On October 10, 2019, the Fair Access to Credit Act (AB 539) was signed into law by California Governor Gavin Newsom and becomes effective on January 1, 2020. As detailed in a previous publication, the law applies only to loans made under the California Financing Law (CFL) and imposes requirements related to interest rate caps, borrower education, credit reporting and maximum loan repayment periods.

It is important for commercial (B2B) CFL licensed lenders to note that under AB 539, commercial loans with a principal amount of less than $5,000 are considered consumer loans under the CFL, regardless of the intended purpose of the loan.

Under Section 22203 of the CFL, “consumer loans” are defined as loans that the borrower intends to use primarily for personal, family or household purposes.

Under Section 22502 of the CFL, “commercial loans” are defined loans with a principal amount of $5,000 or more, and the intended use is for other than personal, family or household purposes.

However, the definitions of consumer loans and commercial loans are not mutually exclusive, and under Section 22204 of the CFL, loans for commercial purposes with a principal amount of less than $5,000 are considered consumer loans under the CFL. Such loans are, therefore, subject to provisions of the CFL applicable to consumer loans, even if the intended use is for commercial purposes. Accordingly, the provisions of AB 539 similarly apply to commercial loans made by CFL licensed lenders in an amount less than $5,000.

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