California DFPI issues proposed regulations for providers of commercial financing

Ballard Spahr LLP

Ballard Spahr LLP

The California Department of Financial Protection and Innovation (DFPI) has issued proposed regulations implementing certain provisions of the state’s Consumer Financial Protection Law (CFPL).  Comments must be submitted by August 8, 2022.

The proposal includes provisions implementing the DFPI’s authority under the CFPL to issue and enforce rules defining unfair, deceptive, or abusive acts or practices as they relate to “commercial financing,” as that term is defined in Cal. Fin. Code 22800(d), or financial products and services offered or provided to small businesses, nonprofits, and family farms.  The proposal would make it unlawful “for a covered provider to engage, have engaged, or propose to engage in any unfair, deceptive, or abusive act or practice.”

Under the proposal, an act or practice engaged in by a “covered provider” would be considered “unfair” or “deceptive” if it is unfair or deceptive within the meaning of such terms under the Dodd-Frank Act or under the California Business and Professions Code section 17200.  The proposal would consider an act or practice engaged in by a “covered provider” to be “abusive” if it is abusive within the meaning of the Dodd-Frank Act.

The proposal contains definitions for various terms that it uses.  A “covered provider” is defined as “any person engaged in the business of offering or providing commercial financing or another financial product or service to a covered consumer.”  A “covered consumer” is defined as “a small business, nonprofit, or family farm whose activities are principally directed or managed from California.”  The term “commercial financing” is defined to have “the same meaning as in Financial Code section 22800, subdivision (d)” and the term “financial product or service” is defined to have “the same meaning as in Financial Code section 90005” (except that “consumer” and “consumer financial product or service” in that definition are expanded to include, respectively, business entities and financial products or services offered or provided for other than personal, family, or household purposes).  Other terms defined in the proposal include “family farm,” “nonprofit,” and “small business.”

Also included in the proposal are provisions setting forth an annual reporting requirement for “covered providers.”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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