California Bill Seeks To Impose Disclosure Requirements On Commercial Lenders
I have often remarked that the California Financing Law (fka Finance Lenders' Law) imposes virtually no substantive lending requirements. That will change if Steve Glazer succeeds in enacting SB 1235. This bill would require any person engaged in the business of commercial financing to provide to a prospective borrower a written statement showing in clear and distinct terms all of the following:
- A “full” disclosure of the total amount of any fees charged in connection with the commercial financing. This must be labeled “Total Amount of Fees” in the disclosure.
- The total amount of funds provided by the commercial financing. This must be labeled “Total Amount of Funds Provided” in the disclosure.
- The annual percentage rate (APR) for the commercial financing calculated according to the provisions of federal Truth In Lending Act (15 U.S.C. Sec. 1601 et seq.) and Regulation Z (12 C.F.R. 226.1 et seq.). In the case of a cash advance, the annual percentage rate must be calculated based on the daily, weekly or monthly delivery of receivables from the business to the financer that is assumed as part of the financing offer. This must be labeled “APR” in the disclosure.
- The term length of the commercial financing, displayed in months or years. This must be labeled “Term Length of Financing” in the disclosure.
- The total monthly payment amount owed by the prospective borrower under the commercial financing. This must be labeled “Total Monthly Payment” in the disclosure.
- The total dollar cost of the commercial financing to the prospective borrower. This must be labeled “Total Dollar Cost of Financing” in the disclosure.
- The annualized interest rate, if applicable. This must be labeled “Annualized Interest Rate” in the disclosure.
- A description of the funding and repayment process, including the frequency of payments and the amount of each payment. This must be labeled “Funding and Repayment Process” in the disclosure.
- A description of prepayment policies. If the commercial financing includes prepayment penalties, the description must describe how those penalties apply, using examples relevant to the transaction being negotiated. This includes any financing costs or fees that are required to be paid at the time the loan is retired or paid in full. This must be labeled “Prepayment Policies” in the disclosure.
- Any collateral required as a condition of receiving the commercial financing. This must be labeled “Collateral” in the disclosure.
Although Senator Glazer is proposing to add these requirements to the California Financing Law, Cal. Fin. Code § 22000 et seq., the bill would require disclosures for all "commercial financings". These are defined as:
- A commercial loan, as defined in Financial Code § 22502.
- Accounts receivable financing or factoring in which the total amount provided by that financing or factoring is $5,000 or more as part of an agreement requiring the business to pay the financer a portion of accounts receivable collected by the financer on behalf of the business or to sell those accounts receivable to the financer at a discount.
- A cash advance to a business of $5,000 or more as part of an agreement requiring the business to repay the lender a portion of future receipts.
- A line of credit to a business of $5,000 or more.
Thus, the bill would seemingly impose disclosure requirements on lenders licensed under other laws, including banks, real estate brokers, and insurance companies, as well as unlicensed lenders. Remarkably, it would also seem to apply to persons who aren't lenders at all - purchasers of accounts receivable.