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  • California DBO requests comments on future rulemaking for commercial financing disclosures

    State Issues

    On December 4, the California Department of Business Oversight (DBO) released an invitation for comments from interested stakeholders in the development of regulations to implement the state’s new law on commercial financing disclosures. As previously covered by InfoBytes, on September 30, the California governor signed SB 1235, which requires non-bank lenders and other finance companies to provide written consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances. Most notably, the act requires financing entities subject to the law to disclose in each commercial financing transaction —defined as an “accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes”—the “total cost of the financing expressed as an annualized rate” in a form to be prescribed by the DBO.

    The act requires the DBO to first develop regulations governing the new disclosure requirements, addressing, among other things, (i) definitions, contents, and methods of calculations for each disclosure; (ii) requirements concerning the time, manner, and format of each disclosure; and (iii) the method to express the annualized rate disclosure and types of fees and charges to be included in the calculation. While the DBO has formulated specific topics and questions in the invitation for comments covering these areas, the comments may address any potential area for rulemaking. Comments must be received by January 22, 2019.

    State Issues Small Business Lending Fintech Disclosures APR Commercial Finance Agency Rule-Making & Guidance Nonbank

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  • New California law requires non-bank lenders and other finance companies to provide commercial financing disclosures

    State Issues

    On September 30, the California governor signed SB 1235, which requires non-bank lenders and other finance companies to provide written consumer-style disclosures for certain commercial transactions, including small business loans and merchant cash advances. Most notably, the act requires financing entities subject to the law to disclose in each commercial financing transaction — defined as an “accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes”— the “total cost of the financing expressed as an annualized rate” in a form to be prescribed by the California Department of Business Oversight (DBO).

    Although the act is effective immediately, the act requires the DBO to first develop regulations governing the new disclosure requirements, and lenders are not required to comply with the provisions of the act until the final regulations are adopted and become effective. Once final regulations are in place, recipients of commercial financing offers will have to sign the disclosures, which are to be provided at the time of the offer. The disclosures must include (i) the total amount of funds provided; (ii) the total dollar cost of the financing; (iii) the term or estimated term; (iv) the method, frequency, and amount of payments; (v) a description of prepayment policies; and (vi) the total cost of the financing expressed as an annualized rate. Finance companies subject to the law are required to provide the annualized financing rate until January 1, 2024, at which time that portion of the disclosure requirement sunsets. The act also allows for finance companies who offer factoring or asset-based lending to provide alternative disclosures using an example transaction that could occur under the agreement.

    Importantly, the act does not apply to (i) depository institutions; (ii) lenders regulated under the federal Farm Credit Act; (iii) commercial financing transactions secured by real property; (iv) a commercial financing transaction in which the recipient is a vehicle dealer, vehicle rental company, or affiliated company, and meets other specified requirements; and (v) a lender who makes no more than one applicable transaction in California in a 12-month period or a lender who makes five or fewer applicable transactions that are incidental to the lender’s business in a 12-month period. The act also does not cover (i) true leases, but will apply to bargain-purchase leases; (ii) commercial loans under $5,000, which are considered consumer loans in California regardless of any business-purpose and subject to separate disclosure requirements; and (iii) commercial financing offers greater than $500,000.

    State Issues Small Business Lending Fintech Disclosures APR Commercial Finance

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