California’s New Business Loan Disclosure Law Sparks Debate

Praise And Scorn For California’s New Business Loan Disclosure Plan
– American Banker

Manatt’s Scott Pearson, a partner in the firm’s financial services group, spoke with American Banker on new guidance from the California Department of Business Oversight (CDBO) on how lenders in the state should calculate the cost of small-business loans.

Lawmakers in Sacramento passed a law last year requiring consumer-style disclosures from borrowers, according to American Banker. The law left implementation details to state regulators, prompting the CDBO to issue its guidance. Regulators have said that the new law will be challenging to implement because the types of financing available to small-business owners vary substantially.

Pearson said the new law and related regulations might create issues for merchant cash advance providers, saying that having to estimate annual percentage rates ahead of time would be “problematic.”

“Even though you can make a disclosure up front by making a bunch of assumptions, the problem is that those assumptions are going to be unrealistic in many cases,” he said.