Draft Regulations Released for SB 1235

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. The DBO invited all parties to submit second comments addressing their draft regulations and sample disclosures. ELFA’s initial guidance and comments were filed on Jan. 21, 2019. Working closely with our ELFA California DBO Member Workgroup, ELFA submitted our second and most recent comments on Sept. 9. Those comments can be found on the ELFA website at http://bit.ly/2lPGB9D. Please see the DBO announcement below, along with a summary of CA SB 1235 and ELFA’s protective actions on behalf of the industry.

The July 26 DBO announcement read as follows:

California Department of Business Oversight
Second Invitation for Comments: Commercial Financing Disclosures
In 2018, the State of California passed SB 1235, a bill that requires providers of commercial financing to disclose certain information to the businesses seeking financing. The bill requires the Department of Business Oversight (Department) to adopt regulations governing such disclosures.

On December 4, 2018, the Department invited the public to comment on the substance and form of the disclosures required by SB 1235. The Department has carefully reviewed the comments received from stakeholders and drafted regulations that may be proposed for adoption through the rulemaking process.

At this time, the Department is requesting public comment on the draft regulations and sample disclosures. The deadline to submit comments is September 9, 2019.

Background

California Senate Bill 1235 requires consumer-like disclosures to be made on certain commercial finance products under $500,000, including small business loans and merchant cash advances, and leases with nominal purchase options among other things. As a result of ELFA efforts, SB 1235 does not cover true leases.

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

The total amount of funds provided.
The total dollar cost of the financing.
The term or estimated term.
The method, frequency and amount of payments.
A description of prepayment policies.
The total cost of the financing expressed as an annualized rate.

ELFA Submits Comments to the DBO Regarding California SB 1235

On Jan. 21, 2019, ELFA, as invited by the Commissioner, submitted comments regarding SB 1235 to the California DBO. Even though ELFA won hard-fought exemptions within this legislation, the comments filed sought to provide clarity and our ongoing industry guidance. ELFA’s 14 pages of comments were created by an ELFA workgroup over a four-month period.

SB 1235 Compliance Delayed While the DBO Solicits Comments

We alerted members via our monthly State Legislature Report that ELFA was informed by the DBO that compliance with SB 1235 would not be required through 2019. 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.

ELFA estimates the effective date will not come before mid-2020 at the earliest. ELFA will alert membership when the effective date is confirmed and will work with the DBO to make sure time is allotted prior to any effective date for industry to put in place systems to assist compliance.

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