CA DFPI One step closer to finalizing the Commercial Loan Disclosure Regulation CFL | Buchalter
The California Department of Financial Protection and Innovation (fka Department of Business Oversight) takes one step closer to issuing final regulations that would impose new early disclosure requirements on Covered Commercial Lenders who hold a CFL license or subject to a CFL license. On September 11, 2020, DFPI issued Disclosures of proposed 4th cycle commercial loans. DFPI regulations are required by California Financial Code 22804 after California adoption SB 1235 in 2018. SB 1235 (2018) adds a new Division 9.5 – Commercial Loan Disclosures to the California Financing Act, adding new sections 22801-22804 of the Financial Code. The Disclosure Act applies to commercial lenders under California Financing Act when they extend a specific offer of commercial financing other than commercial mortgage financing. The purpose of these “early” disclosures is to encourage and assist commercial loan borrowers to seek out the best loan for their financial needs.
The fourth set of rules proposed by the DFPI specifically addresses the following commercial lending transactions as well as “all other” types of transactions covered:
- factoring agreements;
- Open and closed commercial loans;
- Credit plans with indefinite duration;
- Sales based financing;
- Lease financing;
- Asset-based financing.
These regulations adopt the Truth-in-Lending Act / Regulation Z type disclosure, including:
- Total amount of funds provided;
- Annual rate as an estimated percentage (applying the definition TILA / Regulation Z – financing cost expressed as an annual rate);
- Funding costs – both total and itemized;
- Payments – method, frequency and terms;
- Estimated duration of the proposed transaction;
- Conditions for early repayment of the loan.
The comment period ended on October 28, 2020 and the DFPI held a public hearing on November 9 to receive further comments from the public and stakeholders. A copy of the proposed regulations is attached HERE. The DFPI has set target dates for the final publication of the rules (January 1, 2021) and the date of entry into force (July 1, 2021),