Bill Text: CA SB1235 | 2017-2018 | Regular Session | Introduced

California Senate Bill 1235 (Prior Session Legislation)

NOTE: There are more recent revisions of this legislation. Read Latest Draft

Bill Title: Commercial financing: disclosures.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2018-09-30 - Chaptered by Secretary of State. Chapter 1011, Statutes of 2018. [SB1235 Detail]

Download: California-2017-SB1235-Introduced.html

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.

LEGISLATIVE COUNSEL'S DIGEST

SB 1235, as introduced, Glazer. California Financing Law: 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. 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: YES Local Program: YES

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

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.
~~(e)~~

(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:

Article 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.