On June 16, 2026, Vermont enacted H.648, Act 142, which will require certain financial services providers and brokers to become licensed by the Vermont Department of Financial Regulation (DFR) and comply with numerous disclosure and operational requirements for sales-based financing and factoring transactions. The new law takes effect July 1, 2027.
Scope of Vermont’s H.648
Financial services “providers” subject to the new law will include persons that fund, or make a “specific offer” to fund, a “commercial financing,” as well as persons (like brokers) that solicit commercial financings or make or provide offers for commercial financing. Under the statute, “commercial financing” includes “sales-based financing” and “factoring transactions.”
- A “sales-based financing” is a transaction that is repaid over time as a percentage of sales of revenue where the payment increases or decreases based on the volume of sales made or revenue received by the recipient of the financing. The term includes transactions with fixed payment amounts that are adjusted to reflect sales volumes via a “true-up” mechanism and transactions structured as a sale or assignment of future accounts receivable, future revenues, or future sales (like merchant cash advances).
- A “factoring transaction” is an accounts receivable purchase transaction that includes an agreement to purchase, transfer, assign, or sell a legally enforceable claim for payment for goods that have been provided or services that have been performed but for which payment has not been made. (A purchase of accounts receivable in connection with purchase and sale of substantially all of a business or business line is not considered a factoring transaction under the statute.)
Key exemptions exist for depository institutions, governmental entities, seller financing, and transactions amounting to $1 million or more that are not primarily for personal, family, or household use.
Licensing Requirement
Vermont’s new law will expressly pull sales-based financing and factoring transactions into Vermont’s existing licensing regime by requiring a provider to be licensed as a lender under 8 V.S.A. § 2200 et seq. before providing commercial financing or extending an offer for commercial financing to persons in Vermont. Similarly, brokers will be required to have a loan solicitation license to solicit commercial financing or to make or extend offers of commercial financing on behalf of third parties.
Standardized Disclosures
In addition to licensing requirements, H.648 will require providers to give standardized Truth in Lending Act-like disclosures to the proposed recipient of financing at the time they extend a specific offer. The recipient must sign the disclosure before providers issue commercial financing.
Like commercial financing disclosure laws in California and New York, Vermont’s statute will require providers to disclose an estimated APR that is calculated (depending on transaction type) using methods from Regulation Z and the “finance charge,” which includes all charges that would be included under Regulation Z (12 CFR § 1026.4), and, for factoring transactions, the discount taken on the face value of the accounts receivable.
In addition to the estimated APR and “finance charge,” providers must also disclose the total amount of the commercial financing; the total repayment amount (the disbursement amount plus the finance charge); the estimated term and payment amounts (for sales-based financing transactions); a description of all potential fees and charges not included in the “finance charge”; and a description of any prepayment penalties, collateral requirements, and the receivables purchased (for factoring transactions).
The statute also expressly authorizes the Commissioner of the DFR to adopt rules to implement the statute’s requirements, including rules to prescribe particular disclosure formatting requirements, define terms, and detail enforcement of the statute.
Key Requirements and Prohibitions
In addition to licensing and disclosures requirements, H.648 will impose several notable operational requirements and prohibitions in covered transactions:
- Automatic Debiting. A covered provider is prohibited from setting up mechanisms to automatically debit funds from a recipient’s deposit account, unless the provider holds a validly perfected, first-priority security interest in “the recipient’s account.”1
- Confessions of Judgment. Confessions of judgment contract provisions are prohibited and will be void and unenforceable.
- Vermont Law and Forum. Agreements for commercial financing must be governed by Vermont law, and disputes arising under those agreements must be brought in Vermont courts. Additionally, agreements for commercial financing cannot require face-to-face arbitration proceedings outside the state. Any contractual provision to the contrary is void and unenforceable.
Takeaways for Businesses
Vermont joins a growing list of states working to regulate commercial financing transactions. However, including factoring transactions in Vermont’s law is notable because it may apply to companies that historically have not viewed themselves (or particular lines of their business) as subject to lending regulation.
Companies operating in Vermont may see a time-consuming and costly licensing process and should consider planning for operational changes necessary to comply with the new law, as well as monitoring whether the Commissioner of the DFR proposes rules that would impose additional requirements. Stakeholders may also wish to review their commercial financing disclosure forms, agreements, and business practices in Vermont.
Footnote
1. See 8 V.S.A. § 2247(d).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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