Federal Judge: Legal Challenge to California’s Commercial Financing Disclosure Law Has Merit, Orders SBFA Case to Proceed

A federal judge has ordered the Small Business Finance Association’s (SBFA) case against Clothilde Hewlett in her capacity as Commissioner of the California Department of Financial Protection & Innovation (DFPI) to proceed. On March 30, The Honorable R. Gary Klausner denied defendant’s motion to dismiss the claims that the State’s commercial financing disclosure law is both unconstitutional and preempted by the federal Truth in Lending Act (TILA).

The case, originally filed on December 2, 2022, argued, broadly speaking:

• That the regulations violate the First Amendment on the premise that they compel the group’s members to make inaccurate disclosures to customers while at the same time prohibiting members from engaging in communications that could be used to clarify or correct the required false or misleading information to customers.
• That APR is defined and governed at the federal level by TILA and that California’s own customized spin on it would only serve to confuse customers.

The Court has now ruled that these claims have been sufficiently alleged, allowing the SBFA the opportunity to prove its case.

Steve Denis, the Executive Director of the SBFA, told deBanked that the win at this juncture was validation for what the organization has been saying for the past few years.

“I think [this victory] is really good news. It’s a lawsuit that the entire industry should be behind,” he said.

The outcome of the case could have far reaching effects. New York, for example, has enacted similarly misleading APR rules that are soon slated to go into effect while other states have contemplated following in its footsteps.

“I think if we win this lawsuit the APR argument is over,” Denis said.

To that end, anyone in the industry that would like further information about what’s taking place can contact Denis at sdenis@sbfassociation.org.

The full ruling can be viewed here.

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.