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PS 1285

Para crear la “Ley de Transparencia en el Financiamiento Comercial No Bancario”; establecer requisitos mínimos de divulgación para transacciones de financiamiento comercial no bancario ofrecidas a comerciantes en Puerto Rico; facultar a la Oficina del Comisionado de Instituciones Financieras a reglamentar y fiscalizar su cumplimiento; y para otros fines relacionados.

2025-2028 Session

The bill creates a transparency framework requiring upfront, clear disclosures on non-banking merchant financing to help merchants compare offers and avoid hidden costs.

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Bill Summary · PS 1285

Overview

PS 1285 (Session 2025-2028, Puerto Rico) aims to create the "Ley de Transparencia en el Financiamiento Comercial No Bancario." The law would establish minimum disclosure requirements for non-banking commercial financing offered to merchants in Puerto Rico, authorize the Office of the Commissioner of Financial Institutions (OCIF) to regulate and enforce compliance, and coordinate with the Department of Economic Development and Commerce on educational outreach. The bill does not ban these financing products or convert them automatically into loans; instead, it creates a standardized transparency framework to help merchants make informed decisions.

Purpose and Public Policy

  • Recognize non-banking commercial financing as a legitimate capital access option for small, micro, and medium-sized merchants.
  • Ensure disclosures are clear, complete, verifiable, and understandable before merchants commit to any financing.
  • Preserve legal certainty for valid contracts while preventing deceptive or opaque practices.
  • Promote transparency, fair competition, and trust in Puerto Rico’s non-banking commercial financing market.

Key Provisions

Definitions (Article 3)

  • Clarifies terms: merchant receptor, non-banking commercial financing, sale of future revenue contracts, merchant cash advance, provider, broker/intermediary, specific offer, gross amount offered, net amount disbursed, total amount to remit, factor rate, retention percentage, estimated remittance, reconciliation, estimated cost, personal guarantee, lien/encumbrance, event of default, substantial modification, OCIF.

Scope and Applicability (Articles 4-5)

  • Applies to financing arrangements with a merchant receptor in Puerto Rico.
  • Covers: future revenue contracts, merchant cash advances, revenue-based financing, factoring, non-banking lines, card processing-retentions, non-bank refinancings, and substantial modifications or equivalent structures.
  • Excludes traditional bank products, consumer credit, ordinary trade terms, intercompany transactions, regulated securities, government financing, and other exclusions the OCIF may specify by regulation.

Disclosure Obligations (Articles 6-7)

  • Mandatory pre-disclosure before entering into any covered transaction.
  • Must be written, standalone, clearly labeled, and obtained prior to acceptance, signing, authorization of debits, or encumbrances.

  • In electronic transactions, disclosures must be prominent, separate, downloadable, and merchant consent must be explicit (electronic signature or equivalent).

  • Required disclosure content includes:

    • Provider details and any broker involvement.
    • Clear description of product type and upfront terms.
    • Gross amount offered, net amount received, and itemized deductions.
    • Total amount to remit, difference between net disbursed and total remit, and applicable rate/multiplier.
    • Retention percentage, estimated remittance, frequency, and method of collection.
    • Realistic reconciliation/adjustment mechanics, including required documents and timelines.
    • Personal guarantees and encumbrances, if any.
    • Applicable law, chosen forum, arbitration provisions, and copy rights to the contract.
    • Availability of Spanish version and prominence of language in multilingual contracts.
    • Disclosure of that disclosures do not substitute for professional advice.

Reconciliation for Revenue-Dependent Contracts (Article 8)

  • All relevant contracts must include a real, accessible reconciliation mechanism.
  • Merchants may request adjustments if actual revenues decline.
  • Reconciliation requests: at least every 30 days unless OCIF adopts a more favorable timeframe.
  • Provisions for documentation, timely provider responses, prohibition of arbitrary denial, no extra charges for reconciling, no default trigger solely from reconciliation requests, and retention of all related records.

Personal Guarantees and Encumbrances (Articles 9-10)

  • Separate, explicit consent required for any personal guarantee.
  • Disclosure of guarantee details (guarantor, capacity, scope, nature, assets at risk, triggering events, rights, and warning).
  • Encumbrances on merchant assets must be disclosed before signing; provider must release encumbrances within 20 business days after satisfaction of obligations, barring bona fide disputes.

Choice of Law and Language (Article 11)

  • Contracts must disclose governing law and forum.
  • If a foreign law or forum applies, disclosure must clearly indicate this.
  • Spanish translations required; at minimum, material terms (disbursed amount, total to remit, charges, reconciliation, guarantees, encumbrances, default, remedies, applicable law, forum, and language) must be in Spanish.
  • Provisions must not deprive merchants of the protections guaranteed by the law.

Prohibited Practices (Article 12)

  • Prohibits misrepresentation of costs, hiding charges, incomplete signing, unilateral term changes, denial of reconciliation, charging for reconciliation, and treating reconciliation requests as default events.
  • Prohibits undisclosed guarantees, false branding as bank-like products, coercive collection practices, and other deceptive or abusive practices.

Intermediaries (Article 13)

  • Brokers/intermediaries must disclose their identity, relationship to the provider, compensation structure, affiliations, and conflicts of interest.
  • OCIF may require registration of regular brokers.

Recordkeeping (Article 14)

  • Providers must retain disclosures, signed contracts, electronic consents, guarantees, encumbrances, reconciliation documents, remittance history, communications, and broker disclosures for at least six years.

Oversight and Enforcement (Articles 15-19)

  • OCIF authority to adopt, amend, or repeal regulations, with initial rulemaking due within 180 days of enactment.
  • Administrative penalties: up to $5,000 per violation; up to $25,000 per pattern; higher penalties (up to $50,000) for intentional, fraudulent, or repeated misconduct.
  • Remedies include voiding undisclosed charges, canceling unrecorded encumbrances, restitution, and other court or administrative relief.
  • Violations do not automatically convert a financing transaction into a loan; contract remains intact with possible remedies for noncompliance.

Coordination with DDEC (Article 16)

  • OCIF may coordinate with the Department of Economic Development and Commerce to offer education and guidance to merchants, without transferring regulatory authority.

Complaints and Investigations (Article 17)

  • Merchants or guarantors may file complaints with OCIF.
  • OCIF can investigate, issue orders, impose penalties, and refer cases to Justice Department for fraud or criminal conduct.

Rulemaking Schedule and Effective Date (Articles 21-24)

  • Prospective application: applies to new or modified transactions after the law’s enactment.
  • Existing contracts are generally exempt from new disclosure requirements unless modified or refinanced.
  • Effective date: 180 days after approval; OCIF rulemaking provisions take effect immediately upon approval.
  • Severability clause and transitional regulations to ensure continued compliance.

Who Is Affected

  • Primary: merchants/receptor entities in Puerto Rico entering non-banking commercial financing transactions.
  • Providers: non-banking financing entities, including platforms, originators, and brokers.
  • Intermediaries/brokers: required disclosures and potential registration.
  • OCIF: regulator and enforcer; empowered to promulgate regulations and oversee compliance.
  • Department of Economic Development and Commerce: potential coordination on educational outreach.

Timeline and Implementation

  • Initial regulations: OCIF to issue initial regulations within 180 days of enactment.
  • Disclosure and reconciliation requirements are effective for new or substantially modified contracts after enforcement, with prospective applicability.
  • Transitional clause: providers must meet minimum disclosures during the period before full regulations are in place (Article 23).

Potential Impact

  • Increased transparency and informed decision-making for merchants.
  • Standardized disclosure formats to enable easier comparison across financing offers.
  • Enhanced protections against hidden costs, aggressive collection practices, and unanticipated guarantees or encumbrances.
  • Possible compliance burden and administrative costs for providers and brokers.
  • Greater regulatory clarity could improve market confidence and reduce disputes.

Compiled from official sources — confirm details with the bill’s official record.

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