Lender License and Enhanced Financial Disclosure

Issue Overview

Finance Licensing

All state and local governments regulate business operations, specifying registration and licensing requirements that must be met in order to undertake commercial activity. However, California stands out as the state with the most onerous licensing requirements impacting the commercial equipment leasing and finance sector. Provisions of the law and regulations are too often based on purchase rather than lease transactions that take place in a traditional retail store, which ELFA members do not possess.  Concentration on the consumer market with disregard for realities of the business-to-business equipment leasing industry drives up the cost of funds loaned to businesses in the state, reducing availability of credit and limiting access to vital economic capital.

No other state requires registration for the commercial equipment leasing and finance sector in a manner similar to the requirements under the California Finance Lenders Law (CFL). Under the CFL, any person engaged in the business of making consumer or commercial loans must be licensed in California. California’s requirements are onerous and efforts to expand the law’s scope create an increasingly unfriendly finance environment for small businesses and the lenders and brokers who make loans to them.

Current California law fails to account for the unique nature of the commercial equipment leasing and finance industry. While traditional depository institutions are exempted from the California law, other types of lenders are caught up in the law’s requirements, even though they are not traditional retail stores and may never see the piece of equipment they are financing for commercial purposes. Disregard for the realities of the industry drives up the cost of funds loaned to businesses in the state, reducing availability of credit and limiting access to vital economic capital.

Businesses depend on financing to make equipment, machinery, and inventory acquisitions that are critical to their successes. Limiting access to commercial equipment financing by imposing onerous compliance requirements has negative economic effects.

A handful of other states have attempted to copy California lender’s license law but none of those efforts have been successful due to the issues related to the California law. Legislation based on California’s law would establish finance lenders licensing regimes that would severely restrict the financing of commercial equipment leases and increase the cost of financing. ELFA continues to monitor state legislatures’ interest in lender’s license laws and works with in-state coalitions in the states where they arise to educate lawmakers on the negative economic impacts.

Enhanced Finance Disclosure

Highlighted by the introduction and passage of California SB 1235, there is a movement by state legislators to introduce consumer-like enhanced finance disclosure requirements for commercial transactions.  While they differ, the purpose of the proposed new rules concentrates on requiring lenders and other commercial financing companies to provide clear and consistent disclosures with the focus most often on protecting small business owners.  ELFA has led the industry in obtaining exemptions for all equipment true leases in California and exempted equipment lease transactions in legislation introduced, but not yet passed in New Jersey and New York.

These bills often share such requirements as annual percentage rate, expressed as a nominal yearly rate, inclusive of any fees and finance charges; the finance charge, which means the amount of any and all costs of small business credit, including interest, transaction fees, origination fees, and any third party fees; the payment schedule, which includes the number, amounts, and timing of payments scheduled to repay the obligation, which amounts shall include principal, interest, and any other finance charges incurred after closing; as well as any third party agreements entered into between the entity that provides the small business loan and any broker or other third party involved in the loan, any fees paid pursuant to their involvement, and a description of their relationships and any conflicts of interests.  The bill summaries also say that an entity providing a small business loan shall, as applicable and appropriate under the terms of the small business loan, notify a small business concern at least 45 days before the effective date of any increase in the annual percentage rate of the loan and any other change that significantly affects the responsibilities or obligations of the small business concern under the loan.

Resources & Advocacy Materials

Legislative Testimony and Regulatory Comment


  • NY DFS Proposed Regs - Important ELFA Requests Granted, October 20, 2021
  • ELFA met with the California Department of Financial Protection and Innovation (DFPI) on October 26, 2021, and taking into account those discussions filed an October 28 cover letter and comments addressing the Department’s Third Modification of the proposed regulations for SB 1235.
  • ELFA’s August 24, 2021 comments addressing CA SB 1235 Finance Disclosure and the CA DFPI’s 2nd modification of proposed regulations
  • 2021 ELFA CA DFPI (Revised Langauge) Comment Letter 4.26.21. On April 26, 2021, ELFA, working closely with our ELFA California DFPI Member Workgroup, filed its third and most recent set of comments and guidance on the California Department of Financial Protection and Innovation’s (DFPI) proposed revised regulations relating to SB 1235. In its filing, ELFA forcefully argued that certain revised language goes far beyond the clear language and intent of the stature, and in doing so far exceeds the disclosure requirements found even in the consumer loan context.
  • ELFA’s CA DFPI 3rd Regulations Comment Letter
  • 2019 ELFA SB 1235 DBO 2nd Regulations Comment Letter. On July 26, 2019 the California Department of Business Oversight announced their completed review of initial comments and produced draft regulations as required by SB 1235. ELFA submitted our original comments on January 21, 2019. On July 26, 2019 the DBO, following the review of all initial comments, invited all parties to submit second comments addressing their draft regulations and sample disclosures. ELFA, working closely with our ELFA California DBO Member Workgroup, submitted our second and most recent comments on September 9, 2019.

    Important Reminder - SB 1235 Compliance is Delayed While the DBO Solicits Comments
    An important reminder to all ELFA members, as we alerted you in the past. ELFA has been informed by the DBO that compliance with SB 1235 will not be required through 2021 while the DBO receives comments, drafts regulations and promulgates rules, and compliance will then only be required after final regulations become effective.

    The DBO follows a comprehensive set of requirements that include pre-text and post-text comment periods, and when complete, the formal text will be submitted to the Office of Administrative Law for their approval. The legislation will not become effective until the quarter following their approval.

    Read the Invitation for Comments notice on the Department’s website.

  • 2019 ELFA SB 1235 DBO Comments. On January 21, ELFA submitted comments regarding recently passed California SB 1235 (lender disclosure requirements) to the California Department of Business Oversight (DBO) as invited by the department. Even though ELFA won hard fought exemptions within this legislation, the comments filed seek to provide clarity and our ongoing industry guidance. These comments were created by an ELFA workgroup over a four month period.
  • California | Opposition Testimony for Legislation Seeking Interest Rate Disclosures. In April 2018, ELFA submitted testimony in opposition to California AB 3207 to the California Assembly Committee on Privacy And Consumer Protection. AB 3207 would impose interest rate disclosure requirements on licensed brokers.
  • California | Opposition Testimony for Legislation Seeking to Broaden Definition of a Broker. In May 2018, ELFA submitted opposition testimony for California SB 1235 to the California State Senate Judiciary Committee. The bill would raise the cost of extending credit and chill lending to small commercial customers seeking financing below the ceiling it establishes.

Requests for Guidance


External Resources