The AFA Board, in conjunction with our consultants, act on the AFA’s long-term strategy of educating key Members of Congress and key officials within the following governmental agencies:

  • U.S. Department of Treasury
  • Federal Trade Commission
  • Office of the Comptroller of the Currency (which regulates national banks)
  • Federal Reserve System
  • Federal Deposit Insurance Corporation (FDIC)
  • Consumer Financial Protection Bureau
  • House Financial Services Committee
  • Senate Banking Committee
  • Senate Committee on Small Business
‚ÄčThe AFA has conducted over 200 meetings with various officials, including U.S. Senators and Congressmen, with the goal of educating the value that Factoring drives to the business community and economy.
Over the decade since its creation, the AFA achieved its two main goals: (1) protecting the industry on a number of fronts, and (2) building relationships to protect the industry going forward. Below is a list of specific accomplishments in these two respects.
  • In 2012, Congress was on the verge of statutorily mandating a major increase in surety bond requirements for freight brokers which would have had a seriously negative impact on a number of transportation factors in that as many as 15,000 freight brokers were being driven out of business. The AFA succeeded in reducing the proposed increase of the surety bond amount by one-third.
  • The AFA worked with the Treasury Department on a report on factoring that has been very helpful in a variety of contexts in subsequent years.
  • Similarly, the AFA has worked with the Small Business Administration to develop a strong working relationship. This relationship has been helpful in terms of the AFA’s work with the CFPB on its implementation of Section 1071 of Dodd-Frank. One of the key principles of the AFA is that you can't turn back history and build a network of relationships after you have a crisis on your hands. You need to build and maintain those relationships just like you buy insurance for a loss.
  • Operation Choke Point (OCP), initiated by the Department of Justice and the federal bank regulatory agencies, caused a number of large banks to close accounts of a variety of business lines and industries. A number of AFA members had their longtime banking relationships severed by fallout from OCP. As a result, the AFA lobby team began an intense campaign on the Hill and with the bank regulatory agencies protesting this treatment of factors. There was a major Congressional hearing at which the bank regulators were strongly criticized by key Members of the House Financial Services Committee. As a result, the bank regulatory agencies pulled back and issued statements to that effect.
  • From its inception, the AFA has worked with federal bank regulators to educate and inform these regulators regarding the prudence of our factors. This is key to those factors with bank lines of credit. The last thing such factors need is to have bank examiners express or even classify loans to factors. We have met regularly with the FDIC, OCC and Fed in this regard. Our meetings have included the most senior levels of those agencies.
  • We have built strong ongoing relationships with key Members of Congress such as Representative Blaine Luetkemeyer (R-MO), Representative Greg Meeks (D-NY), Representative Andy Barr (R-KY), Senator Tom Cotton (R-AR), and Senator Jon Tester (D-MT). Our key relationships are based on membership on the key Congressional committees: House Financial Services and Senate Banking.
  • The AFA worked diligently on addressing California SB 1235 which mandates disclosure requirements for credit extensions to small business, both during its consideration before the California legislature and when the California Department of Business Oversight was drafting regulations to implement SB 1235. While some additional burden will result with respect to factors from SB 1235, the AFA was successful in mitigating the damage of this legislation to factors.
  • The AFA has been following similar legislative efforts in other states. The AFA board has also discussed the possibility of proposing a federal disclosure mandate that would provide uniformity and substantially lessen the compliance burden on AFA members.
  • The AFA has spent over three years developing a good working relationship with the CFPB's team that is implementing Section 1071 of Dodd-Frank, which will require a good bit of record keeping by those covered. The legislation requires all extenders of credit to small business to retain information on requests from small business with those records showing the race and gender of the owners of the small business.  In September, 2020, the CFPB staff published an outline of its interim conclusions relating to how Section 1071 should be enforced.  As a result of the work over the years with the CFPB staff, the outline stated that factoring should not be covered by the provisions of Section 1071.  While the proposed regulations are not yet drawn, the AFA will continue to work toward this end.  Its work has been successful so far, however.
For a number of years, the AFA has followed the growth of the MCAs and the impact they have had on factoring in terms of reputation as the MCAs try to characterize what they do as factoring. The AFA board appropriately has expressed concern that legislative response to MCA abuse of small business might result in legislation that could affect factors.  In 2020, these fears manifested themselves through the introduction of legislation which would extend TILA consumer disclosures to small businesses.  This legislation arose directly from Congressional concern regarding the conduct of MCAs.

SBA Subordination Agreement

In 2022, the American Factoring Association (AFA) has worked closely with the Small Business Administration (SBA) on a new form of standardized subordination agreement to address several concerns that made the existing standardized subordination agreement unworkable from the factoring industry’s perspective.  The AFA made this issue a top priority.  Working closely with its government relations attorneys, the AFA provided a revised form agreement to the SBA for its consideration along with an overview of why the requested changes are needed.  The AFA is excited to announce that the SBA has approved the new standardized subordination agreement and made numerous key changes as requested by AFA.  The form of the new standardized agreements are now posted on the AFA website.    

The following summarizes some of the key changes that SBA approved and included in the revised agreement:
•             SBA’s previous form only subordinated SBA’s lien with respect to accounts receivable and invoices.  AFA requested that this be modified to also include inventory, general intangibles and the proceeds thereof relating to such accounts receivable.    

•             AFA requested adding language clarifying that the SBA will subordinate in favor of the factor a first priority ownership interest in accounts that the factor purchases, as well as a first priority security interest in the Subordinated Collateral (i.e. the relevant accounts, inventory and general intangibles).  This was needed to properly secure the monetary and non-monetary obligations owed by the client to the factor under the factoring arrangement.

•             The SBA’s previous form required a factor to provide SBA with at least 30 days written notice before taking any action due to a default by the client under the factoring arrangement (including any foreclosure action). The AFA requested that language be included making clear that the factor may continue exercising its right to collect accounts after an event of default and apply proceeds thereof to satisfy the client’s obligations under the factoring arrangement and also make clear that the factor does not have to wait 30 days to exercise its rights in the Subordinated Collateral if it reasonably believes such delay is likely to decrease the value of the Subordinated Collateral or otherwise impair its ability to collect the Subordinated Collateral.

•             The SBA’s previous form excluded subordination as to default charges.  The AFA requested that this be deleted.  

•             The AFA requested the agreement make clear that the subordination agreement does not terminate until the factoring facility is terminated and all amounts owed to factor have been paid. 

These changes are all reflected in the SBA’s revised standardized subordination agreement. You can download the agreement here.

This is a significant victory for the factoring industry and would not have been possible without the financial support of AFA members.

financial disclosures

In 2018, California became the first state to pass a commercial finance disclosure law (CDL) requiring certain commercial finance companies, including factoring companies, to make consumer-style disclosures to financing recipients. After years of regulatory delay, revisions, and comment periods, the California Department of Financial Protection and Innovation released its final regulations implementing the CDL in June. Critically, factors and other commercial finance companies must come into compliance by December 9, 2022. This short timeline, paired with a specific and complex set of regulatory requirements under the new regulation, means that compliance will require a substantial amount of time, effort, and resources for anyone entering factoring agreements with California businesses. These difficulties are compounded for factoring companies, who have to comply with additional requirements in order to determine the “APR.”

To view the comment letter sent to the California Commissioner of Financial Protection and Innovation on behalf of the AFA, click here.

To view the comment letter sent to the New York Department of Financial Services on behalf of the AFA, click here.

To view a survey of state legislation imposing commercial finance disclosure requirements on Factors, click here.

To view an overview of State Commercial Finance Disclosure Laws (updated 3/15/23), click here.

Voice for the Factoring Industry

The AFA is the sole body representing the factoring industry in Washington, D.C.  If you are a factor or work with the factoring industry, make your voice heard.  Support the AFA.