,,ii #aafth ,,congress #ast ,session ,s4 #bchc ,,in ,,the ,,senate ,,of ,,the ,,united ,,states ,july #ca1 #bjai,ms4 ,cortez ,masto introduced the following bill2 which was read twice and referred to the ,committee on ,small ,business and ,entrepreneurship ,a ,,bill ,to establish minimum standards of disclosure by franchises whose franchisees use loans guaranteed by the ,small ,business ,administration4 #a4 ,short title ,this ,act may be cited as the ,small ,business ,administration ,franchise ,loan ,transparency ,act of #bjai4 #b4 ,findings2 purpose 7a7 ,findings ,congress finds that-- 7#a7 franchise businesses represent a large and growing segment of the retail and service businesses of the ,united ,states and are rapidly replacing more traditional forms of small business ownership in the economy of the ,united ,states2 7#b7 the ,small ,business ,administration guarantees much of the financing available in franchising2 7#c7 the ,small ,business ,administration requires pro forma projections1 including projected revenue1 for the first year of operations of a franchise as part of the standard operating requirements for a franchisee to qualify for financing2 7#d7 on ,july #ac1 #bjaa1 the ,office of ,inspector ,general of the ,small ,business ,administration published an audit 7,report ,no4 #aa-af7 on loans made under section #g7;a7 of the ,small ,business ,act 7#ae ,u4,s4,c4 #fcf7;a77 7in this section referred to as #g7;a7 loans7 to ,huntington ,learning ,center franchises where first year revenue projections were all significantly inflated2 7#e7 on ,july #b1 #bjac1 the ,office of ,inspector ,general of the ,small ,business ,administration published an audit evaluation 7,report ,no4 #ac-ag7 showing that the ,administration needed to improve the management of the #g7;a7 loan portfolio risk1 specifically with certain franchise brands that had exceptionally high default rates that continued to receive guaranteed loans from the ,administration2 7#f7 in ,september #bjac1 the ,government ,accountability ,office published a study 7,,gao-#ac-gei7 showing that over the #aj-year period from #bjjc to #bjab1 #bh percent of #g7;a7 loans provided to franchises required a guarantee payment2 7#g7 the study described in paragraph 7#f7 was based on #cb1cbc loans totaling #aj1fjj1jjj1jjj1 which required #a1ejj1jjj1jjj in guarantee payments2 7#h7 the report for the study described in paragraph 7#f7 stated1 ,potential franchisees should include first-year revenue estimates in their ,,sba loan applications4 ,however1 this information is not necessarily available to potential franchisees in the franchise organization's disclosure document42 7#i7 franchise companies most often collect royalties based on gross revenue1 therefore revenue data on each franchise outlet are readily available2 and 7#aj7 while both the franchisor and the lender profit as a result of financing from the ,small ,business ,administration1 the total liability for the loan is born by the franchisee4 7b7 ,purpose ,the purposes of this ,act are to-- 7#a7 ensure transparency in the loan processes of the ,small ,business ,administration so that the franchisee borrower1 the lender1 and the ,administration all have access to information that is key to the lending process2 7#b7 lower the fees and rates charged to franchisee borrowers2 and 7#c7 help ensure lower default rates in order to make more money available for loans to viable franchise brands4 #c4 ,definitions ,in this ,act-- 7#a7 the term disclosure document means the disclosure document required to be furnished by a franchisor to a prospective franchisee under section #dcf4b of title #af1 ,code of ,federal ,regulations1 as in effect on ,july #a1 #bjjg2 7#b7 the term ,financial ,performance ,representation ,commentary means the ,financial ,performance ,representation ,commentary adopted by the ,north ,american ,securities ,administrators ,association on ,may #h1 #bjag2 and 7#c7 the terms franchise1 franchisee1 and franchisor have the meanings given those terms in section #dcf4a of title #af1 ,code of ,federal ,regulations1 as in effect on ,july #a1 #bjjg4 #d4 ,required disclosures 7a7 ,in general ,subject to subsection 7b71 a franchisor1 except for a franchisor of a franchise in the lodging industry1 that qualifies for guaranteed lending from the ,small ,business ,administration for the franchises of the franchisor shall1 at a minimum1 disclose in the disclosure document required to be furnished by the franchisor to any prospective franchisee the following information for each of the #c years preceding the date of the disclosure document3 7#a7 ,the average and median first-year revenues for all businesses operated under franchises granted by the franchisor1 in accordance with the ,financial ,performance ,representation ,commentary4 7#b7 ,the total number of businesses operated under franchises granted by the franchisor that1 during the first year of operation1 either-- 7,a7 ceased operations2 or 7,b7 were transferred to a new franchisee4 7#c7 ,the average and median revenues for all businesses operated under franchises granted by the franchisor1 in accordance with the ,financial ,performance ,representation ,commentary4 7b7 ,limitation ,a franchisor may not disclose to a prospective or current franchisee1 directly or through a third party1 any information relating to revenue that conflicts with the information relating to revenue provided under subsection 7a7 in a disclosure document unless the relevant franchise purchase includes #a or more businesses under the relevant franchise that are in existence on the date on which the disclosure is made1 in which case the franchisor shall disclose to the prospective or current franchisee the relevant information relating to revenue as of the date on which the disclosure is made with respect to those businesses4 #e4 ,enforcement ,the ,administrator of the ,small ,business ,administration-- 7#a7 shall enforce the requirements under this ,act2 and 7#b7 may hold a franchisor liable for the balance of any loan obtained through a violation of this ,act4 #f4 ,no preemption ,nothing contained in this ,act shall prohibit an authorized ,state official from proceeding in ,state court on the basis of an alleged violation of any civil or criminal statute of that ,state4 #g4 ,severability ,if any provision of this ,act or any application of this ,act to any person or circumstances is held invalid1 the remainder of this ,act and its application to any person or circumstance shall not be affected thereby4