Bill Would Prohibit Charging Certain Commercial Loan Fees To Small Businesses
Friday, April 14, 2023

California Senator Dave Min has authored an unfortunately numbered bill, SB 666, that would prohibit a "covered entity"  from charging the following fees to a small business in connection with a commercial financing transaction: 

  • A fee for accepting or processing a payment required by the terms of the commercial financing contract as an automated clearinghouse transfer debit.

  • A fee for providing a small business with documentation prepared by the covered entity that contains a statement of the amount due to satisfy the remaining amount owed, including, but not limited to, interest accrued to the date the statement is prepared and a means of calculating per diem interest accruing thereafter.

  • A fee in addition to an origination fee that does not have a clear corresponding service provided for the fee, including, but not limited to, a risk assessment, due diligence, or platform fee.

  • A fee for monitoring the small business’s collateral, unless the underlying commercial financing transaction is delinquent for more than 90 days. 

  • A fee for filing or terminating a lien filed in accordance with the provisions of the Uniform Commercial Code against the business’s assets that exceeds 150 percent of the cost of the filing or termination.

A "covered entity" is defined as either a "provider" or a "broker", as defined in the bill.  The restrictions would not apply to a provider that is a depository institution or a lender regulated under the federal Farm Credit Act of 1971 (12 U.S.C. Sec. 2001 et seq.).  It also would not apply to a commercial financing transaction secured by real property, a  person who makes no more than one commercial financing transaction in California in a 12-month period, or a person who makes five or fewer commercial financing transactions in California in a 12-month period that are incidental to the business of that person. 

The bill defines a "small business" as an independently owned and operated business that is not dominant in its field of operation, the principal office of which is located in California, the officers of which are domiciled in California, and that, together with affiliates, has 100 or fewer employees and average annual gross receipts of $15,000,000 or less over the previous three years.   This leaves much to the imagination.  For example, what is the meaning of business' "field of operation" and how is a a provider to know what constitutes dominance.   The bill includes many other defined terms but hanc marginis exiguitas non caperet.

If enacted, any application to existing contracts might face a challenge under the prohibition of state laws impairing the obligation of contracts.  U.S. Const., art. I, § 10 & Cal. Const., art. I, § 9.

 

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