Bill Text: CA SB1235 | 2017-2018 | Regular Session | Amended
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-Amended.html
that a disclosure before consummating the commercial financing transaction.
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-Amended.html
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Amended
IN
Senate
May 10, 2018 |
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Amended
IN
Senate
April 25, 2018 |
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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 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.
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, until January 1, 2023, additionally require a provider of a commercial loan, commercial open-end credit plan, or accounts receivable purchase transaction that requires a recipient to forward or otherwise sell to the provider a portion of receipts that are collected by the recipient to disclose the estimated annual cost of capital and the estimated annualized cost of capital. 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.
Digest Key
Vote: MAJORITY Appropriation: NO Fiscal Committee: NO Local Program: NOBill Text
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) five thousand dollars ($5,000) 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
five thousand dollars ($5,000) or more, or any loan under an open-end credit plan, the proceeds of which are intended by the recipient for use primarily for other than personal, family, or household purposes.
(e) “Commercial open-end credit program” plan” means a provider’s plan for making open-end loans pursuant to a loan agreement that sets forth the terms and conditions governing the use of the open-end credit program, and provides that:
(1) The recipient may use the open-end credit program to obtain money, goods, labor, or services or credit, and the provider makes open-end loans to
the recipient for the purpose of paying money to, or at the direction of, the recipient or paying obligations that the recipient creates through use of the open-end credit program.
(2) The amount of each advance and the charges and other permitted costs are debited to an account.
(3) The charges are computed from time to time on the unpaid balances of the recipient’s account, excluding from the computation any unpaid charges other than permitted fees, costs, and expenses.
(4) The recipient has the privilege of paying the account in full at any time.
(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 extends a specific offer of commercial financing to a recipient. “Provider” also includes a nondepository institution, which enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository 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 subdivisions (b) and (c), 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.
(c) This division shall not apply to either of the following:
(1) A commercial financing transaction secured by real property.
(2) A commercial leasing transaction. financing transaction governed by Uniform Commercial Code—Leases (Division 10 (commencing with Section 10101) of the Commercial Code) or that otherwise arises from the leasing or rental of personal property.
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(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. The principal loan amount or the purchase price, less any fees paid to or retained by the provider or an affiliate of the provider for originating or processing the commercial financing transaction. 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 pursuant to the financing agreement. agreement, assuming all payments are made when required. This amount shall
include all unavoidable fees and charges, including, if applicable, any fees or charges due at the time the financing is retired or paid in full. This amount shall include all unavoidable fees and charges, including, if applicable, any fees or charges due at the time the financing is retired or paid in full. This shall be labeled “Total of Payments.” This disclosure shall clarify that “Total of Payments” does not include fees the recipient may avoid, such as late fees or returned payment fees.
(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.”
(4) For products with fixed periodic payments, the term of the financing product in total days, and for products with variable payments and no fixed term, the estimated term of the financing product in total days as assumed by the provider in the underwriting process. This shall be labeled “Term” or “Estimated Term.”
(5) For commercial financing that has fixed, nonvariable period payment amounts: the 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) A statement of whether there are any costs or discounts associated with prepayment
of the commercial financing product, including a reference to the paragraph in the financing agreement that creates the contractual rights of the parties related to prepayment. This disclosure 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.
22803.
In addition to the disclosures required in 22802, the following shall be disclosed by a provider of a commercial loan, commercial open-end credit plan, or accounts receivable purchase transaction that requires a recipient to forward or otherwise sell to the provider a portion of receipts that are collected by the recipient during a specified period or in a specified amount. This section shall not apply to an accounts receivable purchase transaction that includes an agreement to purchase, transfer, or sell a legally enforceable claim for payment held by a recipient for goods supplied or services rendered, which have been ordered but for which payment has not yet been made.(a) “Estimated Annualized Cost of Capital,” which is the total cost of the capital
expressed as a percentage of the amount financed and presented as an annual equivalent. For open-end lines of credit, this number shall be the product of the monthly periodic rate applied by the provider to the outstanding balance, multiplied by 12. For other types of commercial financing subject to this section, the Estimated Annualized Cost of Capital shall be derived using the following steps:
(1) Divide the total dollar cost of financing by the total amount of funds provided.
(2) Multiply the result in paragraph (1) by 365.
(3) Divide the result from paragraphs (1) and (2) by the term or estimated term of the financing in days.
(4) Multiply the result from paragraph (3) by 100.
(5) The
result from paragraph (4) shall be labeled “The Estimated Annualized Cost of Capital.”
(b) The “Estimated Annualized Cost of Capital” shall be rounded to the nearest whole number and shall include the following disclosure: “This estimate includes all charges and fees incurred for the financing, assuming you make all payments when scheduled and adhere to the terms of the agreement. This number is based on the estimated term. If the actual term is shorter than estimated, the annualized cost of capital may be higher than shown. If the actual term is longer than estimated, the annualized cost of capital may be lower. This is not an Annual Percentage Rate (APR).”
This section shall remain in effect only until January 1, 2023, and as of that date is repealed.
22803.
The recipient may elect to receive the disclosures required by Section 22802 in writing or electronically.(a) If the provider provides the disclosures in writing, the disclosures shall be printed in at least a 10-point font.
(b) If the provider provides the disclosures electronically, they shall be provided in a format that the recipient may review and have in their possession, on an electronic device that the recipient can independently access, and shall be
provided in a format that allows the disclosures to be printed out by the recipient in at least 10-point font.
This section shall become operative on January 1, 2023.
22804.
The recipient may elect to receive the disclosures required by Sections 22802 and 22803 in writing or electronically.(a) If the provider provides the disclosures in writing, the disclosures shall be printed in at least a 10-point font.
(b) If the provider provides the disclosures electronically, they shall be provided in a format that the recipient may review and have in their possession, on an electronic device that the recipient can independently access, and shall be provided in a format that allows the disclosures to be printed out by the recipient in at least 10-point font.
This section shall remain in effect only until January 1, 2023,
and as of that date is repealed.
