consumer credit options.66
West International Airport and Key
West Naval Air Station (NAS), FL, as a
result of biennial airspace evaluations.
This action also updates the geographic
coordinates for the airport and the Key
West VORTAC.
Effective 0901 UTC, June 15,
2023. The Director of the Federal
Register approves this incorporation by
reference action under 1 CFR part 51,
subject to the annual revision of FAA
Order 7400.11 and publication of
conforming amendments.
DATES:
[FR Doc. 2023–06719 Filed 3–30–23; 8:45 am]
A copy of the notice of
proposed rulemaking (NPRM), all
comments received, this final rule, and
all background material may be viewed
online at www.regulations.gov using the
FAA Docket number. Electronic
retrieval help and guidelines are
available on the website. It is available
24 hours each day, 365 days each year.
An electronic copy of this document
may also be downloaded from the Office
of the Federal Register’s website at
www.federalregister.gov.
FAA Order JO 7400.11G, Airspace
Designations and Reporting Points, and
subsequent amendments can be viewed
online at www.faa.gov/air_traffic/
publications/. You may also contact the
Rules and Regulations Group, Office of
Policy, Federal Aviation
Administration, 800 Independence
Avenue SW, Washington, DC 20591:
telephone (202) 267–8783.
BILLING CODE 4810–AM–P
FOR FURTHER INFORMATION CONTACT:
DEPARTMENT OF TRANSPORTATION
Federal Aviation Administration
Jennifer Ledford, Operations Support
Group, Eastern Service Center, Federal
Aviation Administration, 1701
Columbia Avenue, College Park, GA
30337; Telephone: (404) 305–5946.
14 CFR Part 71
SUPPLEMENTARY INFORMATION:
[Docket No. FAA–2022–1613; Airspace
Docket No. 22–ASO–27]
Authority for This Rulemaking
B. Determination
For these reasons, the Consumer
Financial Protection Bureau determines
that chapter 22.1 of title 6.2 of the Code
of Virginia is not inconsistent with
chapters 1, 2, and 3 of the Truth in
Lending Act.
Rohit Chopra,
Director, Consumer Financial Protection
Bureau.
RIN 2120–AA66
Amendment of Class D and Class E
Airspace, Key West, FL
Federal Aviation
Administration (FAA), DOT.
ACTION: Final rule.
AGENCY:
This action amends Class D
airspace, Class E airspace designated as
an extension to a Class D surface area,
and Class E airspace extending upward
from 700 feet above the surface at Key
SUMMARY:
64 Id.
65 12 CFR 1026.28(b); 12 CFR part 1026,
supplement I, comment 28(b)–1.
66 The comment may also intend for this
argument to extend to California and New York; if
so, it would not succeed with respect to those States
for the same reasons.
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ADDRESSES:
The FAA’s authority to issue rules
regarding aviation safety is found in
Title 49 of the United States Code.
Subtitle I, Section 106 describes the
authority of the FAA Administrator.
Subtitle VII, Aviation Programs,
describes in more detail the scope of the
agency’s authority. This rulemaking is
promulgated under the authority
described in Subtitle VII, Part A,
Subpart I, Section 40103. Under that
section, the FAA is charged with
prescribing regulations to assign the use
of airspace necessary to ensure the
safety of aircraft and the efficient use of
airspace. This regulation is within the
scope of that authority, as it would
amend airspace for Key West
International Airport and Key West
Naval Air Station (NAS), FL, to support
IFR operations in the area.
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]]>Agencies
- CONSUMER FINANCIAL PROTECTION BUREAU
[Federal Register Volume 88, Number 62 (Friday, March 31, 2023)]
[Rules and Regulations]
[Pages 19214-19220]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-06719]
=======================================================================
-----------------------------------------------------------------------
CONSUMER FINANCIAL PROTECTION BUREAU
12 CFR Part 1026
[Docket No. CFPB-2022-0070]
Truth in Lending; Determination of Effect on State Laws
(California, New York, Utah, and Virginia)
AGENCY: Consumer Financial Protection Bureau.
ACTION: Preemption determination.
-----------------------------------------------------------------------
SUMMARY: After considering public comments, the Consumer Financial
Protection Bureau (CFPB) has determined that commercial financing
disclosure laws in California, New York, Utah, and Virginia are not
preempted by the Truth in Lending Act.
DATES: This determination is issued on March 31, 2023.
FOR FURTHER INFORMATION CONTACT: Christopher Shelton or Anand Das,
Senior Counsels, Legal Division, or Joel Singerman, Senior Counsel,
Office of Regulations, at 202-435-7700. If you require this document in
an alternative electronic format, please contact
[email protected].
SUPPLEMENTARY INFORMATION:
I. Overview of This Proceeding
The Truth in Lending Act (TILA) ensures that key information about
consumer credit transactions is disclosed to consumers. TILA preempts
State disclosure laws only if they are ``inconsistent'' with it. The
CFPB is authorized to determine whether there is an inconsistency.\1\
---------------------------------------------------------------------------
\1\ TILA section 111(a), 15 U.S.C. 1610(a).
---------------------------------------------------------------------------
In recent years, New York, California, Utah, and Virginia have
enacted laws that require disclosures for commercial financing
transactions to businesses, which do not receive TILA disclosures in
those transactions. The CFPB received a request from a trade
association (the requesting party) that it determine that TILA preempts
New York's commercial financing disclosure law. In response, the CFPB
published for public comment a notification of intent to make a
preemption determination. In the notification of intent, the CFPB
considered the requesting party's initial arguments and preliminarily
found that New York's law was not preempted. On the CFPB's own motion,
the CFPB also provided notice that it may make parallel findings
regarding the California, Utah, and Virginia laws.
The CFPB received fifteen comments on the notification of intent.
The Attorney General of California, two trade associations, a lender to
small businesses, a group of consumer advocacy organizations, and a
group of lenders, investors, and small business advocates all supported
the CFPB's notification of intent. On the other hand, the requesting
party, several other trade associations, and a different lender to
small businesses argued that some or all of the four States' laws are
preempted.\2\
---------------------------------------------------------------------------
\2\ The notification of intent is available at 87 FR 76551 (Dec.
15, 2022). The original request is available at https://www.regulations.gov/document/CFPB-2022-0070-0002. The comments on
the notification of intent are available at https://www.regulations.gov/document/CFPB-2022-0070-0004/comment.
---------------------------------------------------------------------------
After analyzing the comments, the CFPB has concluded that the State
commercial financing disclosure laws of California, New York, Utah, and
Virginia are not preempted by TILA. Congress adopted a narrow standard
for TILA preemption that displaces State law only in the case of
``inconsistency.'' This means that States have broad authority to
establish their own protections for their residents, both within and
outside the scope of TILA. As relevant here, commercial financing
transactions to businesses--and any disclosures associated with such
transactions--are beyond the scope of TILA's statutory purposes, which
concern consumer credit.
[[Page 19215]]
II. General Background on the Truth in Lending Act
Congress enacted TILA in 1968 because it found that ``competition
among the various financial institutions and other firms engaged in the
extension of consumer credit would be strengthened by the informed use
of credit.'' \3\ As relevant here, TILA's stated purpose is to ``assure
a meaningful disclosure of credit terms so that the consumer will be
able to compare more readily the various credit terms available to him
and avoid the uninformed use of credit.'' \4\ TILA requires creditors
to use specified formulas to determine credit costs and to provide cost
disclosures, including the ``finance charge'' and ``annual percentage
rate'' (APR), to consumers before consummation of ``consumer credit''
transactions. Consumer credit is credit that is offered or extended
``primarily for personal, family, or household purposes.'' \5\
Conversely, TILA expressly does not apply to ``credit transactions
involving extensions of credit primarily for business, commercial, or
agricultural purposes.'' \6\
---------------------------------------------------------------------------
\3\ TILA section 102(a), 15 U.S.C. 1601(a).
\4\ Id.
\5\ TILA section 103(i), 15 U.S.C. 1602(i); 12 CFR
1026.2(a)(12).
\6\ TILA section 104(1), 15 U.S.C. 1603(1). There is a limited
exception related to certain requirements for certain credit cards
that is not applicable here. TILA section 135, 15 U.S.C. 1645; 12
CFR 1026.12.
---------------------------------------------------------------------------
In 1968, Congress authorized the Board of Governors of the Federal
Reserve System (Board) to issue regulations under TILA.\7\ In 2010,
Congress transferred the ``consumer financial protection functions'' of
the Board to the CFPB as an independent bureau in the Federal Reserve
System.\8\ The CFPB's Regulation Z, originally based on the Board's
Regulation Z, implements TILA.\9\
---------------------------------------------------------------------------
\7\ Public Law 90-321, title I, sec. 105, 82 Stat. 146, 148.
\8\ See sections 1011(a) and 1061(b)(1) of the Consumer
Financial Protection Act of 2010, 12 U.S.C. 5491(a), 5581(b)(1).
Additionally, Congress has provided that ``the deference that a
court affords to the Bureau with respect to a determination made by
the Bureau relating to the meaning or interpretation of any
provision of'' TILA or its implementing regulations, aside from
certain provisions related to property appraisals, ``shall be
applied as if the Bureau were the only agency authorized to apply,
enforce, interpret, or administer the provisions of'' TILA and its
implementing regulations. TILA sections 103(z), 105(h), 15 U.S.C.
1602(z), 1604(h).
\9\ 12 CFR part 1026.
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III. Standard for Preemption Under the Truth in Lending Act
A. TILA
According to TILA section 111(a)(1), TILA does not ``annul, alter,
or affect the laws of any State relating to the disclosure of
information in connection with credit transactions, except to the
extent that those laws are inconsistent with the provisions of [TILA],
and then only to the extent of the inconsistency.'' \10\
---------------------------------------------------------------------------
\10\ 15 U.S.C. 1610(a)(1). This authority pertains to chapters
1, 2, and 3 of TILA, which are codified as parts A, B, and C of 12
U.S.C. ch. 41, subch. I. This determination refers to chapters 1, 2,
and 3 of TILA as ``TILA'' for convenience. Chapters 4 and 5 of TILA,
which are codified as parts D and E and known as the Fair Credit
Billing Act and Consumer Leasing Act, respectively, are not
implicated here and have separate preemption provisions.
---------------------------------------------------------------------------
As explained by TILA's legislative history, this provision ``sets
forth the basic policy that the Federal statute does not preempt State
legislation.'' \11\
---------------------------------------------------------------------------
\11\ S. Rep. No. 90-392, at 20 (1967); accord H.R. Rep. No. 90-
1040, at 30 (1967).
---------------------------------------------------------------------------
B. Regulation Z
Section 1026.28(a)(1) of the CFPB's Regulation Z implements the
inconsistency standard from TILA section 111(a)(1).\12\ It is based on
an identical provision in the Board's Regulation Z.\13\ There are three
key sentences in the provision for purposes of this determination.
---------------------------------------------------------------------------
\12\ 12 CFR 1026.28(a)(1).
\13\ 76 FR 79768, 79806-07 (Dec. 22, 2011); 46 FR 20848, 20906
(Apr. 7, 1981) (codified at 12 CFR 226.28(a)(1)).
---------------------------------------------------------------------------
The first sentence, tracking TILA section 111(a)(1), provides that
``State law requirements'' that are ``inconsistent'' with TILA and
Regulation Z are preempted.\14\
---------------------------------------------------------------------------
\14\ 12 CFR 1026.28(a)(1) (first sentence). There are exceptions
that are not relevant here. Id.
---------------------------------------------------------------------------
The second sentence provides, as an example, that a ``State law is
inconsistent if it requires a creditor to make disclosures or take
actions that contradict the requirements of the Federal law.'' \15\ The
term ``creditor'' is a defined term in TILA and Regulation Z, referring
to a person extending ``consumer credit.'' \16\
---------------------------------------------------------------------------
\15\ 12 CFR 1026.28(a)(1) (second sentence).
\16\ 12 CFR 1026.2(a)(17)(i). There are other features of the
definition of ``creditor'' that are not relevant here. Id.
---------------------------------------------------------------------------
The third sentence, in turn, provides examples of ``contradictory''
disclosures or actions by a creditor: ``A State law is contradictory if
it requires the use of the same term to represent a different amount or
a different meaning than the Federal law, or if it requires the use of
a term different from that required in the Federal law to describe the
same item.'' \17\
---------------------------------------------------------------------------
\17\ 12 CFR 1026.28(a)(1) (third sentence).
---------------------------------------------------------------------------
Based on Board precedents, the examples in the third sentence are
only a subset of the second sentence, which in turn is only a subset of
the first sentence.\18\ The structure of Sec. 1026.28(a)(1) is
illustrated by Figure 1:
---------------------------------------------------------------------------
\18\ Put another way, when the second and third sentences use
the word ``if,'' they do not mean ``if and only if.'' (Of course,
use of language depends on context, and there are other statutory
and regulatory contexts where ``if'' does imply ``if and only if.'')
An example where the only the first sentence was applicable (but not
the second or third), because there were no disclosures or actions
by a ``creditor''--only by certain non-creditor loan brokers--was 53
FR 3332, 3332-33 (Feb. 5, 1988) (Indiana). Regarding that 1988
Indiana determination, see also note 54 below. In 1983, the Board
that explained that sometimes both the first and second sentences
are applicable (but not the third). That is when the State law does
require disclosures or actions by a ``creditor,'' but the law does
not ``deal with disclosures of terms and amounts.'' 48 FR 4454 (Feb.
1, 1983) (Arizona, Florida, Missouri, and South Carolina).
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[[Page 19216]]
[GRAPHIC] [TIFF OMITTED] TR31MR23.031
Because none of the four State commercial financing disclosure laws
involve a TILA ``creditor,'' i.e., a person extending consumer credit,
the second and third sentences are not applicable to those laws, and
only the first sentence is potentially applicable.
The requesting party submitted a comment arguing that the third
sentence means that State laws are automatically preempted whenever
they use the terms finance charge and APR to represent different
amounts from Regulation Z. But this comment reads the third sentence
out of its context. The third sentence provides examples of the second
sentence's discussion of ``contradictory'' disclosures or actions by
``creditors.'' Conduct by non-creditors is outside its scope and has to
be analyzed using the overall inconsistency standard in the first
sentence.\19\
---------------------------------------------------------------------------
\19\ The requesting party's comment also cites Regulation Z
commentary discussing the third sentence of 12 CFR 1026.28(a)(1).
The commentary provides two specific examples of types of State laws
that would be preempted under the third sentence, but these
commentary examples do not affect the present analysis of the
regulation. The first example in the commentary explains that the
third sentence's bar on a State law that ``requires the use of the
same term to represent a different amount or a different meaning''
would include, as an example, a ``State law that requires use of the
term finance charge, but defines the term to include fees that the
Federal law excludes, or to exclude fees the Federal law includes.''
12 CFR part 1026, supp. I, comment 28(a)-2.i. The second example
explains that the third sentence's bar on a State law that
``requires the use of a term different from that required in the
Federal law to describe the same item'' would include, as an
example, a ``State law that requires a label such as nominal annual
interest rate to be used for what the Federal law calls the annual
percentage rate.'' Id., comment 28(a)-2.ii. The commentary, like the
language in the third sentence it illustrates, is limited by its
context to disclosures provided by TILA creditors.
---------------------------------------------------------------------------
The reading of the third sentence proffered by the requesting party
would result in implausibly sweeping preemption. Although the
requesting party focuses its argument on the finance charge and APR,
the reading would logically prevent State disclosures--regardless of
topic--from using other Regulation Z disclosure terms such as ``File
#,'' ``Closing Date,'' ``Deposit,'' or ``County Taxes,'' without
aligning with technical Regulation Z definitions that may have no
connection with the topic of the State disclosures.\20\ Accordingly,
the third sentence does not govern non-TILA-creditor contexts.
---------------------------------------------------------------------------
\20\ Id.; 12 CFR 1026.38 (Regulation Z closing disclosure for
mortgage loans).
---------------------------------------------------------------------------
C. Approach When Evaluating Inconsistency
The notification of intent stated that the CFPB was considering
whether it should clarify how the CFPB articulates the standard for
TILA preemption and requested comment on that issue. The Attorney
General of California commented that the standard should be understood
to align with conflict preemption.
The CFPB agrees that TILA's and Regulation Z's inconsistency
standard aligns with conflict preemption. In conflict preemption, there
is a conflict either when it is ``impossible'' to comply with both the
Federal law and the State law (the impossibility prong) or when the
State law ``stands as an obstacle to the accomplishment and execution
of the full purposes'' of the Federal law (the obstacle prong).\21\
There is preemption under the obstacle prong when ``the purpose of the
act cannot otherwise be accomplished--if its operation within its
chosen field else must be frustrated and its provisions be refused
their natural effect.'' \22\
---------------------------------------------------------------------------
\21\ Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363, 372-3
(2000) (emphasis added).
\22\ Id. at 373.
---------------------------------------------------------------------------
The Board's precedents align with conflict preemption. With respect
to the impossibility prong, the Board at times assessed whether ``a
creditor can comply with both the State and Federal provisions.'' \23\
However, State laws rarely or never make delivery of TILA disclosures
impossible, so impossibility does not figure prominently in the Board's
precedents.
---------------------------------------------------------------------------
\23\ 56 FR 3005, 3006 (Jan. 28, 1991) (New Mexico).
---------------------------------------------------------------------------
The Board's consideration of preemption instead typically focused
on the obstacle prong. When determining whether disclosures or actions
by a creditor contradicted TILA, the Board held that a State law is
preempted when ``it significantly impedes the operation of the Federal
law or interferes with the purposes of the Federal statute.'' \24\ When
evaluating whether a State law regulating non-creditors was
inconsistent with TILA, the Board used similar wording, considering
whether the State law was ``inconsistent with the purpose of the
Federal law'' and would ``undermine the intent of the Federal
[[Page 19217]]
scheme.'' \25\ The CFPB understands these to be applications of the
obstacle prong.
---------------------------------------------------------------------------
\24\ E.g., 48 FR 4454 (Feb. 1, 1983) (Arizona, Florida,
Missouri, and South Carolina).
\25\ 53 FR 3332, 3333 (Feb. 5, 1988) (Indiana).
---------------------------------------------------------------------------
The conclusion that inconsistency under TILA aligns with conflict
preemption is reinforced by case law. The District of Columbia Circuit
has applied a conflict-preemption analysis when considering whether
TILA preempted State law.\26\ The Ninth Circuit has observed, in the
context of other statutes that use an ``inconsistency'' test for
preemption, that ``when the preemption clause uses the term
`inconsistent,' '' the analysis under the preemption clause and the
analysis under conflict preemption ``effectively collapse into one.''
\27\
---------------------------------------------------------------------------
\26\ Williams v. First Gov't Mortg. & Invs. Corp., 176 F.3d 497,
500 (D.C. Cir. 1999) (considering whether State law ``would defeat
TILA's purposes'' or whether ``joint applicability of the two
statutes would subject [the regulated party] to conflicting
obligations'').
\27\ Jones v. Google LLC, 56 F.4th 735, 741 (9th Cir. 2022).
---------------------------------------------------------------------------
In order to determine whether State law ``stands as an obstacle''
to TILA's purposes, it is necessary to carefully consider those
statutory purposes. Congress has delineated TILA's main purposes in
purpose provisions. The relevant purpose provision in most disclosure
contexts, including the present one, is section 102(a): ``a meaningful
disclosure of credit terms so that the consumer will be able to compare
more readily the various credit terms available to him and avoid the
uninformed use of credit.'' \28\ Thus, in order to be preempted on this
basis, a State law has to frustrate the meaningful disclosure of credit
terms to consumers that TILA and Regulation Z provide.
---------------------------------------------------------------------------
\28\ 15 U.S.C. 1601(a); see also, e.g., id. (``to protect the
consumer against inaccurate and unfair credit billing and credit
card practices''); 15 U.S.C. 1639b(a)(2) (purposes related to
residential mortgage loan origination).
---------------------------------------------------------------------------
The group of consumer advocacy organizations argued in a comment
that preemption under TILA should not be based on conflict with the
purposes of TILA. The organizations expressed concern about the vague
way in which purposes could conceivably be articulated to preempt State
law.
The CFPB notes that evaluating whether or not State law stands as
an obstacle to a statute's purposes is a well-established prong of
conflict preemption. The CFPB believes that the purposes of TILA, when
carefully considered, provide appropriate guideposts for a narrow
preemption standard that respects rather than undermines State law.
When construing TILA's purposes, it is important to bear in mind that
Congress's ``basic policy'' in drafting TILA was ``that the Federal
statute does not preempt State legislation.'' \29\
---------------------------------------------------------------------------
\29\ S. Rep. No. 90-392, at 20 (1967); accord H.R. Rep. No. 90-
1040, at 30 (1967).
---------------------------------------------------------------------------
D. States' Ability To Prescribe Additional Disclosures and Protections
The Attorney General of California requested that the CFPB
emphasize the statement in the Regulation 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.\30\ The CFPB agrees
that these are examples of State disclosure laws that are generally not
inconsistent with TILA or Regulation Z and so are not preempted.
---------------------------------------------------------------------------
\30\ 12 CFR part 1026, supplement I, comment 28(a)-3.
---------------------------------------------------------------------------
Relatedly, the group of consumer advocacy organizations asked the
CFPB to note that TILA does not prevent States from affording greater
protections to consumers. The CFPB agrees that, in the words of the
District of Columbia Circuit: ``Nothing in TILA or its legislative
history suggests that Congress intended the Act's disclosure regime to
provide the maximum protection to which borrowers are entitled
nationwide; States remain free to impose greater protections for
borrowers.'' \31\
---------------------------------------------------------------------------
\31\ Williams v. First Gov't Mortg. & Invs. Corp., 176 F.3d 497,
500 (D.C. Cir. 1999).
---------------------------------------------------------------------------
E. Limited Extent of Preemptive Effect
TILA section 111(a)(1) provides that, in a scenario where there is
an inconsistency, State law is preempted ``only to the extent of the
inconsistency.'' The Attorney General of California requested that the
CFPB emphasize the principle articulated by the Board that ``preemption
occurs only in those transactions in which an actual inconsistency
exists between the State law and the Federal law.'' \32\ The CFPB
agrees. The Board's approach honors TILA section 111(a)(1), which
intrudes on State law only so far as is necessary to prevent
inconsistency with TILA. For example, if an aspect of a State
disclosure form would be inconsistent with TILA in some transactions,
the State law is only preempted as applied to those transactions, and
even in those transactions only the relevant aspect of the State
disclosure form is preempted.\33\
---------------------------------------------------------------------------
\32\ 48 FR 4454, 4455 (Feb. 1, 1983) (Arizona, Florida,
Missouri, and South Carolina).
\33\ E.g., id. at 4455-57.
---------------------------------------------------------------------------
IV. Legal Authority
After establishing the inconsistency standard discussed above, TILA
section 111(a)(1) provides that ``the Bureau shall determine whether
any such inconsistency exists,'' upon the Bureau's own motion or upon
the request of any creditor, State, or other interested party.\34\
---------------------------------------------------------------------------
\34\ 15 U.S.C. 1610(a)(1). Additionally, if the Bureau
determines that a State-required disclosure is inconsistent,
creditors located in that State may not make disclosures using the
inconsistent term or form, and they incur no liability under the law
of that State for failure to use such term or form, notwithstanding
that such determination is subsequently amended, rescinded, or
determined by judicial or other authority to be invalid for any
reason. Id. The CFPB's procedures for TILA preemption determinations
are set out in Regulation Z, 12 CFR part 1026, appendix A.
---------------------------------------------------------------------------
Congress added the authority for preemption determinations to
section 111(a)(1) in 1980.\35\ According to the legislative history,
Congress was concerned about ``current ambiguities'' regarding the
interaction of TILA and State laws, which created uncertainty for
creditors seeking to comply, but also wanted to maintain ``deference to
the laws of the States.'' \36\ Congress retained the existing
inconsistency standard but conferred authority on the Board, and later
the CFPB, to determine whether State laws are inconsistent.\37\
---------------------------------------------------------------------------
\35\ Truth in Lending Simplification and Reform Act of 1980,
Public Law 96-221, title VI, sec. 609, 94 Stat. 163, 173.
\36\ S. Rep. No. 96-73, at 14 (1979); cf. H.R. Conf. Rep. No.
96-842, at 80-81 (1980) (accepting Senate version). At the same
time, Congress amended TILA to authorize the Board to make a
``substantially the same in meaning'' determination, which is
distinct from a preemption determination and not at issue in this
proceeding, as explained in the discussion of Virginia below.
\37\ Although the requesting party requested this preemption
determination, it responded to the notification of intent with a
comment questioning the CFPB's authority to determine that State
commercial financing disclosure laws are not preempted. According to
the comment, if TILA does not preempt the four States' laws, as the
CFPB's preliminarily determined, then the CFPB's authority to make
preemption determinations should similarly not extend to these laws.
However, TILA authorizes the CFPB to determine ``whether'' there is
an ``inconsistency,'' which necessarily includes the authority to
reach the conclusion that there is no inconsistency. Moreover, the
comment does not make any arguments challenging the CFPB's
independent authority under section 554(e) of the Administrative
Procedure Act, discussed in the notification of intent and also in
the paragraph below.
---------------------------------------------------------------------------
In addition to the CFPB's authority under TILA, section 554(e) of
the Administrative Procedure Act authorizes any agency, in its sound
discretion, to issue a declaratory order to terminate a controversy or
remove uncertainty.\38\ As the notification of intent explained,
section 554(e) of the Administrative Procedure Act provides
[[Page 19218]]
an additional, independent source of authority for this proceeding.
Agencies have long used declaratory orders to address whether or not a
law that they administer preempts a State law.\39\
---------------------------------------------------------------------------
\38\ 5 U.S.C. 554(e).
\39\ E.g., New York State Comm'n on Cable Television v. FCC, 749
F.2d 804, 815 (D.C. Cir. 1984).
---------------------------------------------------------------------------
Although not required, the CFPB consulted the Board, Federal
Deposit Insurance Corporation, Federal Trade Commission, National
Credit Union Administration, and Office of the Comptroller of the
Currency as part of its deliberative process.
V. California and New York
This part V discusses the California Commercial Financing
Disclosures Law \40\ and New York Commercial Finance Disclosure Law
\41\ together, as they are the most similar of the four State laws at
issue in this proceeding.
---------------------------------------------------------------------------
\40\ Cal. Fin. Code secs. 22800 to 22805; see also Cal. Code
Regs. tit. 10, ch. 3, subch. 3.
\41\ N.Y. Fin. Serv. Law secs. 801 to 812; see also N.Y. Comp.
Codes R. & Regs., tit. 23, part 600.
---------------------------------------------------------------------------
A. Provisions of the California and New York Laws
Both the California and New York laws require ``providers'' to
issue disclosures before consummation of certain commercial financing
transactions, ``intended by the recipient for use primarily for other
than personal, family, or household purposes'' (California) or ``the
proceeds of which the recipient does not intend to use primarily for
personal, family, or household purposes'' (New York).\42\ These
contrast with the relevant TILA criterion for consumer credit, which is
``primarily for personal, family, or household purposes.'' \43\
Accordingly, there was consensus among commenters that TILA
disclosures, on the one hand, and California or New York disclosures,
on the other, would not both be required in the context of any single
transaction.
---------------------------------------------------------------------------
\42\ Cal. Fin. Code sec. 2280(d) (emphasis added); N.Y. Fin.
Serv. Law sec. 801(b) (emphasis added).
\43\ 15 U.S.C. 1602(i).
---------------------------------------------------------------------------
The California and New York disclosures include a ``finance
charge'' and ``annual percentage rate'' (APR). These amounts are
calculated by reference to the formulas that would hypothetically be
used under the CFPB's Regulation Z in order to calculate the finance
charge and APR, as if the transactions were consumer credit
transactions, with certain specifications added by California and New
York.\44\ There was disagreement among commenters about whether
California's and New York's respective specifications result in
different finance charges and APRs than would be generated under
Regulation Z if it were hypothetically applicable, or whether they
should instead be viewed as tailoring the finance charge and APR to the
structures of certain types of commercial financing arrangements that
are not shared by consumer credit transactions. For reasons discussed
below, it is not necessary for the CFPB to resolve that specific
debate.
---------------------------------------------------------------------------
\44\ Cal. Code Regs. tit. 10, secs. 940, 943; N.Y. Fin. Serv.
Law secs. 801(e), 803-807; N.Y. Comp. Codes R. & Regs., tit. 23,
secs. 600.2, 600.3. The California and New York disclosures use an
``estimated'' finance charge or APR in some circumstances, but any
difference between estimated and non-estimated amounts does not
affect the CFPB's analysis below. Cf. 12 CFR 1026.5(c),
1025.17(c)(2) (generally allowing use of estimates for Regulation Z
disclosures when information is unavailable).
---------------------------------------------------------------------------
B. Discussion
After considering the comments, the CFPB concludes that the
California or New York laws are not inconsistent with TILA and so are
not preempted. No commenter has suggested that compliance with these
State laws as well as with TILA and Regulation Z is ``impossible.''
\45\ The CFPB also does not believe that these State laws stand ``as an
obstacle to the accomplishment or execution'' of TILA's purposes.\46\
As discussed above, the TILA purpose that is relevant here is ``a
meaningful disclosure of credit terms so that the consumer will be able
to compare more readily the various credit terms available to him and
avoid the uninformed use of credit.'' \47\ TILA achieves this purpose
by requiring disclosures for consumer credit. Consumers applying for
consumer credit will continue to receive only TILA disclosures, which
will assure meaningful disclosure of credit terms and allow consumers
to compare the terms of consumer credit products, including their
finance charges and APRs.\48\
---------------------------------------------------------------------------
\45\ Crosby v. Nat'l Foreign Trade Council, 530 U.S. 363, 372-73
(2000).
\46\ Id. The CFPB would reach the same conclusion however this
concept is expressed, whether as ``significantly impedes the
operation of the Federal law or interferes with the purposes of the
Federal statute,'' e.g., 48 FR 4454 (Feb. 1, 1983) (Arizona,
Florida, Missouri, and South Carolina), or ``inconsistent with the
purpose of the Federal law,'' or ``undermin[ing] the intent of the
Federal scheme,'' 53 FR 3332, 3333 (Feb. 5, 1988) (Indiana).
\47\ TILA section 102(a), 15 U.S.C. 1601(a).
\48\ A comment by a lender cited a statement in a 1982
preliminary determination, not ultimately reflected in the final
determination, that ``State provisions on disclosure of the cost of
credit, analogous to the finance charge or annual percentage rate
disclosures under Regulation Z, will be reviewed more strictly,''
because ``these disclosures are particularly significant.'' 47 FR
16201, 16202 (Apr. 15, 1982). This statement simply reflects the
fact that the finance charge and APR are important disclosures in
the context of consumer credit transactions, and it does not advance
the analysis here.
---------------------------------------------------------------------------
Businesses' understanding of credit available to them for business
purposes is an important policy issue, but it is not a purpose of TILA
and has been left to the States to address. As TILA's legislative
history explains, Congress decided when enacting TILA in 1968 not to
focus on lending to businesses: ``By limiting the bill to the field of
consumer credit, the committee believes it is providing disclosure
requirements in the area where it is most essential.'' \49\ Commenters
advocating for preemption had a number of complaints about how
businesses might be confused by the California and New York
disclosures. However, these concerns about the merits of the State laws
are properly addressed to State legislators or regulators. It is not
appropriate to use TILA preemption to override States' judgments
regarding how best to disclose information to businesses, which is not
part of TILA's purposes.
---------------------------------------------------------------------------
\49\ S. Rep. No. 90-392, at 7 (1967).
---------------------------------------------------------------------------
Commenters advocating preemption have not shown that consumers--
when shopping for credit that they intend to use primarily for
personal, family, or household purposes--would somehow be prevented
from understanding the terms of credit available to them for those
purposes, by State disclosures provided in different (business-purpose)
transactions. The CFPB notes that Regulation Z places the
responsibility for ascertaining the borrower's intended purpose on the
would-be creditor.\50\ In any situation where a potential borrower is
shopping for credit primarily for personal, family, or household
purposes, the borrower would receive the Federal TILA disclosures for
all potential transactions for those purposes--not the California or
New York disclosures.\51\
---------------------------------------------------------------------------
\50\ 12 CFR part 1026, supplement I, comment 3(a)-1 (``A
creditor must determine in each case if the transaction is primarily
for an exempt purpose.'').
\51\ Id. Relatedly, some commenters advocating preemption
asserted that consumers who are also small businesspeople and
receive the California or New York disclosures when applying for
commercial financing will, in their personal lives, distrust the
TILA finance charge and APR because they do not have consistent
meanings across Federal and State law. However, these comments did
not offer any evidence or other support for the assumption that
these individuals would react to differences between the State
commercial financing version and TILA consumer credit version with
distrust of the TILA version, rather than an understanding that
different calculations may be appropriate in the context of
different types of transaction. The CFPB notes that within TILA and
Regulation Z there can be significant differences in how the finance
charge is calculated depending on the type of consumer credit
transaction, but the CFPB is not aware of this causing distrust by
consumers. As one illustration, compare 15 U.S.C. 1605(a)(4); 12 CFR
1026.4(b)(4) (credit report fees included in finance charge for most
consumer credit products) with 15 U.S.C. 1605(e)(6); 12 CFR
1026.4(c)(7)(iii) (credit report fees generally excluded from
finance charge in transactions secured by real property). Moreover,
even assuming this scenario were to occur, the CFPB would not
consider the issue to be so significant as to interfere with TILA's
purpose of enabling consumers to compare consumer credit products.
---------------------------------------------------------------------------
[[Page 19219]]
TILA coverage depends on the primary purpose, so it is possible for
a borrower to use the proceeds from a credit transaction primarily for
business purposes but also to a lesser degree for personal purposes, in
which case TILA disclosures would not be required. As noted above,
TILA's disclosure regime concerned ``the area where it is most
essential,'' namely ``consumer credit,'' which is an expansive category
but subject to the primary-purpose standard.\52\ Congress could have
required, but did not require, TILA disclosures whenever any minor
portion of primarily-business credit might be used for a personal
purpose. Given that Congress did not consider addressing those
transactions to be necessary in order to achieve its purpose of
ensuring that consumer credit shopping is informed, such transactions
should not drive an assessment of whether State disclosure regimes
interfere with Congress's purposes.
---------------------------------------------------------------------------
\52\ S. Rep. No. 90-392, at 7 (1967).
---------------------------------------------------------------------------
The requesting party submitted a comment likening the California
and New York laws to an Indiana law that the Board determined was
preempted in 1988, but they are quite different.\53\ The Indiana law
required finance charge and APR disclosures in consumer credit
transactions, with amounts that differed from TILA disclosures provided
in the same transactions.\54\ In the Board's words, the Indiana law
would ``undermine the intent of the Federal scheme by confusing
consumers who will receive two different sets of disclosures--both
purporting to describe the cost of credit--that contain different
figures described by the same terminology.'' \55\ This type of concern
is inapplicable in California and New York, where the consumer will
receive only the Federal TILA disclosure forms when shopping for
consumer credit.
---------------------------------------------------------------------------
\53\ 53 FR 3332, 3332-33 (Feb. 5, 1988) (Indiana).
\54\ Although the Indiana law did not impose requirements on
creditors, it required loan brokers to disclose a finance charge and
APR to consumers, which differed from the finance charge and APR
that TILA required creditors to provide to the very same consumers
in the very same consumer credit transactions. Id. Because the
Indiana law regulated loan brokers rather than creditors, only the
first sentence of Sec. 1026.28(a)(1) (and not the second or third
sentence) governed. But whether it was the loan broker or the
creditor that provided the Indiana disclosure made little
difference, and so even though the third sentence did not apply, the
situation was analogous to the third sentence's bar on creditors
providing State disclosures with differing amounts that contradict
TILA disclosures.
\55\ Id. at 3333.
---------------------------------------------------------------------------
Aside from State disclosure forms provided to borrowers
individually, some comments asserted that advertisements for commercial
financing that include APRs calculated using California or New York's
formulas could cause confusion. As background, under Regulation Z there
is a requirement that some advertisements for consumer credit
transactions include the TILA APR.\56\ However, there is no parallel
requirement under the California or New York commercial financing laws
that commercial lenders include any APR-related statements in
advertisements, so the premise of these comments appears mistaken. To
the extent commercial lenders might conceivably choose to add the
California or New York APRs to advertisements, that is not a
requirement of those laws and not a basis to declare those laws'
disclosure requirements to be inconsistent with TILA. As the first
sentence of Sec. 1026.28(a)(1) states, only ``State law requirements''
that are inconsistent are preempted, not wholly voluntary practices
that are independent of requirements.\57\ In any event, even assuming
such voluntary practices could somehow support preemption, commenters
have not provided any evidence that commercial lenders have an
incentive to use the California or New York APRs in advertisements,
which the same set of commenters assert tend to overstate the cost of
credit.\58\
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\56\ 12 CFR 1026.16, 1026.24.
\57\ The Board at times considered how creditors were likely to
comply with a State law requirement as context in considering
whether the requirement is preempted. In particular, when the Board
was faced with a State law that used certain terminology to describe
an amount in a disclosure form, but did not expressly mandate that
creditors use the law's terminology when labeling the amount in the
disclosure form, the Board operated on the assumption that creditors
would comply by using the State law's terminology in their
disclosure forms. 48 FR 4454, 4455 (Feb. 1, 1983) (Arizona, Florida,
Missouri, and South Carolina). For instance, if Missouri law
required creditors to disclose what the text of the Missouri law
called the ``principal balance,'' the Board assumed that creditors
would go about complying by using the words ``principal balance'' in
their disclosure forms, and the Board would not speculate about
whether some synonym might also comply with the Missouri law. Id. at
4455, 4456-57. But here, whether creditors choose to add the
California or New York APR to advertisements is independent of the
California and New York requirements to provide disclosure forms to
each commercial borrower, not a method for complying with the
disclosure-form requirements.
\58\ Some commenters advocating preemption also invoked an
additional hypothetical. As background, most consumer credit
transactions above $66,400 (as inflation-adjusted annually) are
exempt from TILA and Regulation Z, other than loans secured by real
property, loans secured by personal property that is a principal
dwelling, or private education loans. 87 FR 63671 (Oct. 20, 2022).
The commenters argued that, if a State were to hypothetically
require disclosures for consumer credit transactions above the
$66,400 threshold, and also hypothetically were to require APR
calculations that differ from Regulation Z's, it would be illogical
to allow different APR disclosures depending on loan amount.
However, the CFPB does not need to resolve whether there would be an
inconsistency between that hypothetical State law and TILA, and it
does not resolve that issue. The hypothesized scenario presents
materially different issues to weigh compared to the California and
New York laws, given that some consumers seeking credit primarily
for personal, family, or household purposes might be unsure of what
loan amount they want and so shop for credit above and below the
$66,400 threshold. The California and New York disclosures would not
be given to a consumer seeking credit primarily for personal,
family, or household purposes of any amount.
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C. Determinations
For these reasons, the Consumer Financial Protection Bureau
determines that the California Commercial Financing Disclosures Law,
Financial Code sections 22800 to 22805, is not inconsistent with
chapters 1, 2, and 3 of the Truth in Lending Act.
The Consumer Financial Protection Bureau also determines that the
New York Commercial Finance Disclosure Law, Financial Services Law
sections 801 to 811, is not inconsistent with chapters 1, 2, and 3 of
the Truth in Lending Act.
VI. Utah
A. Discussion
The Utah Commercial Financing Registration and Disclosure Act
requires disclosures for certain commercial financing transactions,
which do ``not include a transaction from which the resulting proceeds
are intended to be used for personal, family, or household purposes.''
\59\ Consequently, it is not preempted for parallel reasons to
California and New York. As an additional reason, because it does not
require disclosure of a finance charge, APR, or other TILA-related
disclosure, there would be no occasion for it to be preempted even if
applicable to consumer credit transactions. The requesting party
acknowledged in its comment that the Utah law is not preempted, and no
other commenter provided reasons to support a determination that it is
preempted.
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\59\ Utah Code secs. 7-27-101 to 7-27-301; id. sec. 7-27-
101(4)(b). Besides disclosures, the statute also contains certain
registration requirements that are plainly not preempted by TILA.
Id. sec. 7-27-201.
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B. Determination
For these reasons, the Consumer Financial Protection Bureau
determines that the Utah Commercial Financing Registration and
Disclosure Act, Utah Code sections 7-27-101 to 7-27-301, is
[[Page 19220]]
not inconsistent with chapters 1, 2, and 3 of the Truth in Lending Act.
VII. Virginia
A. Discussion
Chapter 22.1 of title 6.2 of the Code of Virginia requires
disclosures in connection with sales-based financing to a
recipient.\60\ Based on the definition of ``sales-based financing,''
which is tied to sales or revenue of the recipient, and the definition
of ``recipient,'' which must be ``a person whose principal place of
business is in the Commonwealth,'' it appears that the Virginia law
would not apply to a consumer credit transaction as defined in TILA and
Regulation Z.\61\ To the extent it could apply to a consumer credit
transaction, there would still be no basis to find an inconsistency
with TILA. That is because the only TILA-related disclosure term used
in the Virginia law is the finance charge, which the Virginia law's
implementing regulation defines in precisely the same manner as
Regulation Z.\62\ Because there is no difference in the amount that
would be included in the Virginia disclosure compared to TILA and
Regulation Z disclosures, there is no occasion to consider whether a
difference in amount would be inconsistent with TILA and Regulation Z.
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\60\ Va. Code tit. 6.2, ch. 22.1; see also 10 Va. Admin. Code
secs. 5-240-10 to 5-240-40.
\61\ ``Sales-based financing'' is defined as 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. Va. Code sec. 6.2-2228. 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. Id.
\62\ 10 Va. Admin. Code sec. 5-240-10.
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The requesting party has made an argument that the Virginia law's
finance charge disclosure is nevertheless preempted. However, this
argument appears to rely on a misunderstanding of an aspect of TILA
that is distinct from the Act's preemption standard. TILA section
111(a)(2), which neighbors the preemption provision in section
111(a)(1), authorizes the CFPB to determine that a State disclosure
``is substantially the same in meaning as'' a TILA disclosure.\63\
After the CFPB makes such a substantially-the-same-in-meaning
determination, TILA creditors can provide the CFPB-endorsed State
disclosure ``in lieu of'' the TILA disclosure, except that the finance
charge and APR must still be disclosed as provided by TILA.\64\
However, the present proceeding involves a preemption determination,
not a substantially-the-same-in-meaning determination.
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\63\ 15 U.S.C. 1610(a)(2).
\64\ Id.
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The requesting party's comment appears to conflate section
111(a)(2) (or more specifically the Regulation Z provision and
commentary implementing section 111(a)(2) \65\) with the distinct
question under section 111(a)(1) of whether State disclosures are
preempted as inconsistent with TILA. The commenter appears to read
section 111(a)(2) to mean that any State disclosure with a finance
charge or APR is preempted. In fact, all that it does is guarantee
that, when CFPB-endorsed State disclosures are provided ``in lieu of''
the normal TILA disclosures in consumer credit transactions, those
State disclosure forms will still include the TILA finance charge and
APR, so that consumers can use them to shop among consumer credit
options.\66\
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\65\ 12 CFR 1026.28(b); 12 CFR part 1026, supplement I, comment
28(b)-1.
\66\ The comment may also intend for this argument to extend to
California and New York; if so, it would not succeed with respect to
those States for the same reasons.
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B. Determination
For these reasons, the Consumer Financial Protection Bureau
determines that chapter 22.1 of title 6.2 of the Code of Virginia is
not inconsistent with chapters 1, 2, and 3 of the Truth in Lending Act.
Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2023-06719 Filed 3-30-23; 8:45 am]
BILLING CODE 4810-AM-P
