Vermont Legislature Passes Sweeping Law Regulating Sales-Based Financing and Factoring

The Vermont legislature has passed , an expansive bill which would impose licensing, disclosure and other requirements on sales-based financing and factoring transactions unless vetoed by Governor Phil Scott. If enacted, the law will be effective July 1, 2027.

Perhaps most importantly, similar to , the bill would prohibit sales-based financing and factoring providers from automatically debiting a recipient's deposit account unless the provider holds a validly perfected, first-priority security interest in the recipient’s account.

The bill would also require: (a) providers of sales-based financing and/or factoring to obtain a lender license; and (b) persons who solicit prospective recipients of sales-based financing and/or factoring to obtain a loan solicitation license, despite the fact that the law would apply to non-loan products such as merchant cash advances.

With respect to disclosures, the bill would require providers to furnish standardized disclosures of the amount, cost and terms of the financing, similar to laws recently passed in other states. Notably, providers would be required to include an APR disclosure, which is currently only required in California and New York.

The bill also includes certain substantive restrictions on the terms of sales-based financing and factoring contracts, including a provision stating that confessions of judgment and any similar provisions are void and unenforceable.

Among other exemptions, banks and other depository institutions, sellers of goods or services that finance the sale of goods or services and transactions of $1,000,000 or more that are not primarily for personal, family or household use are exempt from these requirements.

If you have questions, please contact any of the authors or the Manatt professional with whom you work.