CALIFORNIA FINANCING LAW:  COMMERCIAL FINANCING DISCLOSURES

On September 30, 2018, Governor Brown signed SB 1235 (Chapter 1011, Statutes of 2018). The bill requires a “provider” – a person who extends a specific offer of “commercial financing” (as defined in Financial Code section 22800, subdivision (d)) to a recipient – to give the recipient certain disclosures at the time the provider extends the offer.  A recipient must sign the disclosures before the provider may finalize the transaction.  The goal of the new disclosures is to provide recipients more information about the actual costs and terms of financing agreements, as well as help them comparison shop for financing.

The new disclosures will include:

  1. The total amount of funds provided;
  2. The total dollar cost of financing;
  3. The term or estimated term;
  4. The method, frequency, and amount of payments;
  5. A description of prepayment policies; and,
  6. Until January 1, 2024, the total cost of the financing expressed as an annualized rate.

While the bill establishes a general framework for the new disclosures, it directs the Commissioner of Business Oversight to adopt regulations that will implement the specifics of the disclosures, including: definitions, methods of calculation for certain disclosure items, the method of expressing the annualized rate disclosure, the time, manner and format of the disclosures, and many other details.

Where a provider of factoring or asset-based lending offers a recipient an agreement that describes the general terms and conditions of the commercial financing transaction that will occur under the agreement, the bill permits the provider to draft the disclosures described above using an example transaction.  However, the bill does not require providers to comply with the new disclosure requirements until the Commissioner’s final regulations become effective in accordance with Government Code section 11343.4.  Finally, the bill empowers the Commissioner to enforce its requirements with respect to any provider licensed under the California Financing Law.

Regulations

Invitation For Comments

12/04/18 – PRO 01/18 – California Financing Law (CFL) Commercial Financing Disclosures
Comment Period Ends: January 22, 2019.