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SB-1235 Commercial financing: disclosures.(2017-2018)



Current Version: 04/09/18 - Amended Senate        


SB1235:v98#DOCUMENT

Amended  IN  Senate  April 09, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill No. 1235


Introduced by Senator Glazer

February 15, 2018


An act to amend Section 22001 of, and to add Article 5 (commencing with Section 22655) to Chapter 3 of Division 9 of, the Financial Code, relating to financial institutions. add Division 9.5 (commencing with Section 22800) to the Financial Code, relating to commercial financing.


LEGISLATIVE COUNSEL'S DIGEST


SB 1235, as amended, Glazer. California Financing Law: commercial Commercial financing: disclosures.
Existing law, the California Financing Law (CFL), provides for the licensure and regulation of finance lenders and brokers and, beginning on January 1, 2019, program administrators, by the Commissioner of Business Oversight. The CFL prohibits anyone from engaging in the business of a finance lender or broker without obtaining a license. Existing law defines a finance lender as any person who is engaged in making consumer loans or commercial loans, as defined. The CFL prohibits a licensee from making a materially false or misleading statement to a borrower about the terms or conditions of a loan.
This bill would require a provider who facilitates commercial financing to a recipient, as defined, to disclose specified information relating to that transaction to the recipient at the time of extending a specific offer of commercial financing, and to obtain the recipient’s signature on that disclosure before consummating the commercial financing transaction. The bill would require that disclosure to include specified information, including the total amount of funds provided, information related to the payments to be made, and the total dollar cost of the financing. The bill would provide that the provisions of this bill apply to a provider who consummates or arranges more than 5 commercial financing transactions during a calendar year to a recipient. The bill would specifically provide that the provisions of this bill do not apply to a provider who is a depository institution, which this bill would define to include specified state and federal financial institutions.

Existing law, the California Financing Law (CFL), provides for the licensure and regulation of finance lenders and brokers and, beginning on January 1, 2019, program administrators, by the Commissioner of Business Oversight. The CFL prohibits anyone from engaging in the business of a finance lender or broker without obtaining a license. Existing law defines a finance lender as any person who is engaged in making consumer loans or commercial loans, as defined. The CFL prohibits a licensee from making a materially false or misleading statement to a borrower about the terms or conditions of a loan. A willful violation of the CFL is a crime, except as specified.

This bill would require any person who engages in the business of commercial financing to, at the time of offering the commercial financing, provide to the prospective borrower a written statement showing in clear and distinct terms specified information regarding that transaction, including the total amount of fees, the amount provided, the APR related to that transaction, and policies regarding repayment or prepayment that apply to that transaction. The bill would require that disclosure to be signed by all parties to the transaction and to meet certain requirements, such as that it must be in writing using a specified font size, made in the same language used in discussions or negotiations related to that transaction, and not be vague or misleading. The bill would define the term “commercial financing” for these purposes to mean a commercial loan, accounts receivable financing or factoring, a cash advance to a business, or a line of credit. By expanding the scope of an existing crime with respect to willful violations of the CFL, this bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YESNO   Local Program: YESNO  

The people of the State of California do enact as follows:


SECTION 1.

 Division 9.5 (commencing with Section 22800) is added to the Financial Code, to read:

DIVISION 9.5. Commercial Financing Disclosures

22800.
 For purposes of this division:
(a) “Account” means a right to a payment of a monetary obligation.
(b) “Accounts receivable purchase transaction” means a transaction in an amount of two thousand five hundred dollars ($2,500) or more, as part of an agreement requiring a recipient to forward or otherwise sell to the provider all or a portion of accounts, payment intangibles, or cash receipts that are owed to the recipient or are collected by the recipient during a specified period or in a specified amount.
(c) (1) “Commercial financing” means an accounts receivable purchase transaction, commercial loan, or commercial open-end credit plan intended by the recipient for use primarily for other than personal, family, or household purposes.
(2) For purposes of determining whether financing is commercial financing within the meaning of this subdivision, the provider may rely on any written statement of intended purposes signed by the recipient. The statement may be a separate statement signed by the recipient or may be contained in a loan application or other document signed by the recipient. The provider shall not be required to ascertain that the proceeds of the commercial financing are used in accordance with the statement of intended purposes.
(d) “Commercial loan” means a loan of a principal amount of two thousand five hundred dollars ($2,500) or more, or any loan under an open-end credit plan, the proceeds of which are intended by the borrower for use primarily for other than personal, family, or household purposes.
(e) “Commercial open-end credit plan” means commercial financing extended by any provider under a plan in which:
(1) The amount the borrower can receive from the provider is greater than two thousand five hundred dollars ($2,500).
(2) The provider reasonably contemplates repeat transactions.
(3) The amount of financing that may be extended during the term of the plan is generally made available to the extent that any outstanding balance is repaid.
(f) “Depository institution” means any of the following:
(1) A bank, trust company, or industrial loan company doing business under the authority of, or in accordance with, a license, certificate, or charter issued by the United States, this state, or any other state, district, territory, or commonwealth of the United States that is authorized to transact business in this state.
(2) A federally chartered savings and loan association, federal savings bank, or federal credit union that is authorized to transact business in this state.
(3) A savings and loan association, savings bank, or credit union organized under the laws of this or any other state that is authorized to transact business in this state.
(g) “Payment intangible” means a general intangible under which the account debtor’s principal obligation is a monetary obligation.
(h) “Person” means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust, or an unincorporated organization.
(i) “Provider” means a person who facilitates commercial financing to a recipient. “Provider” includes a person who is facilitating an offer of commercial financing in partnership with a depository institution.
(j) “Recipient” means a person who is presented a specific commercial financing offer by a provider that is equal to or less than five hundred thousand dollars ($500,000).

22801.
 (a) Except as provided in subdivision (b), a provider is subject to this division if the provider consummates or arranges more than five commercial financing transactions during a calendar year to a recipient.
(b) Notwithstanding subdivision (a), a provider who otherwise meets the requirements of subdivision (a) is not subject to this division if the provider is a depository institution.

22802.
 (a) A provider subject to this division, within the meaning of Section 22801, shall disclose all of the information in subdivision (b) to a recipient at the time of extending a specific commercial financing offer to that recipient, and shall obtain the recipient’s signature on that disclosure before consummating the commercial financing transaction.
(b) A provider subject to this division shall provide all of the following disclosures:
(1) The total amount of funds provided to the recipient of the commercial financing. This shall be labeled “Total Amount of Funds Provided.”
(2) The total amount of funds to be paid by the recipient of the commercial financing, including any fees and charges to be paid in connection with the financing. This shall be labeled “Total of Payments.”
(3) The total dollar cost of the commercial financing transaction, which shall be calculated by subtracting the amount of funds provided from the total of payments. This shall be labeled “Total Dollar Cost of Financing.”
(4) The annual percentage rate (APR) or estimated 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 an accounts receivable financing transaction, the estimated annual percentage rate shall 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 shall be labeled “APR” or “Estimated APR.”
(5) For commercial financing that has fixed, nonvariable period payment amounts: the manner, frequency, and amount of each payment. For commercial financing that has variable periodic payment amounts: a description of the method by which payments are calculated and the frequency of those payments. This disclosure shall be labeled “Payments.”
(6) Any costs or discounts associated with prepayment of the commercial financing, including any financing costs or fees that are required to be paid at the time the financing is retired or paid in full. This shall be labeled “Prepayment.”
(c) The provider may provide the disclosures required by this section to the recipient in any format acceptable to the recipient. If the provider provides the disclosures in writing, the disclosures shall be printed in at least 10-point font. If the provider provides the disclosures electronically, the disclosures shall be provided in a format that allows the disclosures to be printed out by the recipient in a font size of at least 10 points.

SECTION 1.Section 22001 of the Financial Code, as added by Section 2 of Chapter 475 of the Statutes of 2017, is amended to read:
22001.

(a)This division shall be liberally construed and applied to promote its underlying purposes and policies, which are:

(1)To ensure an adequate supply of credit to borrowers in this state.

(2)To simplify, clarify, and modernize the law governing loans made by finance lenders.

(3)To foster competition among finance lenders.

(4)To protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders.

(5)To permit and encourage the development of fair and economically sound lending practices.

(6)To encourage and foster a sound economic climate in this state.

(7)To protect property owners from deceptive and misleading practices that threaten the efficacy and viability of property assessed clean energy financing programs.

(b)Consumer loans, as defined in Sections 22203 and 22204, are subject to this chapter, Chapter 2 (commencing with Section 22200), Article 1 (commencing with Section 22700) of Chapter 4, and Article 2 (commencing with Section 22750) of Chapter 4.

(c)Commercial loans, as defined in Section 22502, are subject to this chapter, Chapter 3 (commencing with Section 22500), Article 1 (commencing with Section 22700) of Chapter 4, and Article 3 (commencing with Section 22780) of Chapter 4.

(d)A program administrator, as defined in Section 22018, is subject to this chapter, Chapter 3.5 (commencing with Section 22680), and Article 1 (commencing with Section 22700) of Chapter 4.

(e)Commercial financing, as defined in Section 22655, is subject to Article 5 (commencing with Section 22655) of Chapter 3, and Article 3 (commencing with Section 22780) of Chapter 4.

(f)This section shall become operative on January 1, 2019.

SEC. 2.Article 5 (commencing with Section 22655) is added to Chapter 3 of Division 9 of the Financial Code, to read:
5.Commercial Financing Disclosures
22655.

(a)Any person who engages in the business of commercial financing shall, at the time of offering the commercial financing subject to this section, provide to the prospective borrower a written statement showing in clear and distinct terms all of the following with respect to that transaction:

(1)A full disclosure of the total amount of any fees charged in connection with the commercial financing. This shall be labeled “Total Amount of Fees” in the disclosure.

(2)The total amount of funds provided by the commercial financing. This shall be labeled “Total Amount of Funds Provided” in the disclosure.

(3)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 shall 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 shall be labeled “APR” in the disclosure.

(4)The term length of the commercial financing, displayed in months or years. This shall be labeled “Term Length of Financing” in the disclosure.

(5)The total monthly payment amount owed by the prospective borrower under the commercial financing. This shall be labeled “Total Monthly Payment” in the disclosure.

(6)The total dollar cost of the commercial financing to the prospective borrower. This shall be labeled “Total Dollar Cost of Financing” in the disclosure.

(7)The annualized interest rate, if applicable. This shall be labeled “Annualized Interest Rate” in the disclosure.

(8)A description of the funding and repayment process, including the frequency of payments and the amount of each payment. This shall be labeled “Funding and Repayment Process” in the disclosure.

(9)A description of prepayment policies. If the commercial financing includes prepayment penalties, the description shall 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 shall be labeled “Prepayment Policies” in the disclosure.

(10)Any collateral required as a condition of receiving the commercial financing. This shall be labeled “Collateral” in the disclosure.

(b)The statement required by this section shall be signed by all parties to the commercial financing before the commercial financing may be consummated.

(c)The statement required by this section shall be in writing, display the information required in the exact order of priority listed in subdivision (a), in at least 10-point type, in the same language principally used in any oral discussions or negotiations leading to execution of the commercial financing, and shall not be vague, unclear, or misleading.

(d)For purposes of this section, “commercial financing” means all of the following:

(1)A commercial loan, as defined in Section 22502.

(2)Accounts receivable financing or factoring in which the total amount provided by that financing or factoring is five thousand dollars ($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.

(3)A cash advance to a business of five thousand dollars ($5,000) or more as part of an agreement requiring the business to repay the lender a portion of future receipts.

(4)A line of credit to a business of five thousand dollars ($5,000) or more.

SEC. 3.

No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.