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Financial Services Law Insights and Observations

CDBO releases proposed commercial financing disclosure regulations

State Issues Small Business Lending Fintech Disclosures APR Commercial Finance Nonbank CDBO

State Issues

On September 11, the California Department of Business Oversight (CDBO) initiated the formal rulemaking process with the Office of Administrative Law (OAL) for the proposed regulations implementing the requirements of the commercial financing disclosures required by SB 1235 (Chapter 1011, Statutes of 2018). In September 2018, California enacted 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 (covered by InfoBytes here). In July 2019, California released the first draft of the proposed regulations (covered by InfoBytes here) to consider comments prior to initiating the formal rulemaking process with the OAL.

The new proposed regulations, which have been modified since the July 2019 draft, provide general format and content requirements for each disclosure, as well as specific requirements for each type of covered transaction. Additionally, the proposed regulations provide information on calculating the annual percentage rate (APR), including additional details for calculating the APR for factoring transactions, as well as calculating the estimated APR for sales-based financing transactions, among other things. Additional details about the proposed regulations can be found in the CDBO’s initial statement of reasons. Comments on the proposed regulations will be accepted through October 28.

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