In what could be seen as a blow to commercial financiers in California, the state has introduced new regulations meant to keep a check on the fees these financiers may charge their small business clients. The legislation was signed into law by the governor on October 13, as a furthering of the state’s previous efforts in the regulation of commercial financing.
This latest development comes just days ahead of Halloween, and it seems to have sent not a few commercial financiers into a state of mild panic. The new law, referred to as California Senate Bill 666, astonishingly goes beyond the prior regulatory regime based largely on disclosure. This is seen in how it directly imposes restrictions on the amount that commercial financiers can charge for their services to small business customers.
The wave of change began back in 2018 when California introduced a broad commercial finance disclosure law, also known as the “CFDL”. This was arguably aimed at bringing about more transparency to the industry, with the hope of securing fairer conditions for small businesses seeking financing solutions. This law seems to have begun a deeper conversation on commercial finance regulation within the state, leading to the direct regulation of commercial financing characterized by the recent legislation.
The imposition of the new fees, UDAAP (Unfair, Deceptive, or Abusive Acts or Practices), and annual reporting requirements on small business financers by this recent development marks a conspicuous shift in the state’s regulatory strategy. It’s clear that California is moving beyond mere disclosure to direct regulation, and this can be seen as a clarion call to other states to take note and possibly step up their regulatory game as regards commercial financing.
How this development will reshape the landscape for small business financers isn’t totally clear right now. However, it is foreseeable that it might lead to tighter controls on the industry and possibly cause a reduction in the predatory lending practices that some financiers resort to. Indeed, the coming months and years may reveal exactly what this law changes in the sphere of commercial financing.