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DFPI issues third round of draft regulations for commercial financing disclosures

State Issues State Regulators DFPI California Disclosures Commercial Finance APR Consumer Finance

State Issues

On October 12, the California Department of Financial Protection and Innovation (DFPI) issued a third draft of proposed regulations implementing the requirements of the commercial financing disclosures required by SB 1235 (Chapter 1011, Statutes of 2018). As previously covered by InfoBytes, in 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. In July 2019, California released the first draft of the proposed regulations, initiated the formal rulemaking process with the Office of Administrative Law in September 2020, and subsequently released a second round of modifications in August (covered by InfoBytes here, here, and here). The third modifications to the proposed regulations follow a consideration of public comments received on the various iterations of the proposed text. Among other things, the proposed modifications:

  • Amend several terms including “approved advance limit,” “approved credit limit,” “at the time of extending a specific commercial financing offer,” “benchmark rate,” “broker,” “provider,” and “recipient funds.”
  • Define the term “specific commercial financing offer” to mean a written communication to a recipient related to specific payment amounts and costs of financing, but does not include a recipient’s name, address, or general interest in financing.
  • Amend certain disclosure requirements and thresholds, including specific circumstances that a provider can disregard when making calculations and disclosures.
  • Clarify APR calculation requirements and tolerances and outline disclosure criteria for specifying the amount of financing used to pay down or pay off other amounts owed by a recipient.
  • Amend duties and requirements for financers and brokers.
  • Amend criteria for specifying the amount of funding a recipient will receive.

Comments on the third modifications must be received by October 27.

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