Watch Out, Small Commercial Lending Might Soon Become A lot More Complicated!

Way back in February, I wrote about a bill, SB 1235, that would impose specific disclosure requirements on persons engaged in the business of commercial financing.  In the ensuing months, the bill was amended eight times, including three amendments in the penultimate week of the legislative session.  On the last day of the session, the legislature passed the bill and its fate is now in the hands of Governor Jerry Brown.

The analysis prepared for the Senate Committee on Banking and Financial Institutions explains the challenge faced by the bill's author:

"The variety of business models and regulatory structures among those who offer commercial financing presents one of the key challenges facing anyone wishing to see all providers of small business financing provide common disclosures. This bill’s author attempts to tackle that challenge without requiring any new entities to become licensed. Instead, he proposes to create a new article within the Financial Code focused only on disclosure and to apply that article to some entities which are currently subject to state licensure (CFL licensees making commercial loans) and to many more entities which are not currently subject to state licensure under the CFL. This bill attempts to skirt the pre-emption issues that typically plague attempts to regulate bank partnership lending models by placing its disclosure requirements on the nondepository partner rather than the bank lender."

If Governor sign gives a green light to the bill, the Department of Business Oversight will be required to adopt implementing regulations.  This will be a big job for the Department and I predict that it will take some time to write and respond to what I expect to be extensive comments.