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California Interest Rate Disclosure Bill Nears Passage. This is the latest version we have as of Monday morning:
Brief Synopsis:
The preamble states:
This bill would
require a provider who facilitates commercial financing to a recipient, as defined, to disclose specified information relating to that transaction to the recipient
at the time of extending a specific offer of commercial financing, and to obtain the recipient's signature on that disclosure before consummating the commercial financing transaction. The bill would require that disclosure to include specified information, including the total amount of funds provided, information related to the payments to be made, and the total dollar cost of the financing. The bill would, until January 1,2024, additionally require a provider to disclose the total cost of financing expressed as an annualized rate.
Note that this Bill is applicable to lenders (and lessors) with a California Finance Lender License. We are concerned that the licensing requirement may be extended to lessors offering true and TRAC leases with fixed price purchase options now or in the near future. Note that the California Department of Business Oversight is apparently behind the bill, which extends the DBO's reach.
(d) (1) "Commercial financing" means an accounts receivable purchase transaction, asset-based lending, commercial loan, or commercial open-end credit-plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes.
(j) (1) "Lease financing" means providing a lease for goods if the lease provides for a
purchase option at a fixed price at the end of the lease term.
In other words, even a true lease with a purchase option price that is not "nominal" and may even be the estimated fair market value IS subject to the disclosure requirements.
(2) Notwithstanding paragraph (1), "lease financing" does
not include leases in which the
lessor selects, manufactures, or supplies the leased goods, unless the lease provides for a purchase option at a fixed price at the end of the lease term and one of the following is met:
(A) The lease was approved before execution by a third party, with the intent that the third party will purchase the leased property or rights to receive lease payments.
(B) The lease was drafted subject to criteria provided or approved by a third party, with the intent that the third party will purchase the leased property or rights to receive lease payments.
(C) A third party's intent to purchase the leased property or rights to receive lease payments shall be presumed if the third party purchases the leased property or rights to receive lease payments.
This is apparently an exclusion for bona fide vendor lease financing without fixed price purchase options.
(a)
A provider subject to this division, ..., shall disclose all of the information in subdivision (b) ... to a
recipient at the time of extending a specific commercial financing offer to that recipient, and shall obtain the recipient's signature on such a disclosure before
consummating the commercial financing transaction.
Read the above carefully. The disclosure is to be made and acknowledged by the customer BEFORE the deal is signed up.
(b) ..... the following:
(1) The total amount of funds provided.
(2) The total dollar cost of the financing.
(3) The term or estimated term.
(4) The method, frequency, and amount of payments.
(5) A description of prepayment policies.
(6) The total cost of the financing expressed as an annualized rate.
Until 1/1/24, APR will be required.
We continue to monitor this situation and we have asked Scott Riehl of ELFA and other members of the committee attempting to modify the legislation before passage for clarification.
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