DFPI seeks to regulate commercial financial products and services under the CCFPL

State Issues Agency Rule-Making & Guidance DFPI California Commercial Finance UDAAP Small Business Financing

Recently, the California Department of Financial Protection and Innovation (DFPI) issued a notice of proposed rulemaking (NPRM) to adopt regulations to implement certain sections of the California Consumer Financial Protection Law (CCFPL) related to commercial financial products and services. (See also text of the proposed regulations here.) As previously covered by a Buckley Special Alert, the CCFPL became law in 2020 and, among other things, (i) establishes UDAAP authority for the DFPI; (ii) authorizes the DFPI to impose penalties of $2,500 for “each act or omission” in violation of the law without a showing that the violation was willful (thus going beyond both Dodd-Frank and existing California law); (iii) provides the DFPI with broad discretion to determine what constitutes a “financial product or service” within the law’s coverage; and (iv) provides that enforcement of the CCFPL will be funded through the fees generated by the new registration process as well as fines, penalties, settlements, or judgments. While the CCFPL exempts certain entities (e.g., banks, credit unions, certain licensees), the law expands the DFPI’s oversight authority to include debt collection, debt settlement, credit repair, check cashing, rent-to-own contracts, retail sales financing, consumer credit reporting, and lead generation.

The NPRM proposes new rules to implement sections 22159, 22800, 22804, 90005, 90009, 90012, and 90015 of the CCFPL related to the offering and provision of commercial financing and other financial products and services to small businesses, nonprofits, and family farms. According to DFPI’s notice, section 22800 subdivision (d) authorizes the Department to define unfair, deceptive, and abusive acts and practices in connection with the offering or provision of commercial financing. Section 90009, subdivision (e), among other things, authorizes the Department’s rulemaking to include data collection and reporting on the provision of commercial financing or other financial products and services.

Among other things, the NPRM:

• Clarifies that the CCFPL makes it unlawful for covered providers, as defined, to engage in unfair, deceptive, or abusive acts or practices;
• Provides standards for determining whether an act or practice is unfair, deceptive, or abusive;
• Defines small business, nonprofit, and family farm, among other terms;
• Clarifies DFPI's ability to enforce the regulation’s provisions;
• Requires covered providers to submit annual reports containing information about their provision of commercial financing or other financial products and services to small businesses, nonprofits, and family farms;
• Identifies persons excluded from the reporting requirement;
• Specifies the information required in the reports, as well as provide guidance on calculating or determining certain information;
• Clarifies the obligations of those also submitting annual reports to DFPI as licensees under the California Financing Law.

Written comments on the NPRM are due by August 8.