The California Department of Financial Protection and Innovation (DFPI) has issued second modifications to its proposed regulations to implement SB 1235, the bill signed into law on September 30, 2018 that requires consumer-like disclosures to be made for certain commercial financing products, including small business loans and merchant cash advances.
SB 1235, codified at CA Financial Code (Code) sections 22800-22805, requires a “provider,” meaning a person who extends a specific offer of “commercial financing” as defined in Code section 22800(d) to a recipient, to give the recipient certain disclosures at the time the provider extends the offer. SB 1235 requires the DFPI to issue regulations implementing the specific requirements of the disclosures that must be given to recipients. The law contains exemptions and carve-outs for, among other things, depository institutions, financings of more than $500,000, closed-end loans with a principal amount of less than $5,000, and transactions secured by real property. Compliance with the new disclosure requirements is not required until the DFPI’s final regulations become effective.
In September 2020, the DFPI (then the Department of Business Oversight) issued proposed regulations to implement SB 1235. Modifications to the proposal were issued in April 2021. The second modifications are intended to address the comments that the DFPI received on the proposed April modifications. Comments on the second modifications must be submitted to the DFPI by August 24, 2021.
Like California, New York has enacted a law that requires consumer-like disclosures for “commercial financing” transactions. As enacted in December 2020, the new law required disclosures for transactions of $500,000 or less and was to take effect on June 21, 2021. Subsequent amendments expanded the new law’s reach by making it applicable to transactions of $2.5 million or less and delayed the effective date to January 1, 2022.