Maryland recently introduced Commercial Finance Disclosure Law (“CFDL”) legislation in both the House (HB 693) and Senate (SB 754), following a path of other states with laws requiring consumer-like disclosures in certain commercial loans. Maryland has introduced similar legislation in the past but has not yet garnered sufficient support to reach the Governor’s desk.
This legislative session, the sponsors of these bills have added an additional exemption from the law’s application should it be enacted. The bills include an exemption for, among other types of loan products, commercial financing transactions that are insurance premium finance loans. Insurance premium financing loans are short-term, secured loans that enable businesses to purchase insurance coverage. Businesses of all sizes obtain commercial, property, casualty, and liability insurance policies to mitigate operational risk and to protect their interests and those of their customers. While some businesses may choose to pay insurance premiums in full at the time of purchase, others either do not have sufficient funds to pay the premiums in full up front or prefer to finance the premiums permitting other uses of capital. The majority of states regulate insurance premium financing transactions, including Maryland.
This additional CFDL exemption appears appropriate. Insurance premium finance transactions are extensively regulated by the Maryland Department of Insurance and subject to laws that mandate the disclosure of financial terms. (Md. Code Ann., Ins., §§ 23-101 et seq. Current insurance premium finance law in Maryland requires the disclosure of loan related information in the insurance premium finance agreement itself, including: (i) the total amount of the premiums under the policies purchased; (ii) the amount of the down payment on the loan; (ii) the principal balance; (iii) the amount of the finance charge; (iv) the balance payable by the insured; (v) the number of installments required, the amount of each installment expressed in dollars, and the due date or period of each installment; (vi) any electronic payment fee; and (vii) prepayment particulars. Substantially similar disclosures contemplated under the proposed CFDL bills are required under existing Maryland law regulating insurance premium finance loans. Imposing CFDL standards for insurance premium finance transactions, when already required by other Maryland law, appears redundant and unnecessary. Further, application of multiple disclosure laws could potentially present conflicting obligations for insurance premium finance companies, duplicative regulation by multiple administrative departments, and inconsistent information for borrowers when comparing insurance premium finance loans.
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