California Finalizes Disclosure Requirements for Commercial Financing Transactions

Pillsbury Winthrop Shaw Pittman LLP

Pillsbury Winthrop Shaw Pittman LLP

The trend toward increased regulation of commercial lending continues with California’s approval of regulations requiring consumer-style disclosures for broad categories of commercial financing transactions.


  • On June 9, 2022, California’s Department of Financial Protection and Innovation promulgated final implementing regulations that require consumer-style disclosure requirements for commercial financing transactions.
  • New York is expected to issue regulations soon that will implement similar requirements.
  • Utah and Virginia enacted similar laws this year, and other states will likely follow.

In September 2018, California became the first state to enact legislation to impose consumer-style disclosure requirements for commercial financing transactions. However, the legislation was drafted so that it would not become effective until the California Department of Financial Protection and Innovation (DFPI) promulgated final implementing regulations, which it did earlier this month on June 9, 2022. The final regulations are set to go into effect on December 9, 2022.

These final regulations, once effective, will require certain providers of commercial financing to provide consumer-style disclosures modeled on the federal Truth in Lending Act at the time such providers extend specific commercial financing offers to business borrowers. The regulations require, among other things, disclosure of a transaction’s annual percentage rate, amount financed, finance charges, payment methods, and repayment terms including prepayment policies.

The regulations cover a broad scope of commercial financing transactions, including closed-end transactions, open-end credit plans, factoring, sales-based financing, certain lease financing, and asset-based lending transactions. Disclosures must adhere to very precise content and format requirements for each category of covered transaction, including specific tables that must be used and content that must appear in specific rows and columns of the tables.

Several entities and transactions are excluded from the scope of the California regulations, including banks and other depository institutions; transactions secured by real property; certain transactions involving vehicle dealers, vehicle rental companies, or affiliated companies; and lenders regulated under the federal Farm Credit Act. In addition, transactions of under $5,000 or greater than $500,000 are not subject to the regulations.

The regulations also will not apply to any person or entity who makes no more than one applicable transaction in California in a 12-month period, or a person or entity who makes five or fewer applicable transactions that are incidental to the person or entity’s business in a 12-month period. Although these final two exemptions mirror exemptions from licensing under the California Financing Law (CFL), providers of commercial financing should note that the scope of these regulations as a whole does not precisely mirror the scope of the CFL. In other words, transactions may be subject to these regulations even if they are not loans subject to the CFL.

California’s final regulations are a precursor to a series of similar requirements that will soon be effective in other states. Like California, New York has enacted legislation to require consumer-style disclosures for certain commercial financing transactions, as detailed in our previous client alert. New York’s regulations will likely be finalized soon and are expected to require disclosures with similar content and format as California’s regulations. However, New York’s requirements will be broader in some respects, including by applying to transactions of up to $2.5 million.

Earlier this year, two other states joined California and New York in adopting similar statutory commercial financing disclosure requirements. On March 24, 2022, Utah Governor Spencer Cox signed SB 183 into law. And on April 11, 2022, Virginia Governor Glenn Youngkin signed SB 1027 into law. Virginia’s legislation is scheduled to become effective date on November 1, 2022; Utah’s legislation is scheduled to take effect on January 1, 2023. Unlike the other three states, Utah’s legislation includes a requirement that covered entities register with Utah’s financial services regulator, the Utah Department of Financial Institutions.

Several other state legislatures considered bills this year that would impose similar requirements on commercial financing disclosures, including Maryland, Missouri, New Jersey, and North Carolina. Although those states have not enacted such legislation as of the date of this alert, it appears to be only a matter of time before more states follow California, New York, Utah, and Virginia. Covered entities will need to be mindful of this trend and should be preparing to provide these disclosures in California and other states implementing similar requirements.

The author would like to thank summer law clerk Zachary G. Garrett for his contributions to this client alert.

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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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