California Commercial Financing Disclosures Bill Still a Work in Progress

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California State Senate HearingSB-1235, a bill that would require APR disclosures on all types of commercial financing products transacted in California (including some types of factoring, leasing, and merchant cash advance), survived the Judiciary Committee hearing on Tuesday. The bill was previously debated by the Senate Committee on Banking and Financial Institutions, where key provisions like a uniform APR disclosure came under fire.

Since then, Senator Steve Glazer, the bill’s author, is now proposing an alternative Annualized Cost of Capital metric rather than an Annual Percentage Rate in an attempt to compromise with the opposition that says the metric will not work for non-lending products.

On Tuesday, two trade association representatives continued to press their case for a collaborative solution that would work best for all parties, especially small businesses.

Scott Riehl, VP, State Government Relations at the Equipment Leasing and Finance Association (ELFA) said that his association, whose members include Caterpillar and Hewlett Packard, was not on board with the bill as currently drafted. No one in the financial community has ever even heard of the term Annualized Cost of Capital, Riehl said.

Katherine Fisher, Partner at Hudson Cook, LLP, who was there on behalf of the Commercial Finance Coalition, testified that it would not be possible to calculate an annualized rate when the timeframe of products like factoring and merchant cash advances were indeterminate.

Judiciary Committee Chairwoman Hanna-Beth Jackson wrapped up the lively debate by saying that ultimately California “wants a robust small business community” after several of her committee members voiced concerns that the bill in its current form could potentially deter commercial finance companies from providing capital in their state.

The hearing concluded with only 3 aye votes, putting the bill “on call,” wherein no decision was formally reached.

Update: Before the close of the day, the committee secured a 4th aye vote, pushing the bill forward.

Last modified: May 9, 2018
Sean Murray


Category: Regulation


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