Changes are on the horizon as a new regulation is adopted in California that extends prohibitions against unfair, deceptive, and abusive acts and practices — defined as “UDAAP” — to commercial financing. This shift marks an important change in the state’s regulatory landscape.
Historically, federal and state laws have prohibited providers of financial services from engaging in UDAAP. Yet, these prohibitions have typically applied only to transactions intended for consumers. Business-purpose transactions, by contrast, have largely been left out of this legal framework. This difference between consumer and business transactions in the context of UDAAP prohibitions may be due, in part, to the assumption that businesses are better able to protect their interests.
However, as of October 1, 2023, this is set to alter with California’s decision to extend these UDAAP prohibitions to certain commercial financing transactions in addition to those intended for consumers. This new law will be put into effect under the umbrella of the California Consumer Financial Protection Law and represents a significant point of departure from prevailing rules and norms in the industry.
As legal professionals, notably those working in multiple states, it is critical to stay informed of these changes and adapt practices accordingly. The new regulation signals a shift away from the traditional dichotomy between consumer and commercial transactions, at least insofar as UDAAP prohibitions are concerned. It will be important to monitor how this development affects the legal landscape in other jurisdictions, and how rules and norms will evolve in response to it.
The specific impact of extending UDAAP prohibitions to commercial financing remains to be seen, though it’s likely to provide additional protection for businesses involved in such transactions. Despite the underlying assumption that businesses can safeguard their interests better, the new market realities and increasingly complex financing structures might necessitate such an expansion of legal safeguards.
Understanding the nuances of this new regulation and its potential implications will be key moving forward. So, for more in-depth information about this new change in California’s regulatory landscape, please refer to a more detailed legal analysis available here.