Bill Text: CA SB666 | 2023-2024 | Regular Session | Amended

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

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Bill Title: Small business: commercial financing transactions.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Passed) 2023-10-13 - Chaptered by Secretary of State. Chapter 881, Statutes of 2023. [SB666 Detail]

Download: California-2023-SB666-Amended.html

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Amended  IN  Senate  April 10, 2023

Amended  IN  Senate  March 21, 2023

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Senate Bill

No. 666

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Introduced by Senator Min

February 16, 2023

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An act to add Section 22601.1 to the Financial Title 1.90 (commencing with Section 1799.300) to Part 4 of Division 3 of the Civil Code, relating to small business.

LEGISLATIVE COUNSEL'S DIGEST

SB 666, as amended, Min. Small business: loan fees. commercial financing transactions.

Existing law generally regulates the loaning of money, including the calculation of interest rates. Existing law, the California Financing Law (CFL), prohibits a person from engaging in the business of a finance lender or broker without obtaining a license from the Commissioner of Financial Protection and Innovation. The CFL generally regulates commercial loans made by licensees. A willful violation of the CFL is a crime, except as specified. The law defines various terms for these purposes.

This bill would prohibit a licensee covered entity from charging specified fees in connection with a commercial financing transaction with a small business, including, among others, a fee for accepting or processing a payment required by the terms of the commercial financing contract as an automated clearinghouse transfer debit, a fee for providing a small business with documentation prepared by the licensee covered entity that contains a statement of the amount due to satisfy the remaining debt, as specified, and a fee in addition to a loan origination fee that does not have a clear corresponding service provided for the fee, as specified. If a covered entity violates these provisions, the bill would entitle a recipient to specified relief, including actual damages, statutory damages, and attorney’s fees and costs. The bill would make a waiver of these provisions contrary to public policy and void and unenforceable. The bill would define various terms for these purposes. Because a willful violation of these provisions would be a crime, the 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.

Digest Key

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

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Bill Text

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

SECTION 1.

 Title 1.90 (commencing with Section 1799.300) is added to Part 4 of Division 3 of the Civil Code, to read:

TITLE 1.90. Commercial Financing Transactions with Small Businesses

1799.300.

 For purposes of this title, the following definitions apply:

(a) “Automated clearinghouse” means any federal reserve bank, or an organization established in agreement with the National Automated Clearing House Association, that operates as a clearinghouse for transmitting or receiving entries between banks or bank accounts and authorizes an electronic transfer of funds between these banks or bank accounts.

(b) (1) “Broker” means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a provider:

(A) Transmitting confidential data about a prospective recipient to a provider with the expectation of compensation in connection with making a referral.

(B) Making a referral to a provider under an agreement with the provider that a prospective recipient referred by the person to the provider meet certain criteria involving confidential data.

(C) Participating in a negotiation of commercial financing between a provider and prospective recipient.

(D) Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipient’s confidential data.

(E) (i) Participating in the preparation of any commercial financing documents, including, but not limited to, commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.

(ii) Notwithstanding clause (i), transmitting information that is not confidential data to a provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.

(F) Communicating to a prospective recipient a provider’s approval decisions related to a commercial financing transaction.

(G) Charging a fee to a prospective recipient for any services related to a prospective recipient’s application for a commercial financing transaction from a provider.

(2) Notwithstanding paragraph (1), a person is not a “broker” under this title solely because they take any of the following acts:

(A) Performing support tasks, including, but not limited to, typing, word processing, data entry, filing, billing, answering phone calls, taking and receiving messages, and scheduling, in support of the performance by a broker of any of the activities described in subparagraphs (E) to (G), inclusive, of paragraph (1).

(B) Furnishing a consumer report to a covered entity by a consumer reporting agency in accordance with subsection (a) or (c) of Section 1681b of Title 15 of the United States Code.

(C) Furnishing a consumer credit report, as defined in Section 1785.3, to a covered entity by a consumer credit reporting agency in accordance with subdivision (a) or paragraph (1) of subdivision (b) of Section 1785.11.

(D) Furnishing a prequalifying report, as defined in Section 1785.3, to a covered entity by a consumer credit reporting agency in accordance with paragraph (2) of subdivision (b) of Section 1785.11.

(E) Distributing or disseminating to a prospective recipient of a provider’s marketing materials or factual information about the provider, its lending activities, or its loan products, including, but not limited to, the provider’s interest rates, the provider’s minimum or maximum loan amounts or loan periods, or a general description of the provider’s underwriting criteria.

(c) “Commercial financing” has the same meaning as defined in Section 22800 of the Financial Code.

(d) “Confidential data” means any of the following:

(1) A bank account number.

(2) A bank statement.

(3) A credit or debit card account number.

(4) A credit score, as defined in Section 1785.15.1.

(5) All or a portion of a social security number.

(6) Personal or business income information, including information self-reported by the person.

(7) A taxpayer or employer identification number.

(e) “Covered entity” means either of the following:

(1) A provider.

(2) A broker.

(f) “Provider” means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that 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. The fact that a provider extends a specific offer of commercial financing or lending on behalf of a depository institution shall not be construed to mean that the provider engaged in lending or originated that loan or financing.

(g) “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).

(h) “Referral” means the introduction of a prospective recipient to a provider or the delivery of a prospective recipient’s contact information to a provider for the purpose of making an introduction.

(i) “Small business” means an independently owned and operated business that is not dominant in its field of operation, the principal office of which is located in California, the officers of which are domiciled in California, and that, together with affiliates, has 100 or fewer employees and average annual gross receipts of fifteen million dollars ($15,000,000) or less over the previous three years.

1799.301.

 This title does not apply to any of the following:

(a) A provider that is a depository institution.

(b) A provider that is a lender regulated under the federal Farm Credit Act of 1971 (12 U.S.C. Sec. 2001 et seq.).

(c) A commercial financing transaction secured by real property.

(d) A person who makes no more than one commercial financing transaction in California in a 12-month period.

(e) A person who makes five or fewer commercial financing transactions in California in a 12-month period that are incidental to the business of that person.

1799.302.

 A covered entity shall not charge any of the following in connection with a commercial financing transaction with a small business:

(a) A fee for accepting or processing a payment required by the terms of the commercial financing contract as an automated clearinghouse transfer debit.

(b) A fee for providing a small business with documentation prepared by the covered entity that contains a statement of the amount due to satisfy the remaining amount owed, including, but not limited to, interest accrued to the date the statement is prepared and a means of calculating per diem interest accruing thereafter.

(c) A fee in addition to an origination fee that does not have a clear corresponding service provided for the fee, including, but not limited to, a risk assessment, due diligence, or platform fee.

(d) A fee for monitoring the small business’s collateral, unless the underlying commercial financing transaction is delinquent for more than 90 days.

(e) A fee for filing or terminating a lien filed in accordance with the provisions of the Uniform Commercial Code against the business’s assets that exceeds 150 percent of the cost of the filing or termination.

1799.303.

 (a) If a covered entity violates Section 1799.302, the recipient shall be entitled to all of the following relief:

(1) Actual damages sustained as a result of the violation, including, but not limited to, the amount of fees paid by the recipient that are prohibited by Section 1799.302.

(2) Statutory damages of at least five hundred dollars ($500) but not greater than two thousand five hundred dollars ($2,500).

(3) Injunctive relief.

(4) Attorney’s fees and costs.

(5) Any other relief that the court deems proper.

(b) A court may award a covered entity that is the prevailing party in an action brought pursuant to this section reasonable attorney’s fees upon a finding that the recipient brought the action in bad faith.

1799.304.

 A waiver of the provisions of this title is contrary to public policy and is void and unenforceable.

SECTION 1.Section 22601.1 is added to the Financial Code, to read:

22601.1.

(a)For purposes of this section, the following definitions apply:

(1)“Automated clearinghouse” means any federal reserve bank, or an organization established in agreement with the National Automated Clearing House Association, that operates as a clearinghouse for transmitting or receiving entries between banks or bank accounts and authorizes an electronic transfer of funds between these banks or bank accounts.

(2)“Small business” means an independently owned and operated business that is not dominant in its field of operation, the principal office of which is located in California, the officers of which are domiciled in California, and that, together with affiliates, has 100 or fewer employees and average annual gross receipts of fifteen million dollars ($15,000,000) or less over the previous three years.

(b)A licensee shall not charge any of the following in connection with a financing transaction with a small business:

(1)A fee for accepting or processing a payment required by the terms of the financing contract as an automated clearinghouse transfer debit.

(2)A fee for providing a small business with documentation prepared by the licensee that contains a statement of the amount due to satisfy the remaining debt, including, but not limited to, interest accrued to the date the statement is prepared and a means of calculating per diem interest accruing thereafter.

(3)A fee in addition to a loan origination fee that does not have a clear corresponding service provided for the fee, including, but not limited to, a risk assessment, due diligence, or platform fee.

(4)A fee for monitoring the small business’s collateral, unless the underlying loan is delinquent for more than 90 days.

(5)A fee for filing or terminating a lien filed in accordance with the provisions of the Uniform Commercial Code against the business’s assets that exceeds 150 percent of the cost of the filing or termination.

SEC. 2.

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.