The California Office of Administrative Law recently approved the Department of Financial Protection and Innovation’s proposed commercial financing regulations regarding disclosures under SB 1235, codified under CA Financial Code sections 22800-22805.

These new regulations, effective on December 9, 2022, will require CFL licensees offering commercial loans of $500,000 (or less) to furnish specific written disclosures at the point of sale – that is when they first quote rate and term.  The disclosure must be signed before closing.  Brokers, on the other hand, only have the duty to transmit the disclosures if the disclosures are required to be provided by the lender in the first place.

The following terms are examples of the required disclosures:

• The total amount of funds provided;

• The term or estimated term;

• The method, frequency, and amount of payments;

• A description of prepayment policies; and

• The total dollar cost of the financing *Until January 1, 2024, the bill requires that the total cost of financing be expressed as an annualized rate.

Effective January 1, 2024, lenders that offer  factoring or asset-based lending will be authorized to provide alternative disclosures.

Disclosure requirements, however, will not apply to:

• Depository institutions;

• Commercial financing transactions secured by real property;

• Any person who makes no more than one commercial financing transaction in California within a 12-month period or any person who makes five or less commercial financing transactions in California within a 12- month period that are incidental to the business of the person relying on the exemption;

• A commercial financing transaction in which the recipient is a dealer, as defined by Section 285 of the Vehicle Code; or

• Any lender’s regulated under the federal Farm Credit Act (12 U.S.C. Sec. 2001 et seq.)

You can find the final text and related documents under “Final Regulations.”

We can help you with the best practices for the timing and implementation of these disclosures.

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