On December 30, 2019, the California Department of Business Oversight (DBO) announced two actions regarding companies offering unregulated, point-of-sale financing to California residents. In the first action, the DBO denied the application of Sezzle Inc. for a lender’s license under the California Financing Law (CFL). According to the DBO in its Statement of Issues, license denial was warranted because Sezzle had engaged in unlicensed point-of-sale lending. In a parallel second action, the DBO issued a legal opinion advising another, unnamed company that its point-of-sale products also constitute “loans” and require a CFL license to be offered in California.
We question both actions. As to the Sezzle license denial, our criticisms include but are not limited to the following:
We think the legal opinion is equally flawed. It points to a number of “relevant factors” in determining whether a transaction is a credit sale or a loan but fails to provide a cogent explanation why these factors mandate characterization of the transactions as loans under California law:
In summary, the DBO has gone out of its way to classify as loans consumer-friendly transactions structured as credit sales. In doing so, it has injected unnecessary uncertainty into a previously settled area of the law. We hope that the DBO will reconsider its actions or that Sezzle will appeal and overturn the DBO’s license denial.