Amendment to California Commercial Financing Disclosure Law Passes Legislature

that would amend the California commercial financing disclosure law (CFDL) has passed both houses of the state legislature. If signed by the Governor, the bill would:

• Clarify that commercial financing providers are not liable for disclosing an estimated annual percentage rate (APR) that differs from the actual APR charged by the provider, provided the estimated APR is disclosed in accordance with any regulation, order or written interpretive opinion of the California Department of Financial Protection and Innovation or the state Attorney General.
• Prohibit providers from deceptively using the terms “interest” or “rate.”
• Prohibit providers from stating a charge, pricing metric or financing amount after extending a specific offer of financing without also stating the APR. This is similar to an analogous requirement under the New York CFDL.
• Provide that:
  • A violation of the CFDL by a California Financing Law (CFL) licensee is a violation of the CFL if the violation relates to a transaction subject to the CFL.
  • A violation of the CFDL is a violation of the California Consumer Financial Protection Law if the violation relates to a commercial financing transaction not subject to the CFL.

The estimated APR “safe harbor” will be a welcome change for many commercial financing providers, including those offering merchant cash advances or other forms of sales-based financing, as the actual APR for such products is impossible to calculate at the outset of a transaction.

However, the requirement to state an APR in the circumstances specified in the bill will require many providers to change their existing practices, including requiring such providers to calculate and disclose the APR earlier than they are currently required to.

If you have any questions or would like assistance, please contact any of the authors or the Manatt professional with whom you work.