California’s Business Loan & MCA Disclosure Law Is Nearing Finality

Nearly three years after California became the first state to pass a business loan and merchant cash advance disclosure law (SB 1235), the actual disclosure rules themselves are finally nearing completion. The public has until April 26th to submit any comments on the amended portions of the proposed rules.

The 52-page document is the result of years of negotiations between various parties that all have a stake in its implementation. Among the finer details are the characteristics of the fonts permitted in the disclosures, what column a certain disclosure can be placed in, and the aspect ratio of the columns themselves.

But that’s the easy part. Here’s the hard part, according to a brief published in Manatt’s newsletter yesterday.

“The modified regulations continue to require use of the annual percentage rate (APR) metric, rather than annualized cost of capital (ACC), to disclose the total cost of financing as an annualized rate. This appears to be a final decision, which will make it difficult if not impossible for many commercial finance companies to comply given the significant challenges of calculating APR on products with substantial variance in the amounts and timing of payments or remittances.”

Manatt highlights other issues, including that all the necessary disclosures be provided “whenever a payment amount, rate, or price is quoted based on information provided by the proposed recipient of financing…”

This requirement, the firm says, is not even required under Federal Regulation Z for consumer loans.

“Many companies will not be able to comply with this requirement absent radical changes to their California application and underwriting procedures, as it is common today for companies to have preliminary discussions with applicants about potentially available financing terms before full underwriting has been completed.”

Manatt’s newsletter on the issue can be found here.

Any interested person may submit written comments regarding SB 1235’s modifications by written communication addressed as follows:

Commissioner of Financial Protection and Innovation
Attn: Sandra Sandoval, Regulations Coordinator
300 South Spring Street, 15th Floor
Los Angeles, CA 90013

Written comments may also be sent by electronic mail to regulations@dfpi.ca.gov with a copy to jesse.mattson@dfpi.ca.gov and charles.carriere@dfpi.ca.gov.

The last day to submit comments is April 26, 2021

Sean Murray is the President and Chief Editor of deBanked and the founder of the Broker Fair Conference. Connect with me on LinkedIn or follow me on twitter. You can view all future deBanked events here.