On June 9, California’s Office of Administrative Law approved commercial financing disclosure regulations (Regulations) which require consumer-like disclosures for certain commercial financing products such as small business loans and merchant cash advances. With this final step completed, the Regulations from the Department of Financial Protection and Innovation (DFPI) will become effective on December 9, 2022, completing a process that began with the passage of SB 1235 in 2018.

Until this year, only New York had also passed a similar law requiring commercial financing disclosures, which is currently at the proposed regulations stage (see our blog post on New York’s proposed regulations here). However, already this year, Utah and Virginia have each passed statutes requiring the registration of certain commercial finance companies in addition to imposing disclosure requirements (see our blog posts on Utah’s law here and Virginia’s law here).

The Regulations require providers of commercial financing to give the recipient of the financing-specific disclosures in the precise language and format detailed by the Regulations at the time the provider extends the commercial financing offer. The format requirements detail specific rows and columns that must be used for a disclosure table and the terms that must appear in each section of the table.

Despite significant pushback from industry groups during the rulemaking process, the regulations require an APR disclosure for all product types, including sales-based financing transactions such as merchant cash advances. The Regulations provide information about how the APR disclosure must be calculated.

Additionally, although there is an exemption for depository institutions, the Regulations expressly apply to certain partners of depository institutions. As a result, despite the exemption, banks will need to determine applicability of the Regulations to appropriately assess their partners’ compliance practices.

We routinely assist clients in developing and maintaining commercial finance programs and will continue to monitor the developments of state regulation of commercial finance.

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Photo of Caleb Rosenberg Caleb Rosenberg

Caleb is an associate in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and…

Caleb is an associate in the firm’s Consumer Financial Services Practice Group. He focuses his practice on helping federal and state-chartered banks, fintech companies, finance companies, and licensed lenders navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small businesses in the credit and alternative finance products industry.

Photo of Chris Willis Chris Willis

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending…

Chris is the co-leader of the Consumer Financial Services Regulatory practice at the firm. He advises financial services institutions facing state and federal government investigations and examinations, counseling them on compliance issues including UDAP/UDAAP, credit reporting, debt collection, and fair lending, and defending them in individual and class action lawsuits brought by consumers and enforcement actions brought by government agencies.

Photo of Alan D. Wingfield Alan D. Wingfield

Alan Wingfield helps consumer-facing clients navigate compliance, litigation and regulatory risks posed by the complex web of state and federal consumer protection laws. He is a trusted advisor and tireless advocate, helping clients develop practical compliance and dispute-resolution strategies.

Photo of Mark Furletti Mark Furletti

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial

Mark helps clients navigate regulatory risks posed by state and federal laws aimed at protecting consumers and small business, particularly in connection with credit, deposit, and payments products. He is a trusted advisor, providing practical legal counsel and advice to providers of financial services across numerous industries.

Photo of Chris Capurso Chris Capurso

Chris focuses his practice on consumer financial services compliance, guiding clients through the many federal and state laws and regulations that impact consumer credit programs.