In 2018, SB 1235 was signed into law by Governor Brown. The bill requires that lenders disclose certain information to borrowers when they provide commercial financing. Under the bill, the California Department of Business Oversight (DBO) must adopt a variety of appropriate regulations, including those that govern the types of disclosures to which SB 1235 applies. The DBO has now, for a second time, asked the public to submit comments regarding SB 1235. The DBO carefully reviews all comments it receives and drafts regulations that are proposed for adoption through the rulemaking process. More about this rulemaking process in later blogs.
SB 1235 is the first legislation of its kind to mandate disclosure requirements related to certain business loans. These disclosure requirements are similar to those imposed under federal legislation such as Truth in Lending Act (TILA), as well as some state laws regarding consumer loans.
Under the SB 1235, the term “commercial financing” not only includes commercial loans and commercial open-end credit plans as defined in the California Financing Law (CFL) but also applies to factoring and merchant cash advances (MCAs).
SB 1235’s definition of “provider” applies to bank sponsorship arrangements where the commercial financing is extended by a bank but arranged through “an online lending platform” administered by a nonbank. When banks and other depository institutions act as providers, they are exempted from coverage. Thus, SB 1235 only applies to online lending platforms.
The disclosures required by SB 1235 include:
- total amount of funds provided;
- total dollar cost of the financing;
- term or estimated term of the loan;
- amount, frequency and method of payments;
- a description of prepayment policies; and
- total cost of the financing expressed as an annualized rate.
In the summer of 2018, the DBO first solicited comments from the public on the substance and form of the disclosures required by SB 1235. It completed its’ review of these initial comments in July of 2018.
On December 4, 2018, the Department invited the public to further comment on the draft regulations and sample disclosures. The Invitation for Comments notice is on the Department of Business Oversight’s website. The deadline to submit comments is September 9, 2019, and may be submitted to firstname.lastname@example.org.
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