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California's commercial financing disclosure law, codified at Financial Code section 22800 et seq., requires providers of covered commercial financing to deliver consumer-style cost disclosures to small business recipients before consummating a transaction. The implementing regulations issued by the Department of Financial Protection and Innovation (DFPI) became effective December 9, 2022, following approval by the Office of Administrative Law on June 9, 2022. Law Offices of Alan Abergel, P.C. ("LOAA") advises commercial financing providers, brokers, and depository institution partners on Financial Code section 22800 compliance, including disclosure content, calculation methodology, delivery, and recordkeeping. The firm represents providers, not recipients or consumers or borrowers.
The firm provides the commercial financing disclosures drafting and compliance legal services stated below only to either: (a) DFPI licensed California Finance Lenders or (b) unlicensed businesses that obtained from LOAA a written business model legal opinion concluding that no CFL license is required for the specific client's business model (after retaining LOAA for such legal opinion).
A "provider" under the statute is a person who extends a specific offer of commercial financing to a recipient. This includes direct lenders, factors, merchant cash advance companies, lessors, asset-based lenders, and, in defined circumstances, brokers who arrange financing on a provider's behalf. LOAA advises companies through written legal opinions on whether their role in a transaction makes them the "provider" responsible for delivering the disclosure, particularly in multi-party arrangements involving brokers, platforms, or funding partners.
Open-end credit plans, such as revolving business lines of credit, raise distinct disclosure considerations because the amount financed and payment terms are not fixed at origination in the same manner as a closed-end loan. As commercial open-end credit disclosure counsel, LOAA advises providers on the DFPI's specific formatting requirements for open-end products, including how draw-based utilization and variable payment structures are addressed within the required disclosure format.
Factoring disclosure California requirements permit a provider offering factoring or asset-based lending under a general agreement to elect an alternative disclosure format based on an illustrative transaction under that agreement, in lieu of disclosing terms for every individual receivables purchase. LOAA advises factors on whether to use the standard transaction-specific disclosure or the example-transaction alternative permitted for factoring and asset-based lending arrangements, and on the calculation issues specific to structuring an illustrative example that satisfies the regulation's requirements.
MCA disclosure attorney matters present some of the most technically demanding calculation issues under the regulations, since sales-based financing products are typically priced using a factor rate rather than a stated interest rate, and the DFPI's methodology requires conversion of that pricing into an annualized rate for disclosure purposes. LOAA advises sales-based financing providers on applying the DFPI's prescribed annualized rate methodology to their specific product structure, including the treatment of estimated repayment terms where actual repayment speed depends on the recipient's sales volume.
Asset-based lending transactions are subject to the same core disclosure elements as commercial loans, but may also qualify for the example-transaction alternative available to factoring and asset-based lending arrangements described above. LOAA advises asset-based lenders on selecting and implementing the legal disclosure approach appropriate to their lending structure.
Lease financing transactions are subject to their own disclosure category under the regulations.
Across the covered categories, the statute and implementing regulations generally require disclosure of:
Amount financed or funds provided to the recipient
Finance charge, representing the total dollar cost of the financing
Annualized rate, calculated according to the DFPI's prescribed methodology
Term or estimated term of the financing
Payment amount and payment frequency, describing the method and schedule of repayment
Prepayment policies, describing any prepayment charges or the absence of such charges
LOAA advises providers on assembling and formatting these elements consistent with the DFPI's regulations for the applicable transaction category, without relying on generic or unverified calculation shortcuts, since the annualized rate methodology in particular is prescriptive and category-specific.
Where a transaction is renewed, refinanced, or modified, the disclosure obligation may be retriggered, and providers must address how prior disclosures reconcile with the terms of a renewed or refinanced transaction. LOAA advises providers on disclosure practices applicable to renewals and refinancings, including the treatment of outstanding balances carried into a new transaction.
Where a broker is involved in arranging a covered transaction, the regulations address which party bears responsibility for delivering the disclosure and the timing by which a broker must transmit the disclosure to the recipient. LOAA advises both providers and brokers on allocating disclosure responsibility in brokered transactions and on the broker's obligation to timely deliver disclosures received from the provider.
Exemptions may apply to specified categories of entities and activities. LOAA advises companies on whether a claimed exemption applies to their specific activities.
Separate from the disclosure requirements, the California Consumer Financial Protection Law authorizes the DFPI to define unfair, deceptive, and abusive practices in connection with commercial financing offered to small businesses, and providers subject to the commercial financing disclosure law are subject to related commercial financing annual report obligations to the DFPI. LOAA advises providers on their annual reporting obligations arising from covered commercial financing activity.
Many commercial financing providers separately require a California Finance Lenders Law (CFL) license to make or broker commercial loans in California, and a violation of the disclosure law by a CFL licensee is treated as a violation of the CFL itself, subjecting the licensee to DFPI examination and enforcement on that basis.
Law Offices of Alan Abergel, P.C. advises commercial financing providers, brokers, and platform partners on SB 1235 compliance, including disclosure drafting, regulatory compliance, licensing, and enforcement action defense. Contact LOAA to discuss your commercial financing business's legal services needs.
Disclaimer: The information on this page is provided for general informational purposes only and does not constitute legal advice. No attorney-client relationship is created by reading this content. Every legal matter is unique, and you should consult directly with a qualified attorney regarding your specific circumstances.
"I engaged Alan to help me through the complexities of obtaining my Lenders License. He was very knowledgeable about the process and provided me with a high level of service.I worked quickly getting him all the information needed and he worked at my pace. He was responsive to e-mails and questions and followed up with the DFPI to make sure everything was filed correctly.I had read online that this process could take as long as 6 months however Alan completed the assignment in less than 3 I will be retaining his services in the future to ensure my company remains in compliance."
-Petroleum Realty Group Inc.
"I hired Alan to represent me as a mortgage broker before the California Department of Real Estate. I couldn't be more pleased with Alan's services from start to finish. Alan was clear and concise. Alan's communication throughout the process was professional. I received the results I hoped for. Thank you Alan. I'll definitely recommend you to ALL and use your services again in the future shall I need anything!"
-Anonymous
"Very helpful in assisting in obtaining an OCCC Texas Motor Vehicle Sales Finance License. Very knowledgeable in answering all questions the OCCC asked for on their questionnaire. Highly recommended and would re-hire for any future assistance regarding motor vehicle and finance business. God Bless!"
-Raul
