California Closes In On Extending Borrower Protections To SMBs

California lawmakers are considering legislation that would extend disclosure requirements currently required by consumer lenders to lenders of small business loan products, according to Manatt, Phelps & Phillips, LLP.

The law firm’s online publication, Manatt, reported on California’s Senate Bill 1235, which would require “commercial financing” providers to disclose a variety of information to small business borrowers when they are offered financing. That includes the total amount of fees they would have to pay, total amount of funds and the “estimated annualized cost of capital.”

The publication likened the disclosure requirements to existing rules that require consumer lenders to disclose APRs under the federal Truth in Lending Act and Regulation Z.

According to the article’s authors, Thomas R. McMorrow and Charles E. Washburn, Jr., Senate Bill 1235 is a “first-of-its-kind” bill and could inspire similar legislation in other states.

The bill was cleared by the Senate in May, and is closing in on a vote in the state Assembly. Reports said the legislation targets small- and medium-sized business financing, and would exclude financing offers surpassing $500,000.

California’s small business borrower protection rules coincide with Los Angeles recently amending the Responsible Banking Ordinance to extend requirements among banks that do business with the city to disclose whether they use sales goals or quotas. The amendment includes commercial and investment banks in those requirements.

Reports said Los Angeles’ initiative was in response to a Consumer Financial Protection Bureau (CFPB) warning about sales incentives practices at banks, made infamous recently by Wells Fargo.

“Every Angeleno should be able to share in the opportunities our city creates, and businesses that partner with the city should be held to the highest ethical standards,” said Los Angeles Mayor Eric Garcetti in a statement. “The Responsible Banking Ordinance will help us protect consumers and hold businesses accountable for unscrupulous practices.”