California Legislation With ELFA Exemption Signed Into Law

Law Signed by California Governor Would Require Interest Rate Disclosure

California Senate Bill 1235 was signed into law by Gov. Jerry Brown on Sept. 30. The bill passed the Assembly 72-3 and the Senate by a vote of 28-6.

ELFA began working to oppose, kill, amend or render harmless this legislation from the time it was introduced in February. In response to considerable advocacy and education by ELFA, Sen. Steve Glazer (D), the bill sponsor, was convinced to exempt the equipment leasing and finance industry and in doing so made repeated public statements indicating he did not want his bill to apply to equipment leasing. You can hear these comments offered by the sponsor on the Senate floor by visiting: http://bit.ly/2ymPPg9.

Amending this legislation was easier said than done. ELFA went back and forth with the sponsor’s staff attempting to reach agreement on amending language that would provide the industry the protection we desired, and that the sponsor promised. Highlighting this difficulty was the fact that the bill was amended eight times, the last time following 48 hours of tense negotiations between ELFA, the sponsor and the California Department of Business Oversight (DBO) that finally secured a certain level of protection for our industry.

The amending language secured by ELFA highlighted below is not perfect but was considered the very best we could do to protect as many as possible on a bill that showed little chance of being defeated. It also represents considerable movement by the sponsor and DBO to our position. While the California Bankers Association remained neutral on the bill, the National Association of Independent Businesses was in favor of the bill.

ELFA would like to express our sincere appreciation to the ELFA Legislative and Regulatory Subcommittee, whose members spent countless hours during this process providing ELFA analysis and counsel. Specific thanks go to Subcommittee Chairman Mark Kohler of Baker Donelson and Moorari Shah of Buckley Sandler, who stepped up as team leaders available on short notice, provided critically needed technical expertise and joined ELFA state government relations staff during all negotiations.

The following depicts the final ELFA amendment language agreed upon with the sponsor that removed ELFA opposition from SB 1235.

“Lease financing” means providing a lease for goods if the lease includes a purchase option that creates a security interest in the goods leased, as defined in paragraph (35) of subdivision (b) of Section 1201 and Section 1203 of the California Commercial Code.
The definition of lease financing in this Division shall not be construed to repeal or otherwise amend existing law related to the definition of leases and security interests under the California Commercial Code.
The new law will require consumer-like disclosures to be made on certain commercial finance products under $500,000, including small business loans, merchant cash advances and leases with nominal purchase options, among other things. It does not cover true leases. This law takes effect Jan. 1, 2019; however, the DBO is required to adopt regulations addressing details such as the methods of calculation, the format, the time and the manner of the new disclosures. The DBO will specify the date by which finance companies are required to comply. It is unlikely that compliance with the new law will be required before well into 2019.

ELFA has developed a DBO Working Group that will work closely with the DBO to make sure any and all implementing regulations agree with the legislature’s and sponsor’st intent to exempt leasing.

The new law requires that the following be included in qualifying commercial loans (including leases with nominal purchase options):