AB 2116: Commercial financing.
- Session Year: 2025-2026
- House: Assembly
- Latest Version Date: 2026-09-30
Current Status:
Passed
(2026-09-30: Chaptered by Secretary of State - Chapter 823, Statutes of 2026.)
Introduced
In Committee
Awaiting First Chamber Vote
Passed First Chamber
In Committee
Awaiting Second Chamber Vote
Passed Second Chamber
Enacted
What does this bill do?
The bill brings many kinds of business financing — like factoring (accounts receivable purchases), asset‑based loans, commercial loans, open‑end credit plans, and leases — under the California Financing Law and requires commercial financing providers and brokers to be licensed and follow state rules, affecting lenders, brokers, and their small‑business customers. It bars taking a confession of judgment or a power of attorney before a borrower defaults (a confession of judgment lets a lender get a court order without a defense), requires clear rate and fee disclosures and APR reporting, and lets the commissioner enforce bans on unfair, deceptive, or abusive practices.
The summary is provided by generative AI which can make mistakes. For original language, please view the details in the table below.
The California Financing Law (CFL) provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Financial Protection and Innovation, including by regulating the provision of commercial loans, as defined. A willful violation of the CFL is a crime, except as specified.
This bill would, beginning January 1, 2028, generally provide for the regulation under the CFL of commercial financing, which the bill would define to mean an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose, as specified. Beginning July 1, 2028, the bill would prohibit a person from engaging in the business of a commercial financing provider, as defined, or a commercial financing broker, as defined, without obtaining a license from the commissioner, except as specified. The bill would impose various duties on commercial financing providers and commercial financing brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified. The bill would make various conforming changes to the CFL.
Existing law requires a provider of commercial financing to disclose certain information, as specified. Existing law deems certain violations of these provisions to be a violation of the CFL, as specified. The CFL authorizes the commissioner to require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or property owners.
This bill would authorize the commissioner to require that rates of charge be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or recipients.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
The California Financing Law (CFL) provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Financial Protection and Innovation, including by regulating the provision of commercial loans, as defined. A willful violation of the CFL is a crime, except as specified.
This bill would, beginning January 1, 2028, generally provide for the regulation under the CFL of commercial financing, which the bill would define to mean an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose, as specified. Beginning July 1, 2028, the bill would prohibit a person from engaging in the business of a commercial financing provider, as defined, or a commercial financing broker, as defined, without obtaining a license from the commissioner, except as specified. The bill would impose various duties on commercial financing providers and commercial financing brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified. The bill would make various conforming changes to the CFL.
Existing law requires a provider of commercial financing to disclose certain information, as specified. Existing law deems certain violations of these provisions to be a violation of the CFL, as specified. The CFL authorizes the commissioner to require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or property owners.
This bill would authorize the commissioner to require that rates of charge be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or recipients.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
The California Financing Law (CFL) provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Financial Protection and Innovation, including by regulating the provision of commercial loans, as defined. A willful violation of the CFL is a crime, except as specified.
This bill would, beginning January 1, 2028, generally provide for the regulation under the CFL of commercial financing, which the bill would define to mean an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose, as specified. The Beginning July 1, 2028, the bill would prohibit a person from engaging in the business of a commercial financing provider, as defined, or a commercial financing broker, as defined, without obtaining a license from the commissioner, except as specified. The bill would impose various duties on commercial financing providers and commercial financing brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified. The bill would make various conforming changes to the CFL.
Existing law requires a provider of commercial financing to disclose certain information, as specified. Existing law deems certain violations of these provisions to be a violation of the CFL, as specified. The CFL authorizes the commissioner to require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or property owners.
This bill would authorize the commissioner to require that rates of charge be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or recipients.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
The California Financing Law (CFL) provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Financial Protection and Innovation, including by regulating the provision of commercial loans, as defined. A willful violation of the CFL is a crime, except as specified.
This bill would, beginning January 1, 2028, generally provide for the regulation under the CFL of commercial financing, which the bill would define to mean an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose, as specified. The bill would prohibit a person from engaging in the business of a commercial financing provider, as defined, or a commercial financing broker, as defined, without obtaining a license from the commissioner, except as specified. The bill would impose various duties on commercial financing providers and commercial financing brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified. The bill would make various conforming changes to the CFL.
Existing law requires a provider of commercial financing to disclose certain information, as specified. Existing law deems certain violations of these provisions to be a violation of the CFL, as specified. The CFL authorizes the commissioner to require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or property owners.
This bill would authorize the commissioner to require that rates of charge be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or recipients.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
The California Financing Law (CFL) provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Financial Protection and Innovation, including by regulating the provision of commercial loans, as defined. A willful violation of the CFL is a crime, except as specified.
This bill would, beginning January 1, 2028, generally provide for the regulation under the CFL of commercial financing, which the bill would define to mean an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose, as specified. The bill would prohibit a person from engaging in the business of a commercial financing provider, as defined, or a commercial financing broker, as defined, without obtaining a license from the commissioner. commissioner, except as specified. The bill would impose various duties on commercial financing providers and commercial financing brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified. The bill would make various conforming changes to the CFL.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
The California Financing Law (CFL) provides for the licensure and regulation of finance lenders and brokers by the Commissioner of Financial Protection and Innovation, including by regulating the provision of commercial loans, as defined. A willful violation of the CFL is a crime, except as specified.
This bill would, beginning January 1, 2028, generally provide for the regulation under the CFL of commercial financing, which the bill would define to mean an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose, as specified. The bill would prohibit a person from engaging in the business of a commercial financing provider, as defined, or a commercial financing broker, as defined, without obtaining a license from the commissioner. The bill would impose various duties on commercial financing providers and commercial financing brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified. The bill would make various conforming changes to the CFL.
The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.
This bill would provide that no reimbursement is required by this act for a specified reason.
Existing law, the California Consumer Financial Protection Law (CCFPL), establishes certain consumer protections relating to consumer financial products, practices, and services, including, among others, making it unlawful for covered persons or service providers, as defined, to, among other acts, engage in unlawful, unfair, deceptive, or abusive acts or practices with respect to consumer financial products or services. Existing law establishes that the purpose of the CCFPL is to promote consumer welfare, fair competition, and wealth creation in this state by promoting, among other things, nondiscriminatory access to consumer financial products and services that are understandable and not unfair, deceptive, or abusive. Existing law authorizes the Department of Financial Protection and Innovation, under the direction of the Commissioner of Financial Protection and Innovation, to prescribe rules regarding registration requirements applicable to a covered person in the business of offering or providing a consumer financial product or service, as defined, and rules requiring the payment of registration fees.This bill would expand the purposes of the CCFPL to include the protection of small businesses from abusive financial practices, as specified. The bill would require the department to prescribe rules regarding registration requirements applicable to covered persons seeking to offer or provide commercial financing products, as defined and specified. The bill would, commencing January 1, 2028, prohibit a person from engaging in the business of offering to provide or providing commercial financing products without first registering with the commissioner, as specified. The bill would impose various duties on commercial financing providers and brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified. The bill would make various conforming changes.Existing law, the California Consumer Financial Protection Law (CCFPL), establishes certain consumer protections relating to consumer financial products, practices, and services, including, among others, making it unlawful for covered persons or service providers, as defined, to, among other acts, engage in unlawful, unfair, deceptive, or abusive acts or practices with respect to consumer financial products or services. Existing law establishes that the purpose of the CCFPL is to promote consumer welfare, fair competition, and wealth creation in this state by promoting, among other things, nondiscriminatory access to consumer financial products and services that are understandable and not unfair, deceptive, or abusive. Existing law authorizes the Department of Financial Protection and Innovation, under the direction of the Commissioner of Financial Protection and Innovation, to prescribe rules regarding registration requirements applicable to a covered person in the business of offering or providing a consumer financial product or service, as defined, and rules requiring the payment of registration fees.
This bill would expand the purposes of the CCFPL to include the protection of small businesses from abusive financial practices, as specified. The bill would require the department to prescribe rules regarding registration requirements applicable to covered persons seeking to offer or provide commercial financing products, as defined and specified. The bill would, commencing January 1, 2028, prohibit a person from engaging in the business of offering to provide or providing commercial financing products without first registering with the commissioner, as specified. The bill would impose various duties on commercial financing providers and brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified. The bill would make various conforming changes.
Existing law, the California Consumer Financial Protection Law (CCFPL), establishes certain consumer protections relating to consumer financial products, practices, and services, including, among others, making it unlawful for covered persons or service providers, as defined, to, among other acts, engage in unlawful, unfair, deceptive, or abusive acts or practices with respect to consumer financial products or services. Existing law establishes that the purpose of the CCFPL is to promote consumer welfare, fair competition, and wealth creation in this state by promoting, among other things, nondiscriminatory access to consumer financial products and services that are understandable and not unfair, deceptive, or abusive. Existing law authorizes the Department of Financial Protection and Innovation, under the direction of the Commissioner of Financial Protection and Innovation, to prescribe rules regarding registration requirements applicable to a covered person in the business of offering or providing a consumer financial product or service, as defined, and rules requiring the payment of registration fees.
This bill would expand the purposes of the CCFPL to include the protection of small businesses from abusive financial practices, as specified. The bill would require the department to prescribe rules regarding registration requirements applicable to covered persons seeking to offer or provide commercial financing products, as defined and specified. The bill would, commencing January 1, 2028, prohibit a person from engaging in the business of offering to provide or providing commercial financing products without first registering with the commissioner, as specified. The bill would impose various duties on commercial financing providers and brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified. The bill would make various conforming changes.
(a)This division shall be liberally construed and applied to promote its underlying purposes and policies, which are:
(1)To ensure an adequate supply of credit to borrowers in this state.
(2)To simplify, clarify, and modernize the law governing loans made by finance lenders.
(3)To foster competition among finance lenders.
(4)To protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders.
(5)To permit and encourage the development of fair and economically sound lending practices.
(6)To encourage and foster a sound economic climate in this state.
(7)To protect property owners from deceptive and misleading practices that threaten the efficacy and viability of property assessed clean energy financing programs.
(8)To protect small businesses against unfair practices by some commercial financing providers, having due regard for the interest of legitimate and scrupulous commercial financing providers.
(b)Consumer loans, as defined in Sections 22203 and 22204, are subject to this chapter, Chapter 2 (commencing with Section 22200), Article 1 (commencing with Section 22700) of Chapter 4, and Article 2 (commencing with Section 22750) of Chapter 4.
(c)Commercial loans, as defined in Section 22502, are subject to this chapter, Chapter 3 (commencing with Section 22500), Article 1 (commencing with Section 22700) of Chapter 4, and Article 3 (commencing with Section 22780) of Chapter 4.
(d)A program administrator, as defined in Section 22018, is subject to this chapter, Chapter 3.5 (commencing with Section 22680), and Article 1 (commencing with Section 22700) of Chapter 4.
(e)Commercial financing, as defined in Section 22655, is subject to this chapter, Chapter 3.1 (commencing with Section 22655), and Article 1 (commencing with Section 22700) and Article 3 (commencing with Section 22780) of Chapter 4.
(f)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 2.Section 22002 of the Financial Code is amended to read:22002.(a)To accomplish its underlying purposes and policies, this division creates a class of exempt persons pursuant to Section 1 of Article XV of the California Constitution. The class of exempt persons includes any person licensed under this division.
(b)(1)It is the intent of the Legislature to preserve existing exemptions under Section 1 of Article XV of the California Constitution and statutory law for all of the following:
(A)Personal property brokers formerly regulated by the Personal Property Brokers Law.
(B)Lenders formerly regulated by the Consumer Finance Lenders Law.
(C)Lenders formerly regulated by the Commercial Finance Lenders Law.
(2)No finding that any provision of this division is invalid with respect to a particular lender or class of lenders shall affect the enforceability of this division with respect to any of the classifications of lenders described in paragraph (1), which shall in all events continue to be exempted by this division.
SEC. 3.Section 22007 of the Financial Code is amended to read:22007.(a)Licensee means any finance lender, broker, commercial financing provider, commercial financing broker, or program administrator who receives a license in accordance with this division.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 4.Section 22010 of the Financial Code is amended to read:22010.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator do not include employees regularly employed at the location specified in the license of the finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, except that an employee, when acting within the scope of the employees employment, shall be exempt from any other law from which the employees employer is exempt.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 5.Section 22021 is added to the Financial Code, to read:22021.(a)Except in Sections 22064 and 22687, recipient has the same meaning as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 6.Section 22022 is added to the Financial Code, to read:22022.(a)Commercial financing and commercial financing provider have the same meanings as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 7.Section 22100.6 is added to the Financial Code, to read:22100.6.(a)A person shall not engage in the business of a commercial financing provider or a commercial financing broker without obtaining a license from the commissioner.
(b)Notwithstanding subdivision (a), a person may engage in the business of a commercial financing provider or a commercial financing broker if the person submits a complete application on or before July 1, 2028, and is awaiting approval or denial of the application.
(c)This section shall become operative on July 1, 2028.
SEC. 8.Section 22101 of the Financial Code is amended to read:22101.(a)An application for a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall be in the form and contain the information that the commissioner may by rule or order require and shall be filed upon payment of the fee specified in Section 22103.
(b)Notwithstanding any other law, an applicant who does not currently hold a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall furnish, with their application, a full set of fingerprints and related information for purposes of the commissioner conducting a criminal history record check. The commissioner shall obtain and receive criminal history information from the Department of Justice and the Federal Bureau of Investigation pursuant to Section 22101.5.
(c)This section does not prevent a licensee from engaging in the business of a finance lender or program administrator through a subsidiary corporation if the subsidiary corporation is licensed pursuant to this division.
(d)For purposes of this section, subsidiary corporation means a corporation that is wholly owned by a licensee.
(e)A new application shall not be required for a change in the address of an existing location previously licensed under this division. However, the licensee shall comply with the requirements of Section 22153.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require an application to be made through the Nationwide Mortgage Licensing System and Registry, and may require fees, fingerprints, financial statements, supporting documents, changes of address, and any other information, and amendments or modifications thereto, to be submitted in the same manner.
(g)Notwithstanding any other law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. This section does not require the commissioner to accept electronic records or electronic signatures.
(h)For purposes of this section, the following terms have the following meanings:
(1)Electronic record means an initial license application, or material modification of that license application, and any other record created, generated, sent, communicated, received, or stored by electronic means. Electronic records also includes, but is not limited to, all of the following:
(A)An application, amendment, supplement, and exhibit, filed for any license, consent, or other authority.
(B)A financial statement, a report, or advertising.
(C)An order, license, consent, or other authority.
(D)A notice of public hearing, accusation, and statement of issues in connection with any application, license, consent, or other authority.
(E)A proposed decision of a hearing officer and a decision of the commissioner.
(F)The transcripts of a hearing and correspondence between a party and the commissioner directly relating to the record.
(G)A release, newsletter, interpretive opinion, determination, or specific ruling.
(H)Correspondence between a party and the commissioner directly relating to any document listed in subparagraphs (A) to (G), inclusive.
(2)Electronic signature means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.
(i)The Legislature finds and declares that the Department of Financial Protection and Innovation has continuously implemented methods to accept records filed electronically, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal.
(j)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 9.Section 22101.5 of the Financial Code is amended to read:22101.5.(a)The commissioner shall submit to the Department of Justice fingerprint images and related information required by the Department of Justice of all finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license candidates, as defined by subdivision (a) of Section 22101, for purposes of obtaining information as to the existence and content of a record of state or federal convictions, state or federal arrests, and information as to the existence and content of a record of state or federal arrests for which the Department of Justice establishes that the person is free on bail or on the persons own recognizance pending trial or appeal.
(b)When received, the Department of Justice shall forward to the Federal Bureau of Investigation requests for federal summary criminal history information received pursuant to this section. The Department of Justice shall review the information returned from the Federal Bureau of Investigation and compile and disseminate a response to the commissioner.
(c)The Department of Justice shall provide a response to the commissioner pursuant to paragraph (1) of subdivision (p) of Section 11105 of the Penal Code.
(d)The commissioner shall request from the Department of Justice subsequent arrest notification service, as provided pursuant to Section 11105.2 of the Penal Code, for license candidates described in subdivision (a).
(e)The Department of Justice shall charge a fee sufficient to cover the costs of processing the requests pursuant to this section.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require fingerprints submitted by an applicant to be submitted to the Nationwide Mortgage Licensing System and Registry in addition to the Department of Justice.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 10.Section 22102 of the Financial Code is amended to read:22102.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeking to engage in business at a new location shall submit an application for a branch office license to the commissioner at least 10 days before engaging in business at a new location and pay the fee required by Section 22103. The commissioner may require an applicant seeking to engage in business at a new location to submit its application, or parts thereof, through the Nationwide Mortgage Licensing System and Registry.
(b)The licensee may engage in business at the new location 10 days after the date of submission of a branch office application.
(c)(1)The commissioner shall approve or deny the person responsible for the lending or financing activity at the new location in accordance with Section 22109, and shall notify the licensee of this decision within 90 days of the date of receipt of the application.
(2)If the commissioner denies the application, the licensee shall, within 10 days of the date of receipt of notification of the commissioners denial, submit a new application to the commissioner designating a different person responsible for the lending or financing activity at the new location. The commissioner shall approve or deny the different person as provided in paragraph (1).
(d)A licensee shall not engage in business at a new location in a name other than a name approved by the commissioner.
(e)The commissioner may adopt regulations to implement the requirements of this section.
(f)A branch office license to engage in business at a new location shall be issued in accordance with this section. A change of street address of a place of business designated in a license shall be made in accordance with Section 22153 and shall not constitute a new location subject to the requirements of this section.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 11.Section 22103 of the Financial Code is amended to read:22103.(a)At the time of filing the application for a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or branch office license, the applicant shall pay to the commissioner the sum of one hundred dollars ($100) as a fee for investigating the application, plus the cost of fingerprint processing and the criminal history record check under Section 22101.5, and two hundred dollars ($200) as an application fee. The investigation fee, including the amount for the criminal history record check, and the application fee are not refundable if an application is denied or withdrawn.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 12.Section 22104 of the Financial Code is amended to read:22104.(a)The applicant shall file with the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license financial statements prepared in accordance with generally accepted accounting principles and acceptable to the commissioner that indicate a net worth of at least twenty-five thousand dollars ($25,000). Except as provided in subdivisions (b) and (c), a licensee shall maintain a net worth of at least twenty-five thousand dollars ($25,000) at all times.
(b)A licensed finance lender or broker, that employs one or more mortgage loan originators and that makes residential mortgage loans, shall continuously maintain a minimum net worth of at least two hundred fifty thousand dollars ($250,000).
(c)A licensed finance broker, that employs one or more mortgage loan originators and that arranges, but does not make, residential mortgage loans, shall continuously maintain a minimum net worth of at least fifty thousand dollars ($50,000).
(d)The commissioner may promulgate rules or regulations with respect to the requirements for minimum net worth, as are necessary to accomplish the purposes of this division and comply with the SAFE Act.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 13.Section 22105 of the Financial Code is amended to read:22105.(a)Upon the filing of an application pursuant to Section 22101 and the payment of the fees, the commissioner shall investigate the applicant and its general partners and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or any person responsible for the conduct of the applicants lending, financing, or program administration activities in this state, if the applicant is a partnership. If the applicant is a corporation, trust, limited liability company, or association, including an unincorporated organization, the commissioner shall investigate the applicant, its principal officers, directors, managing members, and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding equity securities or any person responsible for the conduct of the applicants lending or financing activities or for administering PACE programs for the applicant in this state. Upon the filing of an application pursuant to Section 22102 and the payment of the fees, the commissioner shall investigate the person responsible for the lending or financing activity of the licensee, or for administering one or more PACE programs for the licensee, at the new location described in the application. The investigation may be limited to information that was not included in prior applications filed pursuant to this division. If the commissioner determines that the applicant has satisfied this division and does not find facts constituting reasons for denial under Section 22109, the commissioner shall issue and deliver a license to the applicant.
(b)For the purposes of this section, principal officers shall mean president, chief executive officer, treasurer, and chief financial officer, as may be applicable, and any other officer with direct responsibility for the conduct of the applicants lending or financing activities or for PACE program administration for the applicant within the state.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 14.Section 22106 of the Financial Code is amended to read:22106.(a)The finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license shall state the name of the licensee, and if the licensee is a partnership, the names of its general partners, and if a corporation or an association, the date and place of its incorporation or organization, and the address of the licensees principal business location. On the approval and licensing of a location pursuant to Section 22101 or 22102, the commissioner shall issue an original license endorsed to show the address of the authorized location and, if applicable, the name of the subsidiary corporation licensed to operate the location. The license shall state whether the licensee is licensed as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator.
(b)(1)An application for a license for a business location outside this state shall constitute an agreement by the applicant to do all of the following:
(A)Make the licensees books, accounts, papers, records, and files available to the commissioner or the commissioners representatives in this state.
(B)Pay the reasonable expenses for travel, meals, and lodging of the commissioner or the commissioners representatives incurred during any investigation or examination made at the licensees location outside this state.
(2)A licensee located outside this state is not required to maintain books and records regarding licensed loans or licensed commercial financing transactions separate from those for other loans or other commercial financing transactions if the licensed loans or licensed commercial financing transactions can be readily identified.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 15.Section 22107 of the Financial Code is amended to read:22107.(a)Each finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee shall pay to the commissioner its pro rata share of all costs and expenses, including the costs and expenses associated with the licensing of mortgage loan originators it employs, reasonably incurred in the administration of this division, as estimated by the commissioner, for the ensuing year and any deficit actually incurred or anticipated in the administration of the program in the year in which the assessment is made. The pro rata share shall be the proportion that a licensees gross income bears to the aggregate gross income of all licensees as shown by the annual financial reports to the commissioner, for the costs and expenses remaining after the amount assessed pursuant to subdivision (c).
(b)On or before September 30 in each year, the commissioner shall notify each licensee of the amount assessed and levied against it and that amount shall be paid by October 31. If payment is not made by October 31, the commissioner shall assess and collect a penalty, in addition to the assessment, of 1 percent of the assessment for each month or part of a month that the payment is delayed or withheld.
(c)In the levying and collection of the assessment, a licensee shall neither be assessed for nor be permitted to pay less than two hundred fifty dollars ($250) per licensed location per year.
(d)If a licensee fails to pay the assessment on or before October 31, the commissioner may by order summarily suspend or revoke the certificate issued to the licensee. If, after an order is made, a request for a hearing is filed in writing within 30 days, and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when its certificate is revoked or suspended, a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee and any mortgage loan originator licensee employed by the finance lender or broker shall not conduct business pursuant to this division except as may be permitted by order of the commissioner. However, the revocation, suspension, or surrender of a certificate shall not affect the powers of the commissioner as provided in this division.
(e)The commissioner shall, by rule, establish the timelines, fees, and assessments applicable to applicants for original mortgage loan originator licenses, license renewals, and license changes under this division.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require licensees to pay assessments through the Nationwide Mortgage Licensing System and Registry.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 16.Section 22109 of the Financial Code is amended to read:22109.(a)Upon reasonable notice and opportunity to be heard, the commissioner may deny the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license for any of the following reasons:
(1)A false statement of a material fact has been made in the application.
(2)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has, within the last 10 years, been convicted of or pleaded nolo contendere to a crime, or committed an act involving dishonesty, fraud, or deceit, if the crime or act is substantially related to the qualifications, functions, or duties of a person engaged in business in accordance with this division.
(3)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has violated any provision of this division or the rules thereunder or any similar regulatory scheme of the State of California or a foreign jurisdiction.
(4)The applicant employs a mortgage loan originator who is not licensed, or has not initiated an application to become licensed, pursuant to this division.
(b)The application shall be considered withdrawn within the meaning of this section if the applicant fails to respond to a written notification of a deficiency in the application within 90 days of the date of the notification.
(c)The commissioner shall, within 60 days from the filing of a full and complete application for a license with the fees, either issue a license or file a statement of issues prepared in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 17.Section 22112 of the Financial Code is amended to read:22112.(a)A licensee shall maintain a surety bond in accordance with this subdivision in a minimum amount of twenty-five thousand dollars ($25,000). The bond shall be payable to the commissioner and issued by an insurer authorized to do business in this state. An original surety bond, including any and all riders and endorsements executed subsequent to the effective date of the bond, shall be filed with the commissioner within 10 days of execution. For licensees with multiple licensed locations, only one surety bond is required. The bond shall be used for the recovery of expenses, fines, and fees levied by the commissioner in accordance with this division or for losses or damages incurred by borrowers, recipients, or consumers as the result of a licensees noncompliance with the requirements of this division.
(b)When an action is commenced on a licensees bond, the commissioner may require the filing of a new bond. Immediately upon recovery of any action on the bond, the licensee shall file a new bond. Failure to file a new bond within 10 days of the recovery on a bond, or within 10 days after notification by the commissioner that a new bond is required, constitutes sufficient grounds for the suspension or revocation of the license.
(c)The commissioner may by rule require a higher bond amount for a licensee who employs one or more mortgage loan originators and who makes or arranges residential mortgage loans, based on the dollar amount of residential mortgage loans originated by that licensee and any mortgage loan originators employed by that licensee. Every mortgage loan originator employed by the licensee shall be covered by the surety bond.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 18.Section 22151 of the Financial Code is amended to read:22151.(a)A finance lender license, broker license, commercial financing provider license, commercial financing broker license, program administrator license, and the license of every mortgage loan originator employed by a lender or finance broker, along with any currently effective order of the commissioner approving a different name pursuant to Section 22155, shall be conspicuously posted in the place of business authorized by the license.
(b)A license is not transferable or assignable. A license issued to a partnership or a limited partnership is not transferred or assigned within the meaning of this section by the death, withdrawal, or admission of a partner, general partner, or limited partner, unless the death, withdrawal, or admission dissolves the partnership to which the license was issued.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 19.Section 22153 of the Financial Code is amended to read:22153.(a)If a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeks to change its place of business to a street address other than that designated in its license, the licensee shall provide notice to the commissioner at least 10 days before the change. The commissioner shall notify the licensee within 10 days if the commissioner disapproves the change, and if the commissioner does not notify the licensee of disapproval within 10 days, the change in address shall be deemed approved. The commissioner may require an applicant to submit its application to change its place of business through the Nationwide Mortgage Licensing System and Registry.
(b)If notice is not given at least 10 days before the change of a street address of a place of business, as required by subdivision (a), or notice is not given at least 10 days before engaging in business at a new location, as required by Section 22102, the commissioner may assess a civil or administrative penalty on the licensee not to exceed five hundred dollars ($500).
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 20.Section 22156 of the Financial Code is amended to read:22156.(a)Finance lender, broker, commercial financing provider, commercial financing broker, program administrator, and mortgage loan originator licensees shall keep and use in their business, books, accounts, and records which will enable the commissioner to determine if the licensee is complying with the provisions of this division and with the rules and regulations made by the commissioner. On any loan secured by real property in which loan proceeds were disbursed to an independent escrowholder, the licensee shall retain records and documents as set forth by rules of the commissioner adopted pursuant to Section 22150. Upon request of the commissioner, licensees shall file an authorization for disclosure to the commissioner of financial records of the licensed business pursuant to Section 7473 of the Government Code.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 21.Section 22157 of the Financial Code is amended to read:22157.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and mortgage loan originator licensees shall preserve their books, accounts, and records, if any, for at least three years after making the final entry on any loan or commercial financing transaction recorded therein.
(b)Except as otherwise specified by applicable law, including paragraph (3) of subdivision (b) of Section 5913 of the Streets and Highways Code, program administrator licensees shall preserve their books, accounts, and records for at least three years after the extinguishment of a PACE assessment is recorded therein.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 22.Section 22157.1 of the Financial Code is amended to read:22157.1.(a)For purposes of this section:
(1)Encrypted has the same meaning as provided in paragraph (4) of subdivision (i) of Section 1798.82 of the Civil Code.
(2)Remote location means a personal residence or a temporary, nonpublic location not owned or leased by the licensee or an affiliate of the licensee that is not simultaneously accessible by anyone other than a single employee and individuals who maintain a common household with the employee.
(b)A licensee may designate an employee, when acting within the scope of employment, to perform work on the licensees behalf at a remote location if the licensee does all of the following:
(1)Prohibits in-person consumer interactions, including the physical receipt of cash or other monetary value or the disbursement of loan or commercial financing transaction proceeds, at a remote location and does not designate a remote location to the public as a business location.
(2)Prohibits records required pursuant to Section 22156 from being physically mailed to, shipped to, or stored at a remote location except for storage on an encrypted device or encrypted media.
(3)Prohibits the physical receipt of mail related to the licensees licensed business at a remote location.
(4)Prohibits a consumers personal information from being physically stored at a remote location except for storage on an encrypted device or encrypted media.
(5)Provides an employee working at a remote location with appropriate equipment, which may include encrypted devices, virtual private networks, and similar technology, to perform work and safeguard licensee records and consumer personal information.
(6)Adopts and adheres to appropriate, as determined by the department, written policies and procedures to supervise and maintain appropriate control over the work of employees at remote locations and safeguard the licensees records and consumer personal information in connection with work at a remote location, including, but not limited to, all of the following elements:
(A)Employee data security training.
(B)Maintenance of security logs of remote logins.
(C)Procedures designed to detect suspicious logins or attempted logins and to suspend access by potentially compromised accounts or equipment.
(D)Data breach response procedures.
(7)(A)Records telephone calls with consumers conducted from a remote location to the same extent as telephone calls with consumers conducted from licensed locations.
(B)This paragraph does not require telephone call recording if the licensee does not do so in the normal course of business for the employee or business in question.
(8)All books, records, and persons that the commissioner is entitled to examine, inspect, or interview shall be made available to the commissioner at a licensed location.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 23.Section 22159 of the Financial Code is amended to read:22159.(a)(1)Each finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licensee shall file an annual report with the commissioner, on or before March 15, giving the relevant information that the commissioner reasonably requires concerning the business and operations conducted by the licensee or authorized by the program administrator licensee within the state during the preceding calendar year for each licensed place of business. The individual annual reports filed pursuant to this section shall be made available to the public for inspection except, upon request in the annual report to the commissioner, the balance sheet contained in the annual report of a sole proprietor or any other nonpublicly traded person. The report shall be made under oath and in the form prescribed by the commissioner.
(2)As used in this subdivision, nonpublicly traded person means a person with securities owned by 35 or fewer individuals.
(b)A licensee shall make other special reports required by the commissioner.
(c)The commissioner may require a licensee that employs one or more mortgage loan originators to submit to the Nationwide Mortgage Licensing System and Registry reports of condition, which shall be in the form and shall contain the information as the Nationwide Mortgage Licensing System and Registry may require.
(d)The commissioner may by rule or order require a mortgage loan originator to submit reports of condition to the Nationwide Mortgage Licensing System and Registry, in lieu of the reports of condition required of the mortgage loan originators employer pursuant to subdivision (c).
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 24.Section 22161 of the Financial Code is amended to read:22161.(a)A person subject to this division shall not do any of the following:
(1)Make a materially false or misleading statement or representation to a borrower or recipient about the terms or conditions of that borrowers loan or that recipients commercial financing transaction when making or brokering the loan or commercial financing transaction.
(2)Make a materially false or misleading statement or representation to a property owner about the terms or conditions of an assessment contract.
(3)Advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast in any manner, any statement or representation with regard to the business subject to the provisions of this division, including the rates, terms, or conditions for making or negotiating loans, making or negotiating commercial financing transactions, or for making or negotiating assessment contracts, that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements not false, misleading, or deceptive, or in the case of a licensee, that refers to the supervision of the business by the state or any department or official of the state.
(4)Commit an act in violation of Section 1695.13 of the Civil Code.
(5)Engage in any act in violation of Section 17200 of the Business and Professions Code.
(6)Knowingly misrepresent, circumvent, or conceal, through subterfuge or device, any material aspect or information regarding a transaction to which the person is a party.
(7)Commit an act that constitutes fraud or dishonest dealings.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 25.Section 22162 of the Financial Code is amended to read:22162.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or mortgage loan originator licensee shall not place an advertisement disseminated primarily in this state for a loan or commercial financing transaction unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the loan or commercial financing transaction would be made or arranged.
(b)A program administrator licensee shall not place an advertisement disseminated primarily in this state for an assessment contract unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the assessment contract would be administered.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 26.Section 22164 of the Financial Code is amended to read:22164.(a)If any person engaged in the business regulated by this division refers in any advertising to rates of interest, charges, or cost of loans, commercial financing transactions, or assessment contracts, the commissioner shall require that the rates, charges, or costs are stated fully and clearly in the manner that the commissioner deems necessary to give adequate information to prospective borrowers or property owners. If the rates or costs advertised do not apply to loans or assessment contracts of all classes made or negotiated by the person, this fact shall be clearly indicated in the advertisement.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 27.Section 22167.1 is added to the Financial Code, to read:22167.1.(a)A licensed commercial financing provider may act as a commercial financing broker at its licensed place of business without obtaining an additional license as a commercial financing broker under this division only if the licensee has notified the commissioner of the action in writing.
(b)This section shall become operative on January 1, 2028.
SEC. 28.Section 22168 of the Financial Code is amended to read:22168.(a)The commissioner may, after appropriate notice and opportunity for hearing, suspend for a period not to exceed 12 months or bar a person from any position of employment with a licensee if the commissioner finds that the person has willfully used or claimed without authority a designation or certification of special education, practice, or skill that the person has not attained, or willfully held out to the public a confusingly similar designation or certification for the purpose of misleading the public regarding the persons qualifications or experience.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receiving a request, the matter shall be set for hearing to commence within 30 days after receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of the notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to subdivision (a), the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under this division.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting its business. This subdivision does not prohibit suspended or barred persons from having their personal transactions processed by a licensed finance lender, broker, commercial financing provider, commercial financing broker, mortgage loan originator, or program administrator.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 29.Section 22169 of the Financial Code is amended to read:22169.(a)The commissioner may, after appropriate notice and opportunity for hearing, by order, censure or suspend for a period not exceeding 12 months, or bar a person, including a mortgage loan originator, from any position of employment with, or management or control of, any finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or any other person, if the commissioner finds either of the following:
(1)That the censure, suspension, or bar is in the public interest and that the person has committed or caused a violation of this division or rule or order of the commissioner, which violation was either known or should have been known by the person committing or causing it or has caused material damage to the finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, or to the public.
(2)That the person has been convicted of or pleaded nolo contendere to any crime, or has been held liable in any civil action by final judgment, or any administrative judgment by any public agency, if that crime or civil or administrative judgment involved any offense involving dishonesty, fraud, or deceit, or any other offense reasonably related to the qualifications, functions, or duties of a person engaged in the business in accordance with the provisions of this division.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receipt of a request, the matter shall be set for hearing to commence within 30 days after such receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of such notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to this section, the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under the law.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting business.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 30.Chapter 3.1 (commencing with Section 22655) is added to Division 9 of the Financial Code, to read:3.1.Commercial Financing for Small Businesses1.Definitions22655.As used in this chapter:
(a)Accounts receivable purchase transaction has the same meaning as defined in Section 22800.
(b)Annual percentage rate or APR means an annualized rate calculated pursuant to Subchapter 3 (commencing with Section 900) of Chapter 3 of Title 10 of the California Code of Regulations.
(c)Asset-based lending transaction has the same meaning as defined in Section 22800.
(d)(1)Charge includes the aggregate interest, fees, bonuses, commissions, brokerage, discounts, expenses, and other forms of costs charged, contracted for, or received by a licensee or any other person in connection with the investigating, arranging, negotiating, procuring, guaranteeing, making, servicing, collecting, and enforcing of a commercial financing transaction or forbearance of money, credit, goods, or things in action, or any other service rendered.
(2)Charge includes a profit or advantage of any kind that a licensee may contract for, collect, receive, or obtain by a collateral sale, purchase, or agreement, in connection with negotiating, arranging, making, or otherwise in connection with any commercial financing transaction.
(e)(1)Commercial financing means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose.
(2)For purposes of determining the primary purpose of the financing within the meaning of this subdivision, the provider may rely on any written statement of intended purposes signed by the recipient. The statement may be a separate statement signed by the recipient or may be contained in a loan application or other document signed by the recipient. The provider is not required to ascertain that the proceeds of the financing are used in accordance with the statement of intended purposes.
(f)(1)Commercial financing broker means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider:
(A)Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
(B)Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
(C)Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
(D)Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipients sensitive data.
(E)(i)Subject to clause (ii), participating in the preparation of commercial financing documents, including, but not limited to, commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.
(ii)Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
(F)Communicating to a prospective recipient a commercial financing providers commercial financing approval decisions.
(G)Charging a fee to a prospective recipient for services related to a prospective recipients application for a commercial financing transaction from a commercial financing provider.
(2)Notwithstanding paragraph (1), a person is not a commercial financing broker solely because they take any of the following actions:
(A)Perform support tasks, including, but not limited to, typing, word processing, data entry, filing, billing, answering telephone calls, taking and receiving messages, and scheduling, in support of the performance by a broker of any of the activities described in subparagraphs (E) to (G), inclusive, of paragraph (1).
(B)Furnish a consumer report to a licensee by a consumer reporting agency in accordance with subsection (a) or (c) of Section 1681b of Title 15 of the United States Code.
(C)Furnish a consumer credit report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with subdivision (a) or paragraph (1) of subdivision (b) of Section 1785.11 of the Civil Code.
(D)Furnish a prequalifying report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with paragraph (2) of subdivision (b) of Section 1785.11 of the Civil Code.
(E)Distribute or disseminate to a prospective recipient of a providers marketing materials or factual information about the provider, its lending activities, or its loan products, including, but not limited to, the providers interest rates, the providers minimum or maximum loan amounts or loan periods, or a general description of the providers underwriting criteria.
(g)Commercial financing provider means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.
The fact that a commercial financing provider extended a specific offer of commercial financing on behalf of a depository institution shall not be construed to mean that the commercial financing provider engaged in, or originated, that financing.
(h)Commercial loan has the same meaning as defined in Section 22502.
(i)Commercial open-end credit plan has the same meaning as defined in Section 22800.
(j)Factoring has the same meaning as defined in Section 22800.
(k)Lease financing has the same meaning as defined in Section 22800.
(l)Recipient means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than five hundred thousand dollars ($500,000).
(m)Referral means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipients contact information to a commercial financing provider, for the purpose of making an introduction.
(n)Sensitive data means any of the following:
(1)A bank account number.
(2)A bank statement.
(3)A credit or debit card account number.
(4)A credit score, as defined in Section 1785.15.1 of the Civil Code.
(5)All of, or a portion of, a social security number.
(6)Personal or business income information, including information self-reported by the person.
(7)A taxpayer or employer identification number.
(o)(1)Small business means a business entity organized for profit with annual gross receipts of no more than sixteen million dollars ($16,000,000) or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Section 14837 of the Government Code, whichever is greater.
(2)For purposes of determining a business entitys annual gross receipts, a licensee may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing.
2.Exemptions22656.This chapter does not apply to any of the following:
(a)A commercial financing provider that is a lender regulated under Chapter 23 (commencing with Section 2001) of Title 12 of the United States Code.
(b)A commercial financing transaction secured by real property.
(c)A commercial financing transaction in which the recipient is either of the following:
(1)A dealer, as defined in Section 285 of the Vehicle Code, or an affiliate of a dealer.
(2)A vehicle rental company, or an affiliate of a vehicle rental company, pursuant to a specific commercial financing offer or commercial open-end credit plan of at least fifty thousand dollars ($50,000), including a commercial loan made pursuant to that commercial financing transaction.
(d)A person who makes one or fewer commercial financing transactions in the state in a 12-month period.
(e)A person who makes five or fewer commercial financing transactions in the state in a 12-month period that are incidental to the business of the person relying upon the exemption.
22657.Sections 22152, 22154, and 22155 do not apply to a commercial financing transaction or to a licensed commercial financing provider or licensed commercial financing broker in connection with any commercial financing transaction.
3.Regulations22658.A commercial financing agreement is not enforceable unless any of the following requirements is met:
(a)The person providing the commercial financing transaction is a licensed commercial financing provider.
(b)The person providing the commercial financing transaction has submitted a complete application and is awaiting approval or denial pursuant to subdivision (b) of Section 22100.6.
(c)The commercial financing transaction was entered into prior to January 1, 2028.
22659.(a)A commercial financing provider or a commercial financing broker shall not take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
(b)A commercial financing transaction found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of this division and subject to the remedies specified in this division.
(c)A commercial financing provider or a commercial financing broker shall not include a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipients business activities with the commercial financing provider, including, but not limited to, terms or conditions of a product or service offered by the commercial financing provider.
(d)A commercial financing broker shall clearly and conspicuously display on their internet website the average and maximum annual percentage rates for the commercial financing transactions facilitated by them in the most recent calendar year.
22660.(a)For purposes of this section:
(1)Amount financed has the same meaning as defined in Section 900 of Title 10 of the California Code of Regulations.
(2)Type of commercial financing means the types of commercial financing listed in subdivision (a) of Section 917 of Title 10 of the California Code of Regulations.
(b)Except as provided in subdivision (c) or (d), on or before March 15 of each year, beginning in 2029, a commercial financing provider shall file electronically through the departments internet website a report verified by an authorized officer containing all of the following information for activity during the preceding calendar year:
(1)The commercial financing providers identifying and contact information, including name, any fictitious business names, entity type, mailing address, telephone number, email address, internet website address, and designated contact person.
(2)By type of commercial financing, the total number of commercial financing transactions and total dollar amount financed with recipients.
(3)By type of commercial financing, the number of commercial financing transactions with recipients for each of the following amounts financed:
(A)Ten thousand dollars ($10,000) or less.
(B)Over ten thousand dollars ($10,000) but not over twenty-five thousand dollars ($25,000).
(C)Over twenty-five thousand dollars ($25,000) but not over fifty thousand dollars ($50,000).
(D)Over fifty thousand dollars ($50,000) but not over one hundred thousand dollars ($100,000).
(E)Over one hundred thousand dollars ($100,000) but not over two hundred fifty thousand dollars ($250,000).
(F)Over two hundred fifty thousand dollars ($250,000) but not over five hundred thousand dollars ($500,000).
(4)(A)Except as provided in subparagraph (B), by type of commercial financing and for each interval described in paragraph (3), the minimum, maximum, average, and median annual percentage rate disclosed in disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations.
(B)For a given type of commercial financing and interval, if the commercial financing provider did not provide any disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations, the commercial financing provider shall indicate that on the report and is not required to calculate or report that information.
(c)A commercial financing provider shall not include in the report required by subdivision (a) information for commercial loan activity conducted under the authority of Chapter 1 (commencing with Section 22000) or Chapter 3 (commencing with Section 22500).
(d)For purposes of this section, if a commercial financing does not meet any of the types of commercial financing, the commercial financing provider shall include the transaction as an other type.
22661.(a)It is unlawful for a commercial financing provider or commercial financing broker to engage or have engaged in any unlawful, unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or commercial financing brokering services to a recipient.
(b)For purposes of subdivision (a), an act or practice is unfair if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice causes or is likely to cause substantial injury to recipients.
(B)The injury is not reasonably avoidable by recipients.
(C)The injury is not outweighed by countervailing benefits to recipients or to competition.
(2)It is unfair in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(c)For purposes of subdivision (a), an act or practice, including, but not limited to, a representation or an omission, is deceptive if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice misleads or is likely to mislead the recipient.
(B)The recipients interpretation of the act or practice is reasonable under the circumstances.
(C)The act or practice is material.
(2)It is deceptive in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(d)For purposes of subdivision (a) an act or practice is abusive if either of the following conditions is met:
(1)It materially interferes with the ability of a recipient to understand a term or condition of commercial financing or commercial financing brokering services.
(2)It takes unreasonable advantage of any of the following:
(A)A lack of understanding on the part of the recipient of the material risks, costs, or conditions of the commercial financing or commercial financing brokering services.
(B)The inability of the recipient to protect its interests in selecting or using commercial financing.
(C)The reasonable reliance by the recipient on a commercial financing provider or commercial financing broker to act in the interests of the recipient.
4.Operative Date22662.This chapter shall become operative on January 1, 2028.
SEC. 31.Section 22700 of the Financial Code is amended to read:22700.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licenses issued under this division shall remain in effect until they are surrendered, revoked, or suspended.
(b)Mortgage loan originator licenses issued under this division shall be renewed annually upon the payment of an annual assessment, and, if renewed by the licensee, shall remain in effect until they are surrendered, revoked, or suspended.
(c)Surrender of a license becomes effective 30 days after receipt of an application to surrender the license or within a shorter period of time that the commissioner may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the surrender is instituted within 30 days after the application is filed. If a proceeding is pending or instituted, surrender of a license becomes effective at the time and upon the conditions that the commissioner determines.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 32.Section 22701 of the Financial Code is amended to read:22701.(a)For the purpose of discovering violations of this division or securing information required by the commissioner in the administration and enforcement of this division, the commissioner may at any time investigate the loans, commercial financing transactions, assessment contracts, and business, and examine the books, accounts, records, and files used in the business, of every person engaged in the business of a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, whether the person acts or claims to act as principal or agent, or under or without the authority of this division. For the purpose of examination, the commissioner and the commissioners representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all these persons.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 33.Section 22712 of the Financial Code is amended to read:22712.(a)(1) Whenever, in the opinion of the commissioner, any person is engaged or has engaged in business as a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, as defined in this division, without a license from the commissioner, or any licensee is violating or has violated any provision of this division, any provision of an order, or any regulation adopted pursuant to this division, the commissioner may order that person or licensee to desist and to refrain from engaging in the business or further continuing that violation. In addition, the commissioner may include a claim for ancillary relief. The ancillary relief may include, but not be limited to, refunds, restitution or disgorgement, or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action. If, within 30 days after the order is served, a written request for a hearing is filed and no hearing is held within 30 days thereafter, the order is rescinded.
(2)For purposes of this subdivision, licensee includes a mortgage loan originator.
(b)Notwithstanding subdivision (a), if, after an investigation, the commissioner has reasonable grounds to believe that a person is conducting or has conducted business in an unsafe or injurious manner, the commissioner shall, by written order addressed to that person, direct the discontinuance of the unsafe or injurious practices. The order shall be effective immediately but shall not become final except in accordance with the provisions of Section 22717.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 34.Section 22714 of the Financial Code is amended to read:22714.(a)The commissioner shall suspend or revoke any license, upon notice and reasonable opportunity to be heard, if the commissioner finds any of the following:
(1)The licensee has failed to comply with any demand, ruling, or requirement of the commissioner made pursuant to and within the authority of this division.
(2)The licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division.
(3)A fact or condition exists that, if it had existed at the time of the original application for the license, reasonably would have warranted the commissioner in refusing to issue the license originally.
(4)There has been repeated failure by the finance lender, when making or negotiating loans, to take into consideration in determining the size and duration of loans, the financial ability of the borrower to repay the loan in the time and manner provided in the loan contract, or to refinance the loan at maturity.
(5)There has been repeated failure by the program administrator, when administering assessment contracts, to take into consideration in determining the size and duration of the assessment contracts, the property owners ability to meet the annual PACE obligations in the time and manner provided in the contract.
(6)There has been repeated failure by the commercial financing provider, when making or negotiating commercial financing transactions, to take into consideration in determining the size, duration, and repayment features, the financial ability of the recipient to repay the commercial financing transaction in the time and manner provided in the commercial financing agreement or contract or to refinance the commercial financing transaction at maturity.
(b)A master license shall not be suspended or revoked pursuant to this section as a result of any action or failure to act by a subsidiary licensee unless grounds exist for the suspension or revocation of the master license pursuant to this section. An order suspending or revoking a license or imposing sanctions against a licensee shall not affect other licensed locations unless expressly stated in the order.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 35.Section 22807 of the Financial Code is amended and renumbered to read:22808.(a)A violation of this division by a person licensed under the California Financing Law (Division 9 (commencing with Section 22000)) shall be deemed a violation of the California Financing Law if the violation relates to a commercial financing transaction that is subject to the California Financing Law.
(b)A violation of this provision shall be deemed an unfair, deceptive, or abusive act or practice under the California Consumer Financial Protection Law (Division 24 (commencing with Section 90000)) if the violation relates to a commercial financing transaction that is not subject to the California Financing Law (Division 9 (commencing with Section 22000)).
SEC. 36.Section 22807 is added to the Financial Code, to read:22807.The commissioner may require that rates of charge be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or recipients.
SEC. 37.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
(a)This division shall be liberally construed and applied to promote its underlying purposes and policies, which are:
(1)To ensure an adequate supply of credit to borrowers in this state.
(2)To simplify, clarify, and modernize the law governing loans made by finance lenders.
(3)To foster competition among finance lenders.
(4)To protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders.
(5)To permit and encourage the development of fair and economically sound lending practices.
(6)To encourage and foster a sound economic climate in this state.
(7)To protect property owners from deceptive and misleading practices that threaten the efficacy and viability of property assessed clean energy financing programs.
(8)To protect small businesses against unfair practices by some commercial financing providers, having due regard for the interest of legitimate and scrupulous commercial financing providers.
(b)Consumer loans, as defined in Sections 22203 and 22204, are subject to this chapter, Chapter 2 (commencing with Section 22200), Article 1 (commencing with Section 22700) of Chapter 4, and Article 2 (commencing with Section 22750) of Chapter 4.
(c)Commercial loans, as defined in Section 22502, are subject to this chapter, Chapter 3 (commencing with Section 22500), Article 1 (commencing with Section 22700) of Chapter 4, and Article 3 (commencing with Section 22780) of Chapter 4.
(d)A program administrator, as defined in Section 22018, is subject to this chapter, Chapter 3.5 (commencing with Section 22680), and Article 1 (commencing with Section 22700) of Chapter 4.
(e)Commercial financing, as defined in Section 22655, is subject to this chapter, Chapter 3.1 (commencing with Section 22655), and Article 1 (commencing with Section 22700) and Article 3 (commencing with Section 22780) of Chapter 4.
(f)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 2.Section 22002 of the Financial Code is amended to read:22002.(a)To accomplish its underlying purposes and policies, this division creates a class of exempt persons pursuant to Section 1 of Article XV of the California Constitution. The class of exempt persons includes any person licensed under this division.
(b)(1)It is the intent of the Legislature to preserve existing exemptions under Section 1 of Article XV of the California Constitution and statutory law for all of the following:
(A)Personal property brokers formerly regulated by the Personal Property Brokers Law.
(B)Lenders formerly regulated by the Consumer Finance Lenders Law.
(C)Lenders formerly regulated by the Commercial Finance Lenders Law.
(2)No finding that any provision of this division is invalid with respect to a particular lender or class of lenders shall affect the enforceability of this division with respect to any of the classifications of lenders described in paragraph (1), which shall in all events continue to be exempted by this division.
SEC. 3.Section 22007 of the Financial Code is amended to read:22007.(a)Licensee means any finance lender, broker, commercial financing provider, commercial financing broker, or program administrator who receives a license in accordance with this division.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 4.Section 22010 of the Financial Code is amended to read:22010.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator do not include employees regularly employed at the location specified in the license of the finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, except that an employee, when acting within the scope of the employees employment, shall be exempt from any other law from which the employees employer is exempt.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 5.Section 22021 is added to the Financial Code, to read:22021.(a)Except in Sections 22064 and 22687, recipient has the same meaning as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 6.Section 22022 is added to the Financial Code, to read:22022.(a)Commercial financing and commercial financing provider have the same meanings as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 7.Section 22100.6 is added to the Financial Code, to read:22100.6.(a)A person shall not engage in the business of a commercial financing provider or a commercial financing broker without obtaining a license from the commissioner.
(b)Notwithstanding subdivision (a), a person may engage in the business of a commercial financing provider or a commercial financing broker if the person submits a complete application on or before July 1, 2028, and is awaiting approval or denial of the application.
(c)This section shall become operative on July 1, 2028.
SEC. 8.Section 22101 of the Financial Code is amended to read:22101.(a)An application for a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall be in the form and contain the information that the commissioner may by rule or order require and shall be filed upon payment of the fee specified in Section 22103.
(b)Notwithstanding any other law, an applicant who does not currently hold a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall furnish, with their application, a full set of fingerprints and related information for purposes of the commissioner conducting a criminal history record check. The commissioner shall obtain and receive criminal history information from the Department of Justice and the Federal Bureau of Investigation pursuant to Section 22101.5.
(c)This section does not prevent a licensee from engaging in the business of a finance lender or program administrator through a subsidiary corporation if the subsidiary corporation is licensed pursuant to this division.
(d)For purposes of this section, subsidiary corporation means a corporation that is wholly owned by a licensee.
(e)A new application shall not be required for a change in the address of an existing location previously licensed under this division. However, the licensee shall comply with the requirements of Section 22153.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require an application to be made through the Nationwide Mortgage Licensing System and Registry, and may require fees, fingerprints, financial statements, supporting documents, changes of address, and any other information, and amendments or modifications thereto, to be submitted in the same manner.
(g)Notwithstanding any other law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. This section does not require the commissioner to accept electronic records or electronic signatures.
(h)For purposes of this section, the following terms have the following meanings:
(1)Electronic record means an initial license application, or material modification of that license application, and any other record created, generated, sent, communicated, received, or stored by electronic means. Electronic records also includes, but is not limited to, all of the following:
(A)An application, amendment, supplement, and exhibit, filed for any license, consent, or other authority.
(B)A financial statement, a report, or advertising.
(C)An order, license, consent, or other authority.
(D)A notice of public hearing, accusation, and statement of issues in connection with any application, license, consent, or other authority.
(E)A proposed decision of a hearing officer and a decision of the commissioner.
(F)The transcripts of a hearing and correspondence between a party and the commissioner directly relating to the record.
(G)A release, newsletter, interpretive opinion, determination, or specific ruling.
(H)Correspondence between a party and the commissioner directly relating to any document listed in subparagraphs (A) to (G), inclusive.
(2)Electronic signature means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.
(i)The Legislature finds and declares that the Department of Financial Protection and Innovation has continuously implemented methods to accept records filed electronically, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal.
(j)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 9.Section 22101.5 of the Financial Code is amended to read:22101.5.(a)The commissioner shall submit to the Department of Justice fingerprint images and related information required by the Department of Justice of all finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license candidates, as defined by subdivision (a) of Section 22101, for purposes of obtaining information as to the existence and content of a record of state or federal convictions, state or federal arrests, and information as to the existence and content of a record of state or federal arrests for which the Department of Justice establishes that the person is free on bail or on the persons own recognizance pending trial or appeal.
(b)When received, the Department of Justice shall forward to the Federal Bureau of Investigation requests for federal summary criminal history information received pursuant to this section. The Department of Justice shall review the information returned from the Federal Bureau of Investigation and compile and disseminate a response to the commissioner.
(c)The Department of Justice shall provide a response to the commissioner pursuant to paragraph (1) of subdivision (p) of Section 11105 of the Penal Code.
(d)The commissioner shall request from the Department of Justice subsequent arrest notification service, as provided pursuant to Section 11105.2 of the Penal Code, for license candidates described in subdivision (a).
(e)The Department of Justice shall charge a fee sufficient to cover the costs of processing the requests pursuant to this section.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require fingerprints submitted by an applicant to be submitted to the Nationwide Mortgage Licensing System and Registry in addition to the Department of Justice.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 10.Section 22102 of the Financial Code is amended to read:22102.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeking to engage in business at a new location shall submit an application for a branch office license to the commissioner at least 10 days before engaging in business at a new location and pay the fee required by Section 22103. The commissioner may require an applicant seeking to engage in business at a new location to submit its application, or parts thereof, through the Nationwide Mortgage Licensing System and Registry.
(b)The licensee may engage in business at the new location 10 days after the date of submission of a branch office application.
(c)(1)The commissioner shall approve or deny the person responsible for the lending or financing activity at the new location in accordance with Section 22109, and shall notify the licensee of this decision within 90 days of the date of receipt of the application.
(2)If the commissioner denies the application, the licensee shall, within 10 days of the date of receipt of notification of the commissioners denial, submit a new application to the commissioner designating a different person responsible for the lending or financing activity at the new location. The commissioner shall approve or deny the different person as provided in paragraph (1).
(d)A licensee shall not engage in business at a new location in a name other than a name approved by the commissioner.
(e)The commissioner may adopt regulations to implement the requirements of this section.
(f)A branch office license to engage in business at a new location shall be issued in accordance with this section. A change of street address of a place of business designated in a license shall be made in accordance with Section 22153 and shall not constitute a new location subject to the requirements of this section.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 11.Section 22103 of the Financial Code is amended to read:22103.(a)At the time of filing the application for a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or branch office license, the applicant shall pay to the commissioner the sum of one hundred dollars ($100) as a fee for investigating the application, plus the cost of fingerprint processing and the criminal history record check under Section 22101.5, and two hundred dollars ($200) as an application fee. The investigation fee, including the amount for the criminal history record check, and the application fee are not refundable if an application is denied or withdrawn.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 12.Section 22104 of the Financial Code is amended to read:22104.(a)The applicant shall file with the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license financial statements prepared in accordance with generally accepted accounting principles and acceptable to the commissioner that indicate a net worth of at least twenty-five thousand dollars ($25,000). Except as provided in subdivisions (b) and (c), a licensee shall maintain a net worth of at least twenty-five thousand dollars ($25,000) at all times.
(b)A licensed finance lender or broker, that employs one or more mortgage loan originators and that makes residential mortgage loans, shall continuously maintain a minimum net worth of at least two hundred fifty thousand dollars ($250,000).
(c)A licensed finance broker, that employs one or more mortgage loan originators and that arranges, but does not make, residential mortgage loans, shall continuously maintain a minimum net worth of at least fifty thousand dollars ($50,000).
(d)The commissioner may promulgate rules or regulations with respect to the requirements for minimum net worth, as are necessary to accomplish the purposes of this division and comply with the SAFE Act.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 13.Section 22105 of the Financial Code is amended to read:22105.(a)Upon the filing of an application pursuant to Section 22101 and the payment of the fees, the commissioner shall investigate the applicant and its general partners and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or any person responsible for the conduct of the applicants lending, financing, or program administration activities in this state, if the applicant is a partnership. If the applicant is a corporation, trust, limited liability company, or association, including an unincorporated organization, the commissioner shall investigate the applicant, its principal officers, directors, managing members, and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding equity securities or any person responsible for the conduct of the applicants lending or financing activities or for administering PACE programs for the applicant in this state. Upon the filing of an application pursuant to Section 22102 and the payment of the fees, the commissioner shall investigate the person responsible for the lending or financing activity of the licensee, or for administering one or more PACE programs for the licensee, at the new location described in the application. The investigation may be limited to information that was not included in prior applications filed pursuant to this division. If the commissioner determines that the applicant has satisfied this division and does not find facts constituting reasons for denial under Section 22109, the commissioner shall issue and deliver a license to the applicant.
(b)For the purposes of this section, principal officers shall mean president, chief executive officer, treasurer, and chief financial officer, as may be applicable, and any other officer with direct responsibility for the conduct of the applicants lending or financing activities or for PACE program administration for the applicant within the state.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 14.Section 22106 of the Financial Code is amended to read:22106.(a)The finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license shall state the name of the licensee, and if the licensee is a partnership, the names of its general partners, and if a corporation or an association, the date and place of its incorporation or organization, and the address of the licensees principal business location. On the approval and licensing of a location pursuant to Section 22101 or 22102, the commissioner shall issue an original license endorsed to show the address of the authorized location and, if applicable, the name of the subsidiary corporation licensed to operate the location. The license shall state whether the licensee is licensed as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator.
(b)(1)An application for a license for a business location outside this state shall constitute an agreement by the applicant to do all of the following:
(A)Make the licensees books, accounts, papers, records, and files available to the commissioner or the commissioners representatives in this state.
(B)Pay the reasonable expenses for travel, meals, and lodging of the commissioner or the commissioners representatives incurred during any investigation or examination made at the licensees location outside this state.
(2)A licensee located outside this state is not required to maintain books and records regarding licensed loans or licensed commercial financing transactions separate from those for other loans or other commercial financing transactions if the licensed loans or licensed commercial financing transactions can be readily identified.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 15.Section 22107 of the Financial Code is amended to read:22107.(a)Each finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee shall pay to the commissioner its pro rata share of all costs and expenses, including the costs and expenses associated with the licensing of mortgage loan originators it employs, reasonably incurred in the administration of this division, as estimated by the commissioner, for the ensuing year and any deficit actually incurred or anticipated in the administration of the program in the year in which the assessment is made. The pro rata share shall be the proportion that a licensees gross income bears to the aggregate gross income of all licensees as shown by the annual financial reports to the commissioner, for the costs and expenses remaining after the amount assessed pursuant to subdivision (c).
(b)On or before September 30 in each year, the commissioner shall notify each licensee of the amount assessed and levied against it and that amount shall be paid by October 31. If payment is not made by October 31, the commissioner shall assess and collect a penalty, in addition to the assessment, of 1 percent of the assessment for each month or part of a month that the payment is delayed or withheld.
(c)In the levying and collection of the assessment, a licensee shall neither be assessed for nor be permitted to pay less than two hundred fifty dollars ($250) per licensed location per year.
(d)If a licensee fails to pay the assessment on or before October 31, the commissioner may by order summarily suspend or revoke the certificate issued to the licensee. If, after an order is made, a request for a hearing is filed in writing within 30 days, and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when its certificate is revoked or suspended, a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee and any mortgage loan originator licensee employed by the finance lender or broker shall not conduct business pursuant to this division except as may be permitted by order of the commissioner. However, the revocation, suspension, or surrender of a certificate shall not affect the powers of the commissioner as provided in this division.
(e)The commissioner shall, by rule, establish the timelines, fees, and assessments applicable to applicants for original mortgage loan originator licenses, license renewals, and license changes under this division.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require licensees to pay assessments through the Nationwide Mortgage Licensing System and Registry.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 16.Section 22109 of the Financial Code is amended to read:22109.(a)Upon reasonable notice and opportunity to be heard, the commissioner may deny the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license for any of the following reasons:
(1)A false statement of a material fact has been made in the application.
(2)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has, within the last 10 years, been convicted of or pleaded nolo contendere to a crime, or committed an act involving dishonesty, fraud, or deceit, if the crime or act is substantially related to the qualifications, functions, or duties of a person engaged in business in accordance with this division.
(3)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has violated any provision of this division or the rules thereunder or any similar regulatory scheme of the State of California or a foreign jurisdiction.
(4)The applicant employs a mortgage loan originator who is not licensed, or has not initiated an application to become licensed, pursuant to this division.
(b)The application shall be considered withdrawn within the meaning of this section if the applicant fails to respond to a written notification of a deficiency in the application within 90 days of the date of the notification.
(c)The commissioner shall, within 60 days from the filing of a full and complete application for a license with the fees, either issue a license or file a statement of issues prepared in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 17.Section 22112 of the Financial Code is amended to read:22112.(a)A licensee shall maintain a surety bond in accordance with this subdivision in a minimum amount of twenty-five thousand dollars ($25,000). The bond shall be payable to the commissioner and issued by an insurer authorized to do business in this state. An original surety bond, including any and all riders and endorsements executed subsequent to the effective date of the bond, shall be filed with the commissioner within 10 days of execution. For licensees with multiple licensed locations, only one surety bond is required. The bond shall be used for the recovery of expenses, fines, and fees levied by the commissioner in accordance with this division or for losses or damages incurred by borrowers, recipients, or consumers as the result of a licensees noncompliance with the requirements of this division.
(b)When an action is commenced on a licensees bond, the commissioner may require the filing of a new bond. Immediately upon recovery of any action on the bond, the licensee shall file a new bond. Failure to file a new bond within 10 days of the recovery on a bond, or within 10 days after notification by the commissioner that a new bond is required, constitutes sufficient grounds for the suspension or revocation of the license.
(c)The commissioner may by rule require a higher bond amount for a licensee who employs one or more mortgage loan originators and who makes or arranges residential mortgage loans, based on the dollar amount of residential mortgage loans originated by that licensee and any mortgage loan originators employed by that licensee. Every mortgage loan originator employed by the licensee shall be covered by the surety bond.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 18.Section 22151 of the Financial Code is amended to read:22151.(a)A finance lender license, broker license, commercial financing provider license, commercial financing broker license, program administrator license, and the license of every mortgage loan originator employed by a lender or finance broker, along with any currently effective order of the commissioner approving a different name pursuant to Section 22155, shall be conspicuously posted in the place of business authorized by the license.
(b)A license is not transferable or assignable. A license issued to a partnership or a limited partnership is not transferred or assigned within the meaning of this section by the death, withdrawal, or admission of a partner, general partner, or limited partner, unless the death, withdrawal, or admission dissolves the partnership to which the license was issued.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 19.Section 22153 of the Financial Code is amended to read:22153.(a)If a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeks to change its place of business to a street address other than that designated in its license, the licensee shall provide notice to the commissioner at least 10 days before the change. The commissioner shall notify the licensee within 10 days if the commissioner disapproves the change, and if the commissioner does not notify the licensee of disapproval within 10 days, the change in address shall be deemed approved. The commissioner may require an applicant to submit its application to change its place of business through the Nationwide Mortgage Licensing System and Registry.
(b)If notice is not given at least 10 days before the change of a street address of a place of business, as required by subdivision (a), or notice is not given at least 10 days before engaging in business at a new location, as required by Section 22102, the commissioner may assess a civil or administrative penalty on the licensee not to exceed five hundred dollars ($500).
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 20.Section 22156 of the Financial Code is amended to read:22156.(a)Finance lender, broker, commercial financing provider, commercial financing broker, program administrator, and mortgage loan originator licensees shall keep and use in their business, books, accounts, and records which will enable the commissioner to determine if the licensee is complying with the provisions of this division and with the rules and regulations made by the commissioner. On any loan secured by real property in which loan proceeds were disbursed to an independent escrowholder, the licensee shall retain records and documents as set forth by rules of the commissioner adopted pursuant to Section 22150. Upon request of the commissioner, licensees shall file an authorization for disclosure to the commissioner of financial records of the licensed business pursuant to Section 7473 of the Government Code.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 21.Section 22157 of the Financial Code is amended to read:22157.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and mortgage loan originator licensees shall preserve their books, accounts, and records, if any, for at least three years after making the final entry on any loan or commercial financing transaction recorded therein.
(b)Except as otherwise specified by applicable law, including paragraph (3) of subdivision (b) of Section 5913 of the Streets and Highways Code, program administrator licensees shall preserve their books, accounts, and records for at least three years after the extinguishment of a PACE assessment is recorded therein.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 22.Section 22157.1 of the Financial Code is amended to read:22157.1.(a)For purposes of this section:
(1)Encrypted has the same meaning as provided in paragraph (4) of subdivision (i) of Section 1798.82 of the Civil Code.
(2)Remote location means a personal residence or a temporary, nonpublic location not owned or leased by the licensee or an affiliate of the licensee that is not simultaneously accessible by anyone other than a single employee and individuals who maintain a common household with the employee.
(b)A licensee may designate an employee, when acting within the scope of employment, to perform work on the licensees behalf at a remote location if the licensee does all of the following:
(1)Prohibits in-person consumer interactions, including the physical receipt of cash or other monetary value or the disbursement of loan or commercial financing transaction proceeds, at a remote location and does not designate a remote location to the public as a business location.
(2)Prohibits records required pursuant to Section 22156 from being physically mailed to, shipped to, or stored at a remote location except for storage on an encrypted device or encrypted media.
(3)Prohibits the physical receipt of mail related to the licensees licensed business at a remote location.
(4)Prohibits a consumers personal information from being physically stored at a remote location except for storage on an encrypted device or encrypted media.
(5)Provides an employee working at a remote location with appropriate equipment, which may include encrypted devices, virtual private networks, and similar technology, to perform work and safeguard licensee records and consumer personal information.
(6)Adopts and adheres to appropriate, as determined by the department, written policies and procedures to supervise and maintain appropriate control over the work of employees at remote locations and safeguard the licensees records and consumer personal information in connection with work at a remote location, including, but not limited to, all of the following elements:
(A)Employee data security training.
(B)Maintenance of security logs of remote logins.
(C)Procedures designed to detect suspicious logins or attempted logins and to suspend access by potentially compromised accounts or equipment.
(D)Data breach response procedures.
(7)(A)Records telephone calls with consumers conducted from a remote location to the same extent as telephone calls with consumers conducted from licensed locations.
(B)This paragraph does not require telephone call recording if the licensee does not do so in the normal course of business for the employee or business in question.
(8)All books, records, and persons that the commissioner is entitled to examine, inspect, or interview shall be made available to the commissioner at a licensed location.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 23.Section 22159 of the Financial Code is amended to read:22159.(a)(1)Each finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licensee shall file an annual report with the commissioner, on or before March 15, giving the relevant information that the commissioner reasonably requires concerning the business and operations conducted by the licensee or authorized by the program administrator licensee within the state during the preceding calendar year for each licensed place of business. The individual annual reports filed pursuant to this section shall be made available to the public for inspection except, upon request in the annual report to the commissioner, the balance sheet contained in the annual report of a sole proprietor or any other nonpublicly traded person. The report shall be made under oath and in the form prescribed by the commissioner.
(2)As used in this subdivision, nonpublicly traded person means a person with securities owned by 35 or fewer individuals.
(b)A licensee shall make other special reports required by the commissioner.
(c)The commissioner may require a licensee that employs one or more mortgage loan originators to submit to the Nationwide Mortgage Licensing System and Registry reports of condition, which shall be in the form and shall contain the information as the Nationwide Mortgage Licensing System and Registry may require.
(d)The commissioner may by rule or order require a mortgage loan originator to submit reports of condition to the Nationwide Mortgage Licensing System and Registry, in lieu of the reports of condition required of the mortgage loan originators employer pursuant to subdivision (c).
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 24.Section 22161 of the Financial Code is amended to read:22161.(a)A person subject to this division shall not do any of the following:
(1)Make a materially false or misleading statement or representation to a borrower or recipient about the terms or conditions of that borrowers loan or that recipients commercial financing transaction when making or brokering the loan or commercial financing transaction.
(2)Make a materially false or misleading statement or representation to a property owner about the terms or conditions of an assessment contract.
(3)Advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast in any manner, any statement or representation with regard to the business subject to the provisions of this division, including the rates, terms, or conditions for making or negotiating loans, making or negotiating commercial financing transactions, or for making or negotiating assessment contracts, that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements not false, misleading, or deceptive, or in the case of a licensee, that refers to the supervision of the business by the state or any department or official of the state.
(4)Commit an act in violation of Section 1695.13 of the Civil Code.
(5)Engage in any act in violation of Section 17200 of the Business and Professions Code.
(6)Knowingly misrepresent, circumvent, or conceal, through subterfuge or device, any material aspect or information regarding a transaction to which the person is a party.
(7)Commit an act that constitutes fraud or dishonest dealings.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 25.Section 22162 of the Financial Code is amended to read:22162.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or mortgage loan originator licensee shall not place an advertisement disseminated primarily in this state for a loan or commercial financing transaction unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the loan or commercial financing transaction would be made or arranged.
(b)A program administrator licensee shall not place an advertisement disseminated primarily in this state for an assessment contract unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the assessment contract would be administered.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 26.Section 22164 of the Financial Code is amended to read:22164.(a)If any person engaged in the business regulated by this division refers in any advertising to rates of interest, charges, or cost of loans, commercial financing transactions, or assessment contracts, the commissioner shall require that the rates, charges, or costs are stated fully and clearly in the manner that the commissioner deems necessary to give adequate information to prospective borrowers or property owners. If the rates or costs advertised do not apply to loans or assessment contracts of all classes made or negotiated by the person, this fact shall be clearly indicated in the advertisement.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 27.Section 22167.1 is added to the Financial Code, to read:22167.1.(a)A licensed commercial financing provider may act as a commercial financing broker at its licensed place of business without obtaining an additional license as a commercial financing broker under this division only if the licensee has notified the commissioner of the action in writing.
(b)This section shall become operative on January 1, 2028.
SEC. 28.Section 22168 of the Financial Code is amended to read:22168.(a)The commissioner may, after appropriate notice and opportunity for hearing, suspend for a period not to exceed 12 months or bar a person from any position of employment with a licensee if the commissioner finds that the person has willfully used or claimed without authority a designation or certification of special education, practice, or skill that the person has not attained, or willfully held out to the public a confusingly similar designation or certification for the purpose of misleading the public regarding the persons qualifications or experience.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receiving a request, the matter shall be set for hearing to commence within 30 days after receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of the notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to subdivision (a), the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under this division.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting its business. This subdivision does not prohibit suspended or barred persons from having their personal transactions processed by a licensed finance lender, broker, commercial financing provider, commercial financing broker, mortgage loan originator, or program administrator.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 29.Section 22169 of the Financial Code is amended to read:22169.(a)The commissioner may, after appropriate notice and opportunity for hearing, by order, censure or suspend for a period not exceeding 12 months, or bar a person, including a mortgage loan originator, from any position of employment with, or management or control of, any finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or any other person, if the commissioner finds either of the following:
(1)That the censure, suspension, or bar is in the public interest and that the person has committed or caused a violation of this division or rule or order of the commissioner, which violation was either known or should have been known by the person committing or causing it or has caused material damage to the finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, or to the public.
(2)That the person has been convicted of or pleaded nolo contendere to any crime, or has been held liable in any civil action by final judgment, or any administrative judgment by any public agency, if that crime or civil or administrative judgment involved any offense involving dishonesty, fraud, or deceit, or any other offense reasonably related to the qualifications, functions, or duties of a person engaged in the business in accordance with the provisions of this division.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receipt of a request, the matter shall be set for hearing to commence within 30 days after such receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of such notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to this section, the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under the law.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting business.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 30.Chapter 3.1 (commencing with Section 22655) is added to Division 9 of the Financial Code, to read:3.1.Commercial Financing for Small Businesses1.Definitions22655.As used in this chapter:
(a)Accounts receivable purchase transaction has the same meaning as defined in Section 22800.
(b)Annual percentage rate or APR means an annualized rate calculated pursuant to Subchapter 3 (commencing with Section 900) of Chapter 3 of Title 10 of the California Code of Regulations.
(c)Asset-based lending transaction has the same meaning as defined in Section 22800.
(d)(1)Charge includes the aggregate interest, fees, bonuses, commissions, brokerage, discounts, expenses, and other forms of costs charged, contracted for, or received by a licensee or any other person in connection with the investigating, arranging, negotiating, procuring, guaranteeing, making, servicing, collecting, and enforcing of a commercial financing transaction or forbearance of money, credit, goods, or things in action, or any other service rendered.
(2)Charge includes a profit or advantage of any kind that a licensee may contract for, collect, receive, or obtain by a collateral sale, purchase, or agreement, in connection with negotiating, arranging, making, or otherwise in connection with any commercial financing transaction.
(e)(1)Commercial financing means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose.
(2)For purposes of determining the primary purpose of the financing within the meaning of this subdivision, the provider may rely on any written statement of intended purposes signed by the recipient. The statement may be a separate statement signed by the recipient or may be contained in a loan application or other document signed by the recipient. The provider is not required to ascertain that the proceeds of the financing are used in accordance with the statement of intended purposes.
(f)(1)Commercial financing broker means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider:
(A)Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
(B)Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
(C)Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
(D)Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipients sensitive data.
(E)(i)Subject to clause (ii), participating in the preparation of commercial financing documents, including, but not limited to, commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.
(ii)Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
(F)Communicating to a prospective recipient a commercial financing providers commercial financing approval decisions.
(G)Charging a fee to a prospective recipient for services related to a prospective recipients application for a commercial financing transaction from a commercial financing provider.
(2)Notwithstanding paragraph (1), a person is not a commercial financing broker solely because they take any of the following actions:
(A)Perform support tasks, including, but not limited to, typing, word processing, data entry, filing, billing, answering telephone calls, taking and receiving messages, and scheduling, in support of the performance by a broker of any of the activities described in subparagraphs (E) to (G), inclusive, of paragraph (1).
(B)Furnish a consumer report to a licensee by a consumer reporting agency in accordance with subsection (a) or (c) of Section 1681b of Title 15 of the United States Code.
(C)Furnish a consumer credit report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with subdivision (a) or paragraph (1) of subdivision (b) of Section 1785.11 of the Civil Code.
(D)Furnish a prequalifying report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with paragraph (2) of subdivision (b) of Section 1785.11 of the Civil Code.
(E)Distribute or disseminate to a prospective recipient of a providers marketing materials or factual information about the provider, its lending activities, or its loan products, including, but not limited to, the providers interest rates, the providers minimum or maximum loan amounts or loan periods, or a general description of the providers underwriting criteria.
(g)Commercial financing provider means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.
The fact that a commercial financing provider extended a specific offer of commercial financing on behalf of a depository institution shall not be construed to mean that the commercial financing provider engaged in, or originated, that financing.
(h)Commercial loan has the same meaning as defined in Section 22502.
(i)Commercial open-end credit plan has the same meaning as defined in Section 22800.
(j)Factoring has the same meaning as defined in Section 22800.
(k)Lease financing has the same meaning as defined in Section 22800.
(l)Recipient means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than five hundred thousand dollars ($500,000).
(m)Referral means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipients contact information to a commercial financing provider, for the purpose of making an introduction.
(n)Sensitive data means any of the following:
(1)A bank account number.
(2)A bank statement.
(3)A credit or debit card account number.
(4)A credit score, as defined in Section 1785.15.1 of the Civil Code.
(5)All of, or a portion of, a social security number.
(6)Personal or business income information, including information self-reported by the person.
(7)A taxpayer or employer identification number.
(o)(1)Small business means a business entity organized for profit with annual gross receipts of no more than sixteen million dollars ($16,000,000) or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Section 14837 of the Government Code, whichever is greater.
(2)For purposes of determining a business entitys annual gross receipts, a licensee may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing.
2.Exemptions22656.This chapter does not apply to any of the following:
(a)A commercial financing provider that is a lender regulated under Chapter 23 (commencing with Section 2001) of Title 12 of the United States Code.
(b)A commercial financing transaction secured by real property.
(c)A commercial financing transaction in which the recipient is either of the following:
(1)A dealer, as defined in Section 285 of the Vehicle Code, or an affiliate of a dealer.
(2)A vehicle rental company, or an affiliate of a vehicle rental company, pursuant to a specific commercial financing offer or commercial open-end credit plan of at least fifty thousand dollars ($50,000), including a commercial loan made pursuant to that commercial financing transaction.
(d)A person who makes one or fewer commercial financing transactions in the state in a 12-month period.
(e)A person who makes five or fewer commercial financing transactions in the state in a 12-month period that are incidental to the business of the person relying upon the exemption.
22657.Sections 22152, 22154, and 22155 do not apply to a commercial financing transaction or to a licensed commercial financing provider or licensed commercial financing broker in connection with any commercial financing transaction.
3.Regulations22658.A commercial financing agreement is not enforceable unless any of the following requirements is met:
(a)The person providing the commercial financing transaction is a licensed commercial financing provider.
(b)The person providing the commercial financing transaction has submitted a complete application and is awaiting approval or denial pursuant to subdivision (b) of Section 22100.6.
(c)The commercial financing transaction was entered into prior to January 1, 2028.
22659.(a)A commercial financing provider or a commercial financing broker shall not take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
(b)A commercial financing transaction found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of this division and subject to the remedies specified in this division.
(c)A commercial financing provider or a commercial financing broker shall not include a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipients business activities with the commercial financing provider, including, but not limited to, terms or conditions of a product or service offered by the commercial financing provider.
(d)A commercial financing broker shall clearly and conspicuously display on their internet website the average and maximum annual percentage rates for the commercial financing transactions facilitated by them in the most recent calendar year.
22660.(a)For purposes of this section:
(1)Amount financed has the same meaning as defined in Section 900 of Title 10 of the California Code of Regulations.
(2)Type of commercial financing means the types of commercial financing listed in subdivision (a) of Section 917 of Title 10 of the California Code of Regulations.
(b)Except as provided in subdivision (c) or (d), on or before March 15 of each year, beginning in 2029, a commercial financing provider shall file electronically through the departments internet website a report verified by an authorized officer containing all of the following information for activity during the preceding calendar year:
(1)The commercial financing providers identifying and contact information, including name, any fictitious business names, entity type, mailing address, telephone number, email address, internet website address, and designated contact person.
(2)By type of commercial financing, the total number of commercial financing transactions and total dollar amount financed with recipients.
(3)By type of commercial financing, the number of commercial financing transactions with recipients for each of the following amounts financed:
(A)Ten thousand dollars ($10,000) or less.
(B)Over ten thousand dollars ($10,000) but not over twenty-five thousand dollars ($25,000).
(C)Over twenty-five thousand dollars ($25,000) but not over fifty thousand dollars ($50,000).
(D)Over fifty thousand dollars ($50,000) but not over one hundred thousand dollars ($100,000).
(E)Over one hundred thousand dollars ($100,000) but not over two hundred fifty thousand dollars ($250,000).
(F)Over two hundred fifty thousand dollars ($250,000) but not over five hundred thousand dollars ($500,000).
(4)(A)Except as provided in subparagraph (B), by type of commercial financing and for each interval described in paragraph (3), the minimum, maximum, average, and median annual percentage rate disclosed in disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations.
(B)For a given type of commercial financing and interval, if the commercial financing provider did not provide any disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations, the commercial financing provider shall indicate that on the report and is not required to calculate or report that information.
(c)A commercial financing provider shall not include in the report required by subdivision (a) information for commercial loan activity conducted under the authority of Chapter 1 (commencing with Section 22000) or Chapter 3 (commencing with Section 22500).
(d)For purposes of this section, if a commercial financing does not meet any of the types of commercial financing, the commercial financing provider shall include the transaction as an other type.
22661.(a)It is unlawful for a commercial financing provider or commercial financing broker to engage or have engaged in any unlawful, unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or commercial financing brokering services to a recipient.
(b)For purposes of subdivision (a), an act or practice is unfair if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice causes or is likely to cause substantial injury to recipients.
(B)The injury is not reasonably avoidable by recipients.
(C)The injury is not outweighed by countervailing benefits to recipients or to competition.
(2)It is unfair in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(c)For purposes of subdivision (a), an act or practice, including, but not limited to, a representation or an omission, is deceptive if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice misleads or is likely to mislead the recipient.
(B)The recipients interpretation of the act or practice is reasonable under the circumstances.
(C)The act or practice is material.
(2)It is deceptive in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(d)For purposes of subdivision (a) an act or practice is abusive if either of the following conditions is met:
(1)It materially interferes with the ability of a recipient to understand a term or condition of commercial financing or commercial financing brokering services.
(2)It takes unreasonable advantage of any of the following:
(A)A lack of understanding on the part of the recipient of the material risks, costs, or conditions of the commercial financing or commercial financing brokering services.
(B)The inability of the recipient to protect its interests in selecting or using commercial financing.
(C)The reasonable reliance by the recipient on a commercial financing provider or commercial financing broker to act in the interests of the recipient.
4.Operative Date22662.This chapter shall become operative on January 1, 2028.
SEC. 31.Section 22700 of the Financial Code is amended to read:22700.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licenses issued under this division shall remain in effect until they are surrendered, revoked, or suspended.
(b)Mortgage loan originator licenses issued under this division shall be renewed annually upon the payment of an annual assessment, and, if renewed by the licensee, shall remain in effect until they are surrendered, revoked, or suspended.
(c)Surrender of a license becomes effective 30 days after receipt of an application to surrender the license or within a shorter period of time that the commissioner may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the surrender is instituted within 30 days after the application is filed. If a proceeding is pending or instituted, surrender of a license becomes effective at the time and upon the conditions that the commissioner determines.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 32.Section 22701 of the Financial Code is amended to read:22701.(a)For the purpose of discovering violations of this division or securing information required by the commissioner in the administration and enforcement of this division, the commissioner may at any time investigate the loans, commercial financing transactions, assessment contracts, and business, and examine the books, accounts, records, and files used in the business, of every person engaged in the business of a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, whether the person acts or claims to act as principal or agent, or under or without the authority of this division. For the purpose of examination, the commissioner and the commissioners representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all these persons.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 33.Section 22712 of the Financial Code is amended to read:22712.(a)(1) Whenever, in the opinion of the commissioner, any person is engaged or has engaged in business as a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, as defined in this division, without a license from the commissioner, or any licensee is violating or has violated any provision of this division, any provision of an order, or any regulation adopted pursuant to this division, the commissioner may order that person or licensee to desist and to refrain from engaging in the business or further continuing that violation. In addition, the commissioner may include a claim for ancillary relief. The ancillary relief may include, but not be limited to, refunds, restitution or disgorgement, or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action. If, within 30 days after the order is served, a written request for a hearing is filed and no hearing is held within 30 days thereafter, the order is rescinded.
(2)For purposes of this subdivision, licensee includes a mortgage loan originator.
(b)Notwithstanding subdivision (a), if, after an investigation, the commissioner has reasonable grounds to believe that a person is conducting or has conducted business in an unsafe or injurious manner, the commissioner shall, by written order addressed to that person, direct the discontinuance of the unsafe or injurious practices. The order shall be effective immediately but shall not become final except in accordance with the provisions of Section 22717.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 34.Section 22714 of the Financial Code is amended to read:22714.(a)The commissioner shall suspend or revoke any license, upon notice and reasonable opportunity to be heard, if the commissioner finds any of the following:
(1)The licensee has failed to comply with any demand, ruling, or requirement of the commissioner made pursuant to and within the authority of this division.
(2)The licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division.
(3)A fact or condition exists that, if it had existed at the time of the original application for the license, reasonably would have warranted the commissioner in refusing to issue the license originally.
(4)There has been repeated failure by the finance lender, when making or negotiating loans, to take into consideration in determining the size and duration of loans, the financial ability of the borrower to repay the loan in the time and manner provided in the loan contract, or to refinance the loan at maturity.
(5)There has been repeated failure by the program administrator, when administering assessment contracts, to take into consideration in determining the size and duration of the assessment contracts, the property owners ability to meet the annual PACE obligations in the time and manner provided in the contract.
(6)There has been repeated failure by the commercial financing provider, when making or negotiating commercial financing transactions, to take into consideration in determining the size, duration, and repayment features, the financial ability of the recipient to repay the commercial financing transaction in the time and manner provided in the commercial financing agreement or contract or to refinance the commercial financing transaction at maturity.
(b)A master license shall not be suspended or revoked pursuant to this section as a result of any action or failure to act by a subsidiary licensee unless grounds exist for the suspension or revocation of the master license pursuant to this section. An order suspending or revoking a license or imposing sanctions against a licensee shall not affect other licensed locations unless expressly stated in the order.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 35.Section 22807 of the Financial Code is amended and renumbered to read:22808.(a)A violation of this division by a person licensed under the California Financing Law (Division 9 (commencing with Section 22000)) shall be deemed a violation of the California Financing Law if the violation relates to a commercial financing transaction that is subject to the California Financing Law.
(b)A violation of this provision shall be deemed an unfair, deceptive, or abusive act or practice under the California Consumer Financial Protection Law (Division 24 (commencing with Section 90000)) if the violation relates to a commercial financing transaction that is not subject to the California Financing Law (Division 9 (commencing with Section 22000)).
SEC. 36.Section 22807 is added to the Financial Code, to read:22807.The commissioner may require that rates of charge be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or recipients.
SEC. 37.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
(a)This division shall be liberally construed and applied to promote its underlying purposes and policies, which are:
(1)To ensure an adequate supply of credit to borrowers in this state.
(2)To simplify, clarify, and modernize the law governing loans made by finance lenders.
(3)To foster competition among finance lenders.
(4)To protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders.
(5)To permit and encourage the development of fair and economically sound lending practices.
(6)To encourage and foster a sound economic climate in this state.
(7)To protect property owners from deceptive and misleading practices that threaten the efficacy and viability of property assessed clean energy financing programs.
(8)To protect small businesses against unfair practices by some commercial financing providers, having due regard for the interest of legitimate and scrupulous commercial financing providers.
(b)Consumer loans, as defined in Sections 22203 and 22204, are subject to this chapter, Chapter 2 (commencing with Section 22200), Article 1 (commencing with Section 22700) of Chapter 4, and Article 2 (commencing with Section 22750) of Chapter 4.
(c)Commercial loans, as defined in Section 22502, are subject to this chapter, Chapter 3 (commencing with Section 22500), Article 1 (commencing with Section 22700) of Chapter 4, and Article 3 (commencing with Section 22780) of Chapter 4.
(d)A program administrator, as defined in Section 22018, is subject to this chapter, Chapter 3.5 (commencing with Section 22680), and Article 1 (commencing with Section 22700) of Chapter 4.
(e)Commercial financing, as defined in Section 22655, is subject to this chapter, Chapter 3.1 (commencing with Section 22655), and Article 1 (commencing with Section 22700) and Article 3 (commencing with Section 22780) of Chapter 4.
(f)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 2.Section 22002 of the Financial Code is amended to read:22002.(a)To accomplish its underlying purposes and policies, this division creates a class of exempt persons pursuant to Section 1 of Article XV of the California Constitution. The class of exempt persons includes any person licensed under this division.
(b)(1)It is the intent of the Legislature to preserve existing exemptions under Section 1 of Article XV of the California Constitution and statutory law for all of the following:
(A)Personal property brokers formerly regulated by the Personal Property Brokers Law.
(B)Lenders formerly regulated by the Consumer Finance Lenders Law.
(C)Lenders formerly regulated by the Commercial Finance Lenders Law.
(2)No finding that any provision of this division is invalid with respect to a particular lender or class of lenders shall affect the enforceability of this division with respect to any of the classifications of lenders described in paragraph (1), which shall in all events continue to be exempted by this division.
SEC. 3.Section 22007 of the Financial Code is amended to read:22007.(a)Licensee means any finance lender, broker, commercial financing provider, commercial financing broker, or program administrator who receives a license in accordance with this division.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 4.Section 22010 of the Financial Code is amended to read:22010.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator do not include employees regularly employed at the location specified in the license of the finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, except that an employee, when acting within the scope of the employees employment, shall be exempt from any other law from which the employees employer is exempt.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 5.Section 22021 is added to the Financial Code, to read:22021.(a)Except in Sections 22064 and 22687, recipient has the same meaning as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 6.Section 22022 is added to the Financial Code, to read:22022.(a)Commercial financing and commercial financing provider have the same meanings as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 7.Section 22100.6 is added to the Financial Code, to read:22100.6.(a)A person shall not engage in the business of a commercial financing provider or a commercial financing broker without obtaining a license from the commissioner.
(b)Notwithstanding subdivision (a), a person may engage in the business of a commercial financing provider or a commercial financing broker if the person submits a complete application on or before January July 1, 2028, and is awaiting approval or denial of the application.
(c)This section shall become operative on January July 1, 2028.
SEC. 8.Section 22101 of the Financial Code is amended to read:22101.(a)An application for a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall be in the form and contain the information that the commissioner may by rule or order require and shall be filed upon payment of the fee specified in Section 22103.
(b)Notwithstanding any other law, an applicant who does not currently hold a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall furnish, with their application, a full set of fingerprints and related information for purposes of the commissioner conducting a criminal history record check. The commissioner shall obtain and receive criminal history information from the Department of Justice and the Federal Bureau of Investigation pursuant to Section 22101.5.
(c)This section does not prevent a licensee from engaging in the business of a finance lender or program administrator through a subsidiary corporation if the subsidiary corporation is licensed pursuant to this division.
(d)For purposes of this section, subsidiary corporation means a corporation that is wholly owned by a licensee.
(e)A new application shall not be required for a change in the address of an existing location previously licensed under this division. However, the licensee shall comply with the requirements of Section 22153.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require an application to be made through the Nationwide Mortgage Licensing System and Registry, and may require fees, fingerprints, financial statements, supporting documents, changes of address, and any other information, and amendments or modifications thereto, to be submitted in the same manner.
(g)Notwithstanding any other law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. This section does not require the commissioner to accept electronic records or electronic signatures.
(h)For purposes of this section, the following terms have the following meanings:
(1)Electronic record means an initial license application, or material modification of that license application, and any other record created, generated, sent, communicated, received, or stored by electronic means. Electronic records also includes, but is not limited to, all of the following:
(A)An application, amendment, supplement, and exhibit, filed for any license, consent, or other authority.
(B)A financial statement, a report, or advertising.
(C)An order, license, consent, or other authority.
(D)A notice of public hearing, accusation, and statement of issues in connection with any application, license, consent, or other authority.
(E)A proposed decision of a hearing officer and a decision of the commissioner.
(F)The transcripts of a hearing and correspondence between a party and the commissioner directly relating to the record.
(G)A release, newsletter, interpretive opinion, determination, or specific ruling.
(H)Correspondence between a party and the commissioner directly relating to any document listed in subparagraphs (A) to (G), inclusive.
(2)Electronic signature means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.
(i)The Legislature finds and declares that the Department of Financial Protection and Innovation has continuously implemented methods to accept records filed electronically, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal.
(j)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 9.Section 22101.5 of the Financial Code is amended to read:22101.5.(a)The commissioner shall submit to the Department of Justice fingerprint images and related information required by the Department of Justice of all finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license candidates, as defined by subdivision (a) of Section 22101, for purposes of obtaining information as to the existence and content of a record of state or federal convictions, state or federal arrests, and information as to the existence and content of a record of state or federal arrests for which the Department of Justice establishes that the person is free on bail or on the persons own recognizance pending trial or appeal.
(b)When received, the Department of Justice shall forward to the Federal Bureau of Investigation requests for federal summary criminal history information received pursuant to this section. The Department of Justice shall review the information returned from the Federal Bureau of Investigation and compile and disseminate a response to the commissioner.
(c)The Department of Justice shall provide a response to the commissioner pursuant to paragraph (1) of subdivision (p) of Section 11105 of the Penal Code.
(d)The commissioner shall request from the Department of Justice subsequent arrest notification service, as provided pursuant to Section 11105.2 of the Penal Code, for license candidates described in subdivision (a).
(e)The Department of Justice shall charge a fee sufficient to cover the costs of processing the requests pursuant to this section.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require fingerprints submitted by an applicant to be submitted to the Nationwide Mortgage Licensing System and Registry in addition to the Department of Justice.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 10.Section 22102 of the Financial Code is amended to read:22102.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeking to engage in business at a new location shall submit an application for a branch office license to the commissioner at least 10 days before engaging in business at a new location and pay the fee required by Section 22103. The commissioner may require an applicant seeking to engage in business at a new location to submit its application, or parts thereof, through the Nationwide Mortgage Licensing System and Registry.
(b)The licensee may engage in business at the new location 10 days after the date of submission of a branch office application.
(c)(1)The commissioner shall approve or deny the person responsible for the lending or financing activity at the new location in accordance with Section 22109, and shall notify the licensee of this decision within 90 days of the date of receipt of the application.
(2)If the commissioner denies the application, the licensee shall, within 10 days of the date of receipt of notification of the commissioners denial, submit a new application to the commissioner designating a different person responsible for the lending or financing activity at the new location. The commissioner shall approve or deny the different person as provided in paragraph (1).
(d)A licensee shall not engage in business at a new location in a name other than a name approved by the commissioner.
(e)The commissioner may adopt regulations to implement the requirements of this section.
(f)A branch office license to engage in business at a new location shall be issued in accordance with this section. A change of street address of a place of business designated in a license shall be made in accordance with Section 22153 and shall not constitute a new location subject to the requirements of this section.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 11.Section 22103 of the Financial Code is amended to read:22103.(a)At the time of filing the application for a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or branch office license, the applicant shall pay to the commissioner the sum of one hundred dollars ($100) as a fee for investigating the application, plus the cost of fingerprint processing and the criminal history record check under Section 22101.5, and two hundred dollars ($200) as an application fee. The investigation fee, including the amount for the criminal history record check, and the application fee are not refundable if an application is denied or withdrawn.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 12.Section 22104 of the Financial Code is amended to read:22104.(a)The applicant shall file with the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license financial statements prepared in accordance with generally accepted accounting principles and acceptable to the commissioner that indicate a net worth of at least twenty-five thousand dollars ($25,000). Except as provided in subdivisions (b) and (c), a licensee shall maintain a net worth of at least twenty-five thousand dollars ($25,000) at all times.
(b)A licensed finance lender or broker, that employs one or more mortgage loan originators and that makes residential mortgage loans, shall continuously maintain a minimum net worth of at least two hundred fifty thousand dollars ($250,000).
(c)A licensed finance broker, that employs one or more mortgage loan originators and that arranges, but does not make, residential mortgage loans, shall continuously maintain a minimum net worth of at least fifty thousand dollars ($50,000).
(d)The commissioner may promulgate rules or regulations with respect to the requirements for minimum net worth, as are necessary to accomplish the purposes of this division and comply with the SAFE Act.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 13.Section 22105 of the Financial Code is amended to read:22105.(a)Upon the filing of an application pursuant to Section 22101 and the payment of the fees, the commissioner shall investigate the applicant and its general partners and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or any person responsible for the conduct of the applicants lending, financing, or program administration activities in this state, if the applicant is a partnership. If the applicant is a corporation, trust, limited liability company, or association, including an unincorporated organization, the commissioner shall investigate the applicant, its principal officers, directors, managing members, and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding equity securities or any person responsible for the conduct of the applicants lending or financing activities or for administering PACE programs for the applicant in this state. Upon the filing of an application pursuant to Section 22102 and the payment of the fees, the commissioner shall investigate the person responsible for the lending or financing activity of the licensee, or for administering one or more PACE programs for the licensee, at the new location described in the application. The investigation may be limited to information that was not included in prior applications filed pursuant to this division. If the commissioner determines that the applicant has satisfied this division and does not find facts constituting reasons for denial under Section 22109, the commissioner shall issue and deliver a license to the applicant.
(b)For the purposes of this section, principal officers shall mean president, chief executive officer, treasurer, and chief financial officer, as may be applicable, and any other officer with direct responsibility for the conduct of the applicants lending or financing activities or for PACE program administration for the applicant within the state.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 14.Section 22106 of the Financial Code is amended to read:22106.(a)The finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license shall state the name of the licensee, and if the licensee is a partnership, the names of its general partners, and if a corporation or an association, the date and place of its incorporation or organization, and the address of the licensees principal business location. On the approval and licensing of a location pursuant to Section 22101 or 22102, the commissioner shall issue an original license endorsed to show the address of the authorized location and, if applicable, the name of the subsidiary corporation licensed to operate the location. The license shall state whether the licensee is licensed as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator.
(b)(1)An application for a license for a business location outside this state shall constitute an agreement by the applicant to do all of the following:
(A)Make the licensees books, accounts, papers, records, and files available to the commissioner or the commissioners representatives in this state.
(B)Pay the reasonable expenses for travel, meals, and lodging of the commissioner or the commissioners representatives incurred during any investigation or examination made at the licensees location outside this state.
(2)A licensee located outside this state is not required to maintain books and records regarding licensed loans or licensed commercial financing transactions separate from those for other loans or other commercial financing transactions if the licensed loans or licensed commercial financing transactions can be readily identified.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 15.Section 22107 of the Financial Code is amended to read:22107.(a)Each finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee shall pay to the commissioner its pro rata share of all costs and expenses, including the costs and expenses associated with the licensing of mortgage loan originators it employs, reasonably incurred in the administration of this division, as estimated by the commissioner, for the ensuing year and any deficit actually incurred or anticipated in the administration of the program in the year in which the assessment is made. The pro rata share shall be the proportion that a licensees gross income bears to the aggregate gross income of all licensees as shown by the annual financial reports to the commissioner, for the costs and expenses remaining after the amount assessed pursuant to subdivision (c).
(b)On or before September 30 in each year, the commissioner shall notify each licensee of the amount assessed and levied against it and that amount shall be paid by October 31. If payment is not made by October 31, the commissioner shall assess and collect a penalty, in addition to the assessment, of 1 percent of the assessment for each month or part of a month that the payment is delayed or withheld.
(c)In the levying and collection of the assessment, a licensee shall neither be assessed for nor be permitted to pay less than two hundred fifty dollars ($250) per licensed location per year.
(d)If a licensee fails to pay the assessment on or before October 31, the commissioner may by order summarily suspend or revoke the certificate issued to the licensee. If, after an order is made, a request for a hearing is filed in writing within 30 days, and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when its certificate is revoked or suspended, a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee and any mortgage loan originator licensee employed by the finance lender or broker shall not conduct business pursuant to this division except as may be permitted by order of the commissioner. However, the revocation, suspension, or surrender of a certificate shall not affect the powers of the commissioner as provided in this division.
(e)The commissioner shall, by rule, establish the timelines, fees, and assessments applicable to applicants for original mortgage loan originator licenses, license renewals, and license changes under this division.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require licensees to pay assessments through the Nationwide Mortgage Licensing System and Registry.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 16.Section 22109 of the Financial Code is amended to read:22109.(a)Upon reasonable notice and opportunity to be heard, the commissioner may deny the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license for any of the following reasons:
(1)A false statement of a material fact has been made in the application.
(2)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has, within the last 10 years, been convicted of or pleaded nolo contendere to a crime, or committed an act involving dishonesty, fraud, or deceit, if the crime or act is substantially related to the qualifications, functions, or duties of a person engaged in business in accordance with this division.
(3)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has violated any provision of this division or the rules thereunder or any similar regulatory scheme of the State of California or a foreign jurisdiction.
(4)The applicant employs a mortgage loan originator who is not licensed, or has not initiated an application to become licensed, pursuant to this division.
(b)The application shall be considered withdrawn within the meaning of this section if the applicant fails to respond to a written notification of a deficiency in the application within 90 days of the date of the notification.
(c)The commissioner shall, within 60 days from the filing of a full and complete application for a license with the fees, either issue a license or file a statement of issues prepared in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 17.Section 22112 of the Financial Code is amended to read:22112.(a)A licensee shall maintain a surety bond in accordance with this subdivision in a minimum amount of twenty-five thousand dollars ($25,000). The bond shall be payable to the commissioner and issued by an insurer authorized to do business in this state. An original surety bond, including any and all riders and endorsements executed subsequent to the effective date of the bond, shall be filed with the commissioner within 10 days of execution. For licensees with multiple licensed locations, only one surety bond is required. The bond shall be used for the recovery of expenses, fines, and fees levied by the commissioner in accordance with this division or for losses or damages incurred by borrowers, recipients, or consumers as the result of a licensees noncompliance with the requirements of this division.
(b)When an action is commenced on a licensees bond, the commissioner may require the filing of a new bond. Immediately upon recovery of any action on the bond, the licensee shall file a new bond. Failure to file a new bond within 10 days of the recovery on a bond, or within 10 days after notification by the commissioner that a new bond is required, constitutes sufficient grounds for the suspension or revocation of the license.
(c)The commissioner may by rule require a higher bond amount for a licensee who employs one or more mortgage loan originators and who makes or arranges residential mortgage loans, based on the dollar amount of residential mortgage loans originated by that licensee and any mortgage loan originators employed by that licensee. Every mortgage loan originator employed by the licensee shall be covered by the surety bond.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 18.Section 22151 of the Financial Code is amended to read:22151.(a)A finance lender license, broker license, commercial financing provider license, commercial financing broker license, program administrator license, and the license of every mortgage loan originator employed by a lender or finance broker, along with any currently effective order of the commissioner approving a different name pursuant to Section 22155, shall be conspicuously posted in the place of business authorized by the license.
(b)A license is not transferable or assignable. A license issued to a partnership or a limited partnership is not transferred or assigned within the meaning of this section by the death, withdrawal, or admission of a partner, general partner, or limited partner, unless the death, withdrawal, or admission dissolves the partnership to which the license was issued.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 19.Section 22153 of the Financial Code is amended to read:22153.(a)If a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeks to change its place of business to a street address other than that designated in its license, the licensee shall provide notice to the commissioner at least 10 days before the change. The commissioner shall notify the licensee within 10 days if the commissioner disapproves the change, and if the commissioner does not notify the licensee of disapproval within 10 days, the change in address shall be deemed approved. The commissioner may require an applicant to submit its application to change its place of business through the Nationwide Mortgage Licensing System and Registry.
(b)If notice is not given at least 10 days before the change of a street address of a place of business, as required by subdivision (a), or notice is not given at least 10 days before engaging in business at a new location, as required by Section 22102, the commissioner may assess a civil or administrative penalty on the licensee not to exceed five hundred dollars ($500).
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 20.Section 22156 of the Financial Code is amended to read:22156.(a)Finance lender, broker, commercial financing provider, commercial financing broker, program administrator, and mortgage loan originator licensees shall keep and use in their business, books, accounts, and records which will enable the commissioner to determine if the licensee is complying with the provisions of this division and with the rules and regulations made by the commissioner. On any loan secured by real property in which loan proceeds were disbursed to an independent escrowholder, the licensee shall retain records and documents as set forth by rules of the commissioner adopted pursuant to Section 22150. Upon request of the commissioner, licensees shall file an authorization for disclosure to the commissioner of financial records of the licensed business pursuant to Section 7473 of the Government Code.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 21.Section 22157 of the Financial Code is amended to read:22157.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and mortgage loan originator licensees shall preserve their books, accounts, and records, if any, for at least three years after making the final entry on any loan or commercial financing transaction recorded therein.
(b)Except as otherwise specified by applicable law, including paragraph (3) of subdivision (b) of Section 5913 of the Streets and Highways Code, program administrator licensees shall preserve their books, accounts, and records for at least three years after the extinguishment of a PACE assessment is recorded therein.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 22.Section 22157.1 of the Financial Code is amended to read:22157.1.(a)For purposes of this section:
(1)Encrypted has the same meaning as provided in paragraph (4) of subdivision (i) of Section 1798.82 of the Civil Code.
(2)Remote location means a personal residence or a temporary, nonpublic location not owned or leased by the licensee or an affiliate of the licensee that is not simultaneously accessible by anyone other than a single employee and individuals who maintain a common household with the employee.
(b)A licensee may designate an employee, when acting within the scope of employment, to perform work on the licensees behalf at a remote location if the licensee does all of the following:
(1)Prohibits in-person consumer interactions, including the physical receipt of cash or other monetary value or the disbursement of loan or commercial financing transaction proceeds, at a remote location and does not designate a remote location to the public as a business location.
(2)Prohibits records required pursuant to Section 22156 from being physically mailed to, shipped to, or stored at a remote location except for storage on an encrypted device or encrypted media.
(3)Prohibits the physical receipt of mail related to the licensees licensed business at a remote location.
(4)Prohibits a consumers personal information from being physically stored at a remote location except for storage on an encrypted device or encrypted media.
(5)Provides an employee working at a remote location with appropriate equipment, which may include encrypted devices, virtual private networks, and similar technology, to perform work and safeguard licensee records and consumer personal information.
(6)Adopts and adheres to appropriate, as determined by the department, written policies and procedures to supervise and maintain appropriate control over the work of employees at remote locations and safeguard the licensees records and consumer personal information in connection with work at a remote location, including, but not limited to, all of the following elements:
(A)Employee data security training.
(B)Maintenance of security logs of remote logins.
(C)Procedures designed to detect suspicious logins or attempted logins and to suspend access by potentially compromised accounts or equipment.
(D)Data breach response procedures.
(7)(A)Records telephone calls with consumers conducted from a remote location to the same extent as telephone calls with consumers conducted from licensed locations.
(B)This paragraph does not require telephone call recording if the licensee does not do so in the normal course of business for the employee or business in question.
(8)All books, records, and persons that the commissioner is entitled to examine, inspect, or interview shall be made available to the commissioner at a licensed location.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 23.Section 22159 of the Financial Code is amended to read:22159.(a)(1)Each finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licensee shall file an annual report with the commissioner, on or before March 15, giving the relevant information that the commissioner reasonably requires concerning the business and operations conducted by the licensee or authorized by the program administrator licensee within the state during the preceding calendar year for each licensed place of business. The individual annual reports filed pursuant to this section shall be made available to the public for inspection except, upon request in the annual report to the commissioner, the balance sheet contained in the annual report of a sole proprietor or any other nonpublicly traded person. The report shall be made under oath and in the form prescribed by the commissioner.
(2)As used in this subdivision, nonpublicly traded person means a person with securities owned by 35 or fewer individuals.
(b)A licensee shall make other special reports required by the commissioner.
(c)The commissioner may require a licensee that employs one or more mortgage loan originators to submit to the Nationwide Mortgage Licensing System and Registry reports of condition, which shall be in the form and shall contain the information as the Nationwide Mortgage Licensing System and Registry may require.
(d)The commissioner may by rule or order require a mortgage loan originator to submit reports of condition to the Nationwide Mortgage Licensing System and Registry, in lieu of the reports of condition required of the mortgage loan originators employer pursuant to subdivision (c).
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 24.Section 22161 of the Financial Code is amended to read:22161.(a)A person subject to this division shall not do any of the following:
(1)Make a materially false or misleading statement or representation to a borrower or recipient about the terms or conditions of that borrowers loan or that recipients commercial financing transaction when making or brokering the loan or commercial financing transaction.
(2)Make a materially false or misleading statement or representation to a property owner about the terms or conditions of an assessment contract.
(3)Advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast in any manner, any statement or representation with regard to the business subject to the provisions of this division, including the rates, terms, or conditions for making or negotiating loans, making or negotiating commercial financing transactions, or for making or negotiating assessment contracts, that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements not false, misleading, or deceptive, or in the case of a licensee, that refers to the supervision of the business by the state or any department or official of the state.
(4)Commit an act in violation of Section 1695.13 of the Civil Code.
(5)Engage in any act in violation of Section 17200 of the Business and Professions Code.
(6)Knowingly misrepresent, circumvent, or conceal, through subterfuge or device, any material aspect or information regarding a transaction to which the person is a party.
(7)Commit an act that constitutes fraud or dishonest dealings.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 25.Section 22162 of the Financial Code is amended to read:22162.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or mortgage loan originator licensee shall not place an advertisement disseminated primarily in this state for a loan or commercial financing transaction unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the loan or commercial financing transaction would be made or arranged.
(b)A program administrator licensee shall not place an advertisement disseminated primarily in this state for an assessment contract unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the assessment contract would be administered.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 26.Section 22164 of the Financial Code is amended to read:22164.(a)If any person engaged in the business regulated by this division refers in any advertising to rates of interest, charges, or cost of loans, commercial financing transactions, or assessment contracts, the commissioner shall require that the rates, charges, or costs are stated fully and clearly in the manner that the commissioner deems necessary to give adequate information to prospective borrowers or property owners. If the rates or costs advertised do not apply to loans or assessment contracts of all classes made or negotiated by the person, this fact shall be clearly indicated in the advertisement.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 27.Section 22167.1 is added to the Financial Code, to read:22167.1.(a)A licensed commercial financing provider may act as a commercial financing broker at its licensed place of business without obtaining an additional license as a commercial financing broker under this division only if the licensee has notified the commissioner of the action in writing.
(b)This section shall become operative on January 1, 2028.
SEC. 28.Section 22168 of the Financial Code is amended to read:22168.(a)The commissioner may, after appropriate notice and opportunity for hearing, suspend for a period not to exceed 12 months or bar a person from any position of employment with a licensee if the commissioner finds that the person has willfully used or claimed without authority a designation or certification of special education, practice, or skill that the person has not attained, or willfully held out to the public a confusingly similar designation or certification for the purpose of misleading the public regarding the persons qualifications or experience.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receiving a request, the matter shall be set for hearing to commence within 30 days after receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of the notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to subdivision (a), the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under this division.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting its business. This subdivision does not prohibit suspended or barred persons from having their personal transactions processed by a licensed finance lender, broker, commercial financing provider, commercial financing broker, mortgage loan originator, or program administrator.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 29.Section 22169 of the Financial Code is amended to read:22169.(a)The commissioner may, after appropriate notice and opportunity for hearing, by order, censure or suspend for a period not exceeding 12 months, or bar a person, including a mortgage loan originator, from any position of employment with, or management or control of, any finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or any other person, if the commissioner finds either of the following:
(1)That the censure, suspension, or bar is in the public interest and that the person has committed or caused a violation of this division or rule or order of the commissioner, which violation was either known or should have been known by the person committing or causing it or has caused material damage to the finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, or to the public.
(2)That the person has been convicted of or pleaded nolo contendere to any crime, or has been held liable in any civil action by final judgment, or any administrative judgment by any public agency, if that crime or civil or administrative judgment involved any offense involving dishonesty, fraud, or deceit, or any other offense reasonably related to the qualifications, functions, or duties of a person engaged in the business in accordance with the provisions of this division.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receipt of a request, the matter shall be set for hearing to commence within 30 days after such receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of such notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to this section, the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under the law.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting business.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 30.Chapter 3.1 (commencing with Section 22655) is added to Division 9 of the Financial Code, to read:3.1.Commercial Financing for Small Businesses1.Definitions22655.As used in this chapter:
(a)Accounts receivable purchase transaction has the same meaning as defined in Section 22800.
(b)Annual percentage rate or APR means an annualized rate calculated pursuant to Subchapter 3 (commencing with Section 900) of Chapter 3 of Title 10 of the California Code of Regulations.
(c)Asset-based lending transaction has the same meaning as defined in Section 22800.
(d)(1)Charge includes the aggregate interest, fees, bonuses, commissions, brokerage, discounts, expenses, and other forms of costs charged, contracted for, or received by a licensee or any other person in connection with the investigating, arranging, negotiating, procuring, guaranteeing, making, servicing, collecting, and enforcing of a commercial financing transaction or forbearance of money, credit, goods, or things in action, or any other service rendered.
(2)Charge includes a profit or advantage of any kind that a licensee may contract for, collect, receive, or obtain by a collateral sale, purchase, or agreement, in connection with negotiating, arranging, making, or otherwise in connection with any commercial financing transaction.
(e)(1)Commercial financing means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose.
(2)For purposes of determining the primary purpose of the financing within the meaning of this subdivision, the provider may rely on any written statement of intended purposes signed by the recipient. The statement may be a separate statement signed by the recipient or may be contained in a loan application or other document signed by the recipient. The provider is not required to ascertain that the proceeds of the financing are used in accordance with the statement of intended purposes.
(f)(1)Commercial financing broker means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider:
(A)Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
(B)Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
(C)Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
(D)Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipients sensitive data.
(E)(i)Subject to clause (ii), participating in the preparation of commercial financing documents, including, but not limited to, commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.
(ii)Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
(F)Communicating to a prospective recipient a commercial financing providers commercial financing approval decisions.
(G)Charging a fee to a prospective recipient for services related to a prospective recipients application for a commercial financing transaction from a commercial financing provider.
(2)Notwithstanding paragraph (1), a person is not a commercial financing broker solely because they take any of the following actions:
(A)Perform support tasks, including, but not limited to, typing, word processing, data entry, filing, billing, answering telephone calls, taking and receiving messages, and scheduling, in support of the performance by a broker of any of the activities described in subparagraphs (E) to (G), inclusive, of paragraph (1).
(B)Furnish a consumer report to a licensee by a consumer reporting agency in accordance with subsection (a) or (c) of Section 1681b of Title 15 of the United States Code.
(C)Furnish a consumer credit report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with subdivision (a) or paragraph (1) of subdivision (b) of Section 1785.11 of the Civil Code.
(D)Furnish a prequalifying report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with paragraph (2) of subdivision (b) of Section 1785.11 of the Civil Code.
(E)Distribute or disseminate to a prospective recipient of a providers marketing materials or factual information about the provider, its lending activities, or its loan products, including, but not limited to, the providers interest rates, the providers minimum or maximum loan amounts or loan periods, or a general description of the providers underwriting criteria.
(g)Commercial financing provider means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.
The fact that a commercial financing provider extended a specific offer of commercial financing on behalf of a depository institution shall not be construed to mean that the commercial financing provider engaged in, or originated, that financing.
(h)Commercial loan has the same meaning as defined in Section 22502.
(i)Commercial open-end credit plan has the same meaning as defined in Section 22800.
(j)Factoring has the same meaning as defined in Section 22800.
(k)Lease financing has the same meaning as defined in Section 22800.
(l)Recipient means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than five hundred thousand dollars ($500,000).
(m)Referral means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipients contact information to a commercial financing provider, for the purpose of making an introduction.
(n)Sensitive data means any of the following:
(1)A bank account number.
(2)A bank statement.
(3)A credit or debit card account number.
(4)A credit score, as defined in Section 1785.15.1 of the Civil Code.
(5)All of, or a portion of, a social security number.
(6)Personal or business income information, including information self-reported by the person.
(7)A taxpayer or employer identification number.
(o)(1)Small business means a business entity organized for profit with annual gross receipts of no more than sixteen million dollars ($16,000,000) or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Section 14837 of the Government Code, whichever is greater.
(2)For purposes of determining a business entitys annual gross receipts, a licensee may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing.
2.Exemptions22656.This chapter does not apply to any of the following:
(a)A commercial financing provider that is a lender regulated under Chapter 23 (commencing with Section 2001) of Title 12 of the United States Code.
(b)A commercial financing transaction secured by real property.
(c)A commercial financing transaction in which the recipient is either of the following:
(1)A dealer, as defined in Section 285 of the Vehicle Code, or an affiliate of a dealer.
(2)A vehicle rental company, or an affiliate of a vehicle rental company, pursuant to a specific commercial financing offer or commercial open-end credit plan of at least fifty thousand dollars ($50,000), including a commercial loan made pursuant to that commercial financing transaction.
(d)A person who makes one or fewer commercial financing transactions in the state in a 12-month period.
(e)A person who makes five or fewer commercial financing transactions in the state in a 12-month period that are incidental to the business of the person relying upon the exemption.
22657.Sections 22152, 22154, and 22155 do not apply to a commercial financing transaction or to a licensed commercial financing provider or licensed commercial financing broker in connection with any commercial financing transaction.
3.Regulations22658.A commercial financing agreement is not enforceable unless any of the following requirements is met:
(a)The person providing the commercial financing transaction is a licensed commercial financing provider.
(b)The person providing the commercial financing transaction has submitted a complete application and is awaiting approval or denial pursuant to subdivision (b) of Section 22100.6.
(c)The commercial financing transaction was entered into prior to January 1, 2028.
22659.(a)A commercial financing provider or a commercial financing broker shall not take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
(b)A commercial financing provider or a commercial financing broker shall not include a provision in a commercial financing transaction agreement or contract that authorizes a commercial financing provider or a commercial financing broker to attach or garnish any of a recipients money held in an account in a depository institution.(c)(b)A commercial financing transaction found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of this division and subject to the remedies specified in this division.
(d)(c)A commercial financing provider or a commercial financing broker shall not include a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipients business activities with the commercial financing provider, including, but not limited to, terms or conditions of a product or service offered by the commercial financing provider.
(e)(d)A commercial financing broker shall clearly and conspicuously display on their internet website the average and maximum annual percentage rates for the commercial financing transactions facilitated by them in the most recent calendar year.
22660.(a)For purposes of this section:
(1)Amount financed has the same meaning as defined in Section 900 of Title 10 of the California Code of Regulations.
(2)Type of commercial financing means the types of commercial financing listed in subdivision (a) of Section 917 of Title 10 of the California Code of Regulations.
(b)Except as provided in subdivision (c) or (d), on or before March 15 of each year, beginning in 2029, a commercial financing provider shall file electronically through the departments internet website a report verified by an authorized officer containing all of the following information for activity during the preceding calendar year:
(1)The commercial financing providers identifying and contact information, including name, any fictitious business names, entity type, mailing address, telephone number, email address, internet website address, and designated contact person.
(2)By type of commercial financing, the total number of commercial financing transactions and total dollar amount financed with recipients.
(3)By type of commercial financing, the number of commercial financing transactions with recipients for each of the following amounts financed:
(A)Ten thousand dollars ($10,000) or less.
(B)Over ten thousand dollars ($10,000) but not over twenty-five thousand dollars ($25,000).
(C)Over twenty-five thousand dollars ($25,000) but not over fifty thousand dollars ($50,000).
(D)Over fifty thousand dollars ($50,000) but not over one hundred thousand dollars ($100,000).
(E)Over one hundred thousand dollars ($100,000) but not over two hundred fifty thousand dollars ($250,000).
(F)Over two hundred fifty thousand dollars ($250,000) but not over five hundred thousand dollars ($500,000).
(4)(A)Except as provided in subparagraph (B), by type of commercial financing and for each interval described in paragraph (3), the minimum, maximum, average, and median annual percentage rate disclosed in disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations.
(B)For a given type of commercial financing and interval, if the commercial financing provider did not provide any disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations, the commercial financing provider shall indicate that on the report and is not required to calculate or report that information.
(c)A commercial financing provider shall not include in the report required by subdivision (a) information for commercial loan activity conducted under the authority of Chapter 1 (commencing with Section 22000) or Chapter 3 (commencing with Section 22500).
(d)For purposes of this section, if a commercial financing does not meet any of the types of commercial financing, the commercial financing provider shall include the transaction as an other type.
22661.(a)It is unlawful for a commercial financing provider or commercial financing broker to engage or have engaged in any unlawful, unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or commercial financing brokering services to a recipient.
(b)For purposes of subdivision (a), an act or practice is unfair if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice causes or is likely to cause substantial injury to recipients.
(B)The injury is not reasonably avoidable by recipients.
(C)The injury is not outweighed by countervailing benefits to recipients or to competition.
(2)It is unfair in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(c)For purposes of subdivision (a), an act or practice, including, but not limited to, a representation or an omission, is deceptive if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice misleads or is likely to mislead the recipient.
(B)The recipients interpretation of the act or practice is reasonable under the circumstances.
(C)The act or practice is material.
(2)It is deceptive in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(d)For purposes of subdivision (a) an act or practice is abusive if either of the following conditions is met:
(1)It materially interferes with the ability of a recipient to understand a term or condition of commercial financing or commercial financing brokering services.
(2)It takes unreasonable advantage of any of the following:
(A)A lack of understanding on the part of the recipient of the material risks, costs, or conditions of the commercial financing or commercial financing brokering services.
(B)The inability of the recipient to protect its interests in selecting or using commercial financing.
(C)The reasonable reliance by the recipient on a commercial financing provider or commercial financing broker to act in the interests of the recipient.
4.Operative Date22662.This chapter shall become operative on January 1, 2028.
SEC. 31.Section 22700 of the Financial Code is amended to read:22700.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licenses issued under this division shall remain in effect until they are surrendered, revoked, or suspended.
(b)Mortgage loan originator licenses issued under this division shall be renewed annually upon the payment of an annual assessment, and, if renewed by the licensee, shall remain in effect until they are surrendered, revoked, or suspended.
(c)Surrender of a license becomes effective 30 days after receipt of an application to surrender the license or within a shorter period of time that the commissioner may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the surrender is instituted within 30 days after the application is filed. If a proceeding is pending or instituted, surrender of a license becomes effective at the time and upon the conditions that the commissioner determines.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 32.Section 22701 of the Financial Code is amended to read:22701.(a)For the purpose of discovering violations of this division or securing information required by the commissioner in the administration and enforcement of this division, the commissioner may at any time investigate the loans, commercial financing transactions, assessment contracts, and business, and examine the books, accounts, records, and files used in the business, of every person engaged in the business of a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, whether the person acts or claims to act as principal or agent, or under or without the authority of this division. For the purpose of examination, the commissioner and the commissioners representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all these persons.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 33.Section 22712 of the Financial Code is amended to read:22712.(a)(1) Whenever, in the opinion of the commissioner, any person is engaged or has engaged in business as a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, as defined in this division, without a license from the commissioner, or any licensee is violating or has violated any provision of this division, any provision of an order, or any regulation adopted pursuant to this division, the commissioner may order that person or licensee to desist and to refrain from engaging in the business or further continuing that violation. In addition, the commissioner may include a claim for ancillary relief. The ancillary relief may include, but not be limited to, refunds, restitution or disgorgement, or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action. If, within 30 days after the order is served, a written request for a hearing is filed and no hearing is held within 30 days thereafter, the order is rescinded.
(2)For purposes of this subdivision, licensee includes a mortgage loan originator.
(b)Notwithstanding subdivision (a), if, after an investigation, the commissioner has reasonable grounds to believe that a person is conducting or has conducted business in an unsafe or injurious manner, the commissioner shall, by written order addressed to that person, direct the discontinuance of the unsafe or injurious practices. The order shall be effective immediately but shall not become final except in accordance with the provisions of Section 22717.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 34.Section 22714 of the Financial Code is amended to read:22714.(a)The commissioner shall suspend or revoke any license, upon notice and reasonable opportunity to be heard, if the commissioner finds any of the following:
(1)The licensee has failed to comply with any demand, ruling, or requirement of the commissioner made pursuant to and within the authority of this division.
(2)The licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division.
(3)A fact or condition exists that, if it had existed at the time of the original application for the license, reasonably would have warranted the commissioner in refusing to issue the license originally.
(4)There has been repeated failure by the finance lender, when making or negotiating loans, to take into consideration in determining the size and duration of loans, the financial ability of the borrower to repay the loan in the time and manner provided in the loan contract, or to refinance the loan at maturity.
(5)There has been repeated failure by the program administrator, when administering assessment contracts, to take into consideration in determining the size and duration of the assessment contracts, the property owners ability to meet the annual PACE obligations in the time and manner provided in the contract.
(6)There has been repeated failure by the commercial financing provider, when making or negotiating commercial financing transactions, to take into consideration in determining the size, duration, and repayment features, the financial ability of the recipient to repay the commercial financing transaction in the time and manner provided in the commercial financing agreement or contract or to refinance the commercial financing transaction at maturity.
(b)A master license shall not be suspended or revoked pursuant to this section as a result of any action or failure to act by a subsidiary licensee unless grounds exist for the suspension or revocation of the master license pursuant to this section. An order suspending or revoking a license or imposing sanctions against a licensee shall not affect other licensed locations unless expressly stated in the order.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 35.Section 22807 of the Financial Code is amended and renumbered to read:22808.(a)A violation of this division by a person licensed under the California Financing Law (Division 9 (commencing with Section 22000)) shall be deemed a violation of the California Financing Law if the violation relates to a commercial financing transaction that is subject to the California Financing Law.
(b)A violation of this provision shall be deemed an unfair, deceptive, or abusive act or practice under the California Consumer Financial Protection Law (Division 24 (commencing with Section 90000)) if the violation relates to a commercial financing transaction that is not subject to the California Financing Law (Division 9 (commencing with Section 22000)).
SEC. 36.Section 22807 is added to the Financial Code, to read:22807.The commissioner may require that rates of charge be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or recipients.
SEC. 37.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
(a)This division shall be liberally construed and applied to promote its underlying purposes and policies, which are:
(1)To ensure an adequate supply of credit to borrowers in this state.
(2)To simplify, clarify, and modernize the law governing loans made by finance lenders.
(3)To foster competition among finance lenders.
(4)To protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders.
(5)To permit and encourage the development of fair and economically sound lending practices.
(6)To encourage and foster a sound economic climate in this state.
(7)To protect property owners from deceptive and misleading practices that threaten the efficacy and viability of property assessed clean energy financing programs.
(8)To protect small businesses against unfair practices by some commercial financing providers, having due regard for the interest of legitimate and scrupulous commercial financing providers.
(b)Consumer loans, as defined in Sections 22203 and 22204, are subject to this chapter, Chapter 2 (commencing with Section 22200), Article 1 (commencing with Section 22700) of Chapter 4, and Article 2 (commencing with Section 22750) of Chapter 4.
(c)Commercial loans, as defined in Section 22502, are subject to this chapter, Chapter 3 (commencing with Section 22500), Article 1 (commencing with Section 22700) of Chapter 4, and Article 3 (commencing with Section 22780) of Chapter 4.
(d)A program administrator, as defined in Section 22018, is subject to this chapter, Chapter 3.5 (commencing with Section 22680), and Article 1 (commencing with Section 22700) of Chapter 4.
(e)Commercial financing, as defined in Section 22655, is subject to this chapter, Chapter 3.1 (commencing with Section 22655), and Article 1 (commencing with Section 22700) and Article 3 (commencing with Section 22780) of Chapter 4.
(f)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 2.Section 22002 of the Financial Code is amended to read:22002.(a)To accomplish its underlying purposes and policies, this division creates a class of exempt persons pursuant to Section 1 of Article XV of the California Constitution. The class of exempt persons includes any person licensed under this division.
(b)(1)It is the intent of the Legislature to preserve existing exemptions under Section 1 of Article XV of the California Constitution and statutory law for all of the following:
(A)Personal property brokers formerly regulated by the Personal Property Brokers Law.
(B)Lenders formerly regulated by the Consumer Finance Lenders Law.
(C)Lenders formerly regulated by the Commercial Finance Lenders Law.
(2)No finding that any provision of this division is invalid with respect to a particular lender or class of lenders shall affect the enforceability of this division with respect to any of the classifications of lenders described in paragraph (1), which shall in all events continue to be exempted by this division.
SEC. 3.Section 22007 of the Financial Code is amended to read:22007.(a)Licensee means any finance lender, broker, commercial financing provider, commercial financing broker, or program administrator who receives a license in accordance with this division.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 4.Section 22010 of the Financial Code is amended to read:22010.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator do not include employees regularly employed at the location specified in the license of the finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, except that an employee, when acting within the scope of the employees employment, shall be exempt from any other law from which the employees employer is exempt.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 5.Section 22021 is added to the Financial Code, to read:22021.(a)Except in Sections 22064 and 22687, recipient has the same meaning as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 6.Section 22022 is added to the Financial Code, to read:22022.(a)Commercial financing and commercial financing provider have the same meanings as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 7.Section 22100.6 is added to the Financial Code, to read:22100.6.(a)A person shall not engage in the business of a commercial financing provider or a commercial financing broker without obtaining a license from the commissioner.
(b)Notwithstanding subdivision (a), a person may engage in the business of a commercial financing provider or a commercial financing broker if the person submits a complete application on or before January 1, 2028, and is awaiting approval or denial of the application.
(c)This section shall become operative on January 1, 2028.
SEC. 8.Section 22101 of the Financial Code is amended to read:22101.(a)An application for a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall be in the form and contain the information that the commissioner may by rule or order require and shall be filed upon payment of the fee specified in Section 22103.
(b)Notwithstanding any other law, an applicant who does not currently hold a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall furnish, with their application, a full set of fingerprints and related information for purposes of the commissioner conducting a criminal history record check. The commissioner shall obtain and receive criminal history information from the Department of Justice and the Federal Bureau of Investigation pursuant to Section 22101.5.
(c)This section does not prevent a licensee from engaging in the business of a finance lender or program administrator through a subsidiary corporation if the subsidiary corporation is licensed pursuant to this division.
(d)For purposes of this section, subsidiary corporation means a corporation that is wholly owned by a licensee.
(e)A new application shall not be required for a change in the address of an existing location previously licensed under this division. However, the licensee shall comply with the requirements of Section 22153.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require an application to be made through the Nationwide Mortgage Licensing System and Registry, and may require fees, fingerprints, financial statements, supporting documents, changes of address, and any other information, and amendments or modifications thereto, to be submitted in the same manner.
(g)Notwithstanding any other law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. This section does not require the commissioner to accept electronic records or electronic signatures.
(h)For purposes of this section, the following terms have the following meanings:
(1)Electronic record means an initial license application, or material modification of that license application, and any other record created, generated, sent, communicated, received, or stored by electronic means. Electronic records also includes, but is not limited to, all of the following:
(A)An application, amendment, supplement, and exhibit, filed for any license, consent, or other authority.
(B)A financial statement, a report, or advertising.
(C)An order, license, consent, or other authority.
(D)A notice of public hearing, accusation, and statement of issues in connection with any application, license, consent, or other authority.
(E)A proposed decision of a hearing officer and a decision of the commissioner.
(F)The transcripts of a hearing and correspondence between a party and the commissioner directly relating to the record.
(G)A release, newsletter, interpretive opinion, determination, or specific ruling.
(H)Correspondence between a party and the commissioner directly relating to any document listed in subparagraphs (A) to (G), inclusive.
(2)Electronic signature means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.
(i)The Legislature finds and declares that the Department of Financial Protection and Innovation has continuously implemented methods to accept records filed electronically, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal.
(j)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 9.Section 22101.5 of the Financial Code is amended to read:22101.5.(a)The commissioner shall submit to the Department of Justice fingerprint images and related information required by the Department of Justice of all finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license candidates, as defined by subdivision (a) of Section 22101, for purposes of obtaining information as to the existence and content of a record of state or federal convictions, state or federal arrests, and information as to the existence and content of a record of state or federal arrests for which the Department of Justice establishes that the person is free on bail or on the persons own recognizance pending trial or appeal.
(b)When received, the Department of Justice shall forward to the Federal Bureau of Investigation requests for federal summary criminal history information received pursuant to this section. The Department of Justice shall review the information returned from the Federal Bureau of Investigation and compile and disseminate a response to the commissioner.
(c)The Department of Justice shall provide a response to the commissioner pursuant to paragraph (1) of subdivision (p) of Section 11105 of the Penal Code.
(d)The commissioner shall request from the Department of Justice subsequent arrest notification service, as provided pursuant to Section 11105.2 of the Penal Code, for license candidates described in subdivision (a).
(e)The Department of Justice shall charge a fee sufficient to cover the costs of processing the requests pursuant to this section.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require fingerprints submitted by an applicant to be submitted to the Nationwide Mortgage Licensing System and Registry in addition to the Department of Justice.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 10.Section 22102 of the Financial Code is amended to read:22102.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeking to engage in business at a new location shall submit an application for a branch office license to the commissioner at least 10 days before engaging in business at a new location and pay the fee required by Section 22103. The commissioner may require an applicant seeking to engage in business at a new location to submit its application, or parts thereof, through the Nationwide Mortgage Licensing System and Registry.
(b)The licensee may engage in business at the new location 10 days after the date of submission of a branch office application.
(c)(1)The commissioner shall approve or deny the person responsible for the lending or financing activity at the new location in accordance with Section 22109, and shall notify the licensee of this decision within 90 days of the date of receipt of the application.
(2)If the commissioner denies the application, the licensee shall, within 10 days of the date of receipt of notification of the commissioners denial, submit a new application to the commissioner designating a different person responsible for the lending or financing activity at the new location. The commissioner shall approve or deny the different person as provided in paragraph (1).
(d)A licensee shall not engage in business at a new location in a name other than a name approved by the commissioner.
(e)The commissioner may adopt regulations to implement the requirements of this section.
(f)A branch office license to engage in business at a new location shall be issued in accordance with this section. A change of street address of a place of business designated in a license shall be made in accordance with Section 22153 and shall not constitute a new location subject to the requirements of this section.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 11.Section 22103 of the Financial Code is amended to read:22103.(a)At the time of filing the application for a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or branch office license, the applicant shall pay to the commissioner the sum of one hundred dollars ($100) as a fee for investigating the application, plus the cost of fingerprint processing and the criminal history record check under Section 22101.5, and two hundred dollars ($200) as an application fee. The investigation fee, including the amount for the criminal history record check, and the application fee are not refundable if an application is denied or withdrawn.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 12.Section 22104 of the Financial Code is amended to read:22104.(a)The applicant shall file with the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license financial statements prepared in accordance with generally accepted accounting principles and acceptable to the commissioner that indicate a net worth of at least twenty-five thousand dollars ($25,000). Except as provided in subdivisions (b) and (c), a licensee shall maintain a net worth of at least twenty-five thousand dollars ($25,000) at all times.
(b)A licensed finance lender or broker, that employs one or more mortgage loan originators and that makes residential mortgage loans, shall continuously maintain a minimum net worth of at least two hundred fifty thousand dollars ($250,000).
(c)A licensed finance broker, that employs one or more mortgage loan originators and that arranges, but does not make, residential mortgage loans, shall continuously maintain a minimum net worth of at least fifty thousand dollars ($50,000).
(d)The commissioner may promulgate rules or regulations with respect to the requirements for minimum net worth, as are necessary to accomplish the purposes of this division and comply with the SAFE Act.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 13.Section 22105 of the Financial Code is amended to read:22105.(a)Upon the filing of an application pursuant to Section 22101 and the payment of the fees, the commissioner shall investigate the applicant and its general partners and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or any person responsible for the conduct of the applicants lending, financing, or program administration activities in this state, if the applicant is a partnership. If the applicant is a corporation, trust, limited liability company, or association, including an unincorporated organization, the commissioner shall investigate the applicant, its principal officers, directors, managing members, and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding equity securities or any person responsible for the conduct of the applicants lending or financing activities or for administering PACE programs for the applicant in this state. Upon the filing of an application pursuant to Section 22102 and the payment of the fees, the commissioner shall investigate the person responsible for the lending or financing activity of the licensee, or for administering one or more PACE programs for the licensee, at the new location described in the application. The investigation may be limited to information that was not included in prior applications filed pursuant to this division. If the commissioner determines that the applicant has satisfied this division and does not find facts constituting reasons for denial under Section 22109, the commissioner shall issue and deliver a license to the applicant.
(b)For the purposes of this section, principal officers shall mean president, chief executive officer, treasurer, and chief financial officer, as may be applicable, and any other officer with direct responsibility for the conduct of the applicants lending or financing activities or for PACE program administration for the applicant within the state.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 14.Section 22106 of the Financial Code is amended to read:22106.(a)The finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license shall state the name of the licensee, and if the licensee is a partnership, the names of its general partners, and if a corporation or an association, the date and place of its incorporation or organization, and the address of the licensees principal business location. On the approval and licensing of a location pursuant to Section 22101 or 22102, the commissioner shall issue an original license endorsed to show the address of the authorized location and, if applicable, the name of the subsidiary corporation licensed to operate the location. The license shall state whether the licensee is licensed as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator.
(b)(1)An application for a license for a business location outside this state shall constitute an agreement by the applicant to do all of the following:
(A)Make the licensees books, accounts, papers, records, and files available to the commissioner or the commissioners representatives in this state.
(B)Pay the reasonable expenses for travel, meals, and lodging of the commissioner or the commissioners representatives incurred during any investigation or examination made at the licensees location outside this state.
(2)A licensee located outside this state is not required to maintain books and records regarding licensed loans or licensed commercial financing transactions separate from those for other loans or other commercial financing transactions if the licensed loans or licensed commercial financing transactions can be readily identified.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 15.Section 22107 of the Financial Code is amended to read:22107.(a)Each finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee shall pay to the commissioner its pro rata share of all costs and expenses, including the costs and expenses associated with the licensing of mortgage loan originators it employs, reasonably incurred in the administration of this division, as estimated by the commissioner, for the ensuing year and any deficit actually incurred or anticipated in the administration of the program in the year in which the assessment is made. The pro rata share shall be the proportion that a licensees gross income bears to the aggregate gross income of all licensees as shown by the annual financial reports to the commissioner, for the costs and expenses remaining after the amount assessed pursuant to subdivision (c).
(b)On or before September 30 in each year, the commissioner shall notify each licensee of the amount assessed and levied against it and that amount shall be paid by October 31. If payment is not made by October 31, the commissioner shall assess and collect a penalty, in addition to the assessment, of 1 percent of the assessment for each month or part of a month that the payment is delayed or withheld.
(c)In the levying and collection of the assessment, a licensee shall neither be assessed for nor be permitted to pay less than two hundred fifty dollars ($250) per licensed location per year.
(d)If a licensee fails to pay the assessment on or before October 31, the commissioner may by order summarily suspend or revoke the certificate issued to the licensee. If, after an order is made, a request for a hearing is filed in writing within 30 days, and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when its certificate is revoked or suspended, a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee and any mortgage loan originator licensee employed by the finance lender or broker shall not conduct business pursuant to this division except as may be permitted by order of the commissioner. However, the revocation, suspension, or surrender of a certificate shall not affect the powers of the commissioner as provided in this division.
(e)The commissioner shall, by rule, establish the timelines, fees, and assessments applicable to applicants for original mortgage loan originator licenses, license renewals, and license changes under this division.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require licensees to pay assessments through the Nationwide Mortgage Licensing System and Registry.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 16.Section 22109 of the Financial Code is amended to read:22109.(a)Upon reasonable notice and opportunity to be heard, the commissioner may deny the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license for any of the following reasons:
(1)A false statement of a material fact has been made in the application.
(2)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has, within the last 10 years, been convicted of or pleaded nolo contendere to a crime, or committed an act involving dishonesty, fraud, or deceit, if the crime or act is substantially related to the qualifications, functions, or duties of a person engaged in business in accordance with this division.
(3)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has violated any provision of this division or the rules thereunder or any similar regulatory scheme of the State of California or a foreign jurisdiction.
(4)The applicant employs a mortgage loan originator who is not licensed, or has not initiated an application to become licensed, pursuant to this division.
(b)The application shall be considered withdrawn within the meaning of this section if the applicant fails to respond to a written notification of a deficiency in the application within 90 days of the date of the notification.
(c)The commissioner shall, within 60 days from the filing of a full and complete application for a license with the fees, either issue a license or file a statement of issues prepared in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 17.Section 22112 of the Financial Code is amended to read:22112.(a)A licensee shall maintain a surety bond in accordance with this subdivision in a minimum amount of twenty-five thousand dollars ($25,000). The bond shall be payable to the commissioner and issued by an insurer authorized to do business in this state. An original surety bond, including any and all riders and endorsements executed subsequent to the effective date of the bond, shall be filed with the commissioner within 10 days of execution. For licensees with multiple licensed locations, only one surety bond is required. The bond shall be used for the recovery of expenses, fines, and fees levied by the commissioner in accordance with this division or for losses or damages incurred by borrowers, recipients, or consumers as the result of a licensees noncompliance with the requirements of this division.
(b)When an action is commenced on a licensees bond, the commissioner may require the filing of a new bond. Immediately upon recovery of any action on the bond, the licensee shall file a new bond. Failure to file a new bond within 10 days of the recovery on a bond, or within 10 days after notification by the commissioner that a new bond is required, constitutes sufficient grounds for the suspension or revocation of the license.
(c)The commissioner may by rule require a higher bond amount for a licensee who employs one or more mortgage loan originators and who makes or arranges residential mortgage loans, based on the dollar amount of residential mortgage loans originated by that licensee and any mortgage loan originators employed by that licensee. Every mortgage loan originator employed by the licensee shall be covered by the surety bond.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 18.Section 22151 of the Financial Code is amended to read:22151.(a)A finance lender license, broker license, commercial financing provider license, commercial financing broker license, program administrator license, and the license of every mortgage loan originator employed by a lender or finance broker, along with any currently effective order of the commissioner approving a different name pursuant to Section 22155, shall be conspicuously posted in the place of business authorized by the license.
(b)A license is not transferable or assignable. A license issued to a partnership or a limited partnership is not transferred or assigned within the meaning of this section by the death, withdrawal, or admission of a partner, general partner, or limited partner, unless the death, withdrawal, or admission dissolves the partnership to which the license was issued.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 19.Section 22153 of the Financial Code is amended to read:22153.(a)If a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeks to change its place of business to a street address other than that designated in its license, the licensee shall provide notice to the commissioner at least 10 days before the change. The commissioner shall notify the licensee within 10 days if the commissioner disapproves the change, and if the commissioner does not notify the licensee of disapproval within 10 days, the change in address shall be deemed approved. The commissioner may require an applicant to submit its application to change its place of business through the Nationwide Mortgage Licensing System and Registry.
(b)If notice is not given at least 10 days before the change of a street address of a place of business, as required by subdivision (a), or notice is not given at least 10 days before engaging in business at a new location, as required by Section 22102, the commissioner may assess a civil or administrative penalty on the licensee not to exceed five hundred dollars ($500).
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 20.Section 22156 of the Financial Code is amended to read:22156.(a)Finance lender, broker, commercial financing provider, commercial financing broker, program administrator, and mortgage loan originator licensees shall keep and use in their business, books, accounts, and records which will enable the commissioner to determine if the licensee is complying with the provisions of this division and with the rules and regulations made by the commissioner. On any loan secured by real property in which loan proceeds were disbursed to an independent escrowholder, the licensee shall retain records and documents as set forth by rules of the commissioner adopted pursuant to Section 22150. Upon request of the commissioner, licensees shall file an authorization for disclosure to the commissioner of financial records of the licensed business pursuant to Section 7473 of the Government Code.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 21.Section 22157 of the Financial Code is amended to read:22157.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and mortgage loan originator licensees shall preserve their books, accounts, and records, if any, for at least three years after making the final entry on any loan or commercial financing transaction recorded therein.
(b)Except as otherwise specified by applicable law, including paragraph (3) of subdivision (b) of Section 5913 of the Streets and Highways Code, program administrator licensees shall preserve their books, accounts, and records for at least three years after the extinguishment of a PACE assessment is recorded therein.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 22.Section 22157.1 of the Financial Code is amended to read:22157.1.(a)For purposes of this section:
(1)Encrypted has the same meaning as provided in paragraph (4) of subdivision (i) of Section 1798.82 of the Civil Code.
(2)Remote location means a personal residence or a temporary, nonpublic location not owned or leased by the licensee or an affiliate of the licensee that is not simultaneously accessible by anyone other than a single employee and individuals who maintain a common household with the employee.
(b)A licensee may designate an employee, when acting within the scope of employment, to perform work on the licensees behalf at a remote location if the licensee does all of the following:
(1)Prohibits in-person consumer interactions, including the physical receipt of cash or other monetary value or the disbursement of loan or commercial financing transaction proceeds, at a remote location and does not designate a remote location to the public as a business location.
(2)Prohibits records required pursuant to Section 22156 from being physically mailed to, shipped to, or stored at a remote location except for storage on an encrypted device or encrypted media.
(3)Prohibits the physical receipt of mail related to the licensees licensed business at a remote location.
(4)Prohibits a consumers personal information from being physically stored at a remote location except for storage on an encrypted device or encrypted media.
(5)Provides an employee working at a remote location with appropriate equipment, which may include encrypted devices, virtual private networks, and similar technology, to perform work and safeguard licensee records and consumer personal information.
(6)Adopts and adheres to appropriate, as determined by the department, written policies and procedures to supervise and maintain appropriate control over the work of employees at remote locations and safeguard the licensees records and consumer personal information in connection with work at a remote location, including, but not limited to, all of the following elements:
(A)Employee data security training.
(B)Maintenance of security logs of remote logins.
(C)Procedures designed to detect suspicious logins or attempted logins and to suspend access by potentially compromised accounts or equipment.
(D)Data breach response procedures.
(7)(A)Records telephone calls with consumers conducted from a remote location to the same extent as telephone calls with consumers conducted from licensed locations.
(B)This paragraph does not require telephone call recording if the licensee does not do so in the normal course of business for the employee or business in question.
(8)All books, records, and persons that the commissioner is entitled to examine, inspect, or interview shall be made available to the commissioner at a licensed location.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 23.Section 22159 of the Financial Code is amended to read:22159.(a)(1)Each finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licensee shall file an annual report with the commissioner, on or before March 15, giving the relevant information that the commissioner reasonably requires concerning the business and operations conducted by the licensee or authorized by the program administrator licensee within the state during the preceding calendar year for each licensed place of business. The individual annual reports filed pursuant to this section shall be made available to the public for inspection except, upon request in the annual report to the commissioner, the balance sheet contained in the annual report of a sole proprietor or any other nonpublicly traded person. The report shall be made under oath and in the form prescribed by the commissioner.
(2)As used in this subdivision, nonpublicly traded person means a person with securities owned by 35 or fewer individuals.
(b)A licensee shall make other special reports required by the commissioner.
(c)The commissioner may require a licensee that employs one or more mortgage loan originators to submit to the Nationwide Mortgage Licensing System and Registry reports of condition, which shall be in the form and shall contain the information as the Nationwide Mortgage Licensing System and Registry may require.
(d)The commissioner may by rule or order require a mortgage loan originator to submit reports of condition to the Nationwide Mortgage Licensing System and Registry, in lieu of the reports of condition required of the mortgage loan originators employer pursuant to subdivision (c).
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 24.Section 22161 of the Financial Code is amended to read:22161.(a)A person subject to this division shall not do any of the following:
(1)Make a materially false or misleading statement or representation to a borrower or recipient about the terms or conditions of that borrowers loan or that recipients commercial financing transaction when making or brokering the loan or commercial financing transaction.
(2)Make a materially false or misleading statement or representation to a property owner about the terms or conditions of an assessment contract.
(3)Advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast in any manner, any statement or representation with regard to the business subject to the provisions of this division, including the rates, terms, or conditions for making or negotiating loans, making or negotiating commercial financing transactions, or for making or negotiating assessment contracts, that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements not false, misleading, or deceptive, or in the case of a licensee, that refers to the supervision of the business by the state or any department or official of the state.
(4)Commit an act in violation of Section 1695.13 of the Civil Code.
(5)Engage in any act in violation of Section 17200 of the Business and Professions Code.
(6)Knowingly misrepresent, circumvent, or conceal, through subterfuge or device, any material aspect or information regarding a transaction to which the person is a party.
(7)Commit an act that constitutes fraud or dishonest dealings.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 25.Section 22162 of the Financial Code is amended to read:22162.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or mortgage loan originator licensee shall not place an advertisement disseminated primarily in this state for a loan or commercial financing transaction unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the loan or commercial financing transaction would be made or arranged.
(b)A program administrator licensee shall not place an advertisement disseminated primarily in this state for an assessment contract unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the assessment contract would be administered.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 26.Section 22163 of the Financial Code is amended to read:22163.(a)The commissioner may require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers, recipients, or property owners.(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.SEC. 27.SEC. 26.Section 22164 of the Financial Code is amended to read:22164.(a)If any person engaged in the business regulated by this division refers in any advertising to rates of interest, charges, or cost of loans, commercial financing transactions, or assessment contracts, the commissioner shall require that the rates, charges, or costs are stated fully and clearly in the manner that the commissioner deems necessary to give adequate information to prospective borrowers or property owners. If the rates or costs advertised do not apply to loans or assessment contracts of all classes made or negotiated by the person, this fact shall be clearly indicated in the advertisement.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 28.SEC. 27.Section 22167.1 is added to the Financial Code, to read:22167.1.(a)A licensed commercial financing provider may act as a commercial financing broker at its licensed place of business without obtaining an additional license as a commercial financing broker under this division only if the licensee has notified the commissioner of the action in writing.
(b)This section shall become operative on January 1, 2028.
SEC. 29.SEC. 28.Section 22168 of the Financial Code is amended to read:22168.(a)The commissioner may, after appropriate notice and opportunity for hearing, suspend for a period not to exceed 12 months or bar a person from any position of employment with a licensee if the commissioner finds that the person has willfully used or claimed without authority a designation or certification of special education, practice, or skill that the person has not attained, or willfully held out to the public a confusingly similar designation or certification for the purpose of misleading the public regarding the persons qualifications or experience.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receiving a request, the matter shall be set for hearing to commence within 30 days after receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of the notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to subdivision (a), the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under this division.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting its business. This subdivision does not prohibit suspended or barred persons from having their personal transactions processed by a licensed finance lender, broker, commercial financing provider, commercial financing broker, mortgage loan originator, or program administrator.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 30.SEC. 29.Section 22169 of the Financial Code is amended to read:22169.(a)The commissioner may, after appropriate notice and opportunity for hearing, by order, censure or suspend for a period not exceeding 12 months, or bar a person, including a mortgage loan originator, from any position of employment with, or management or control of, any finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or any other person, if the commissioner finds either of the following:
(1)That the censure, suspension, or bar is in the public interest and that the person has committed or caused a violation of this division or rule or order of the commissioner, which violation was either known or should have been known by the person committing or causing it or has caused material damage to the finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, or to the public.
(2)That the person has been convicted of or pleaded nolo contendere to any crime, or has been held liable in any civil action by final judgment, or any administrative judgment by any public agency, if that crime or civil or administrative judgment involved any offense involving dishonesty, fraud, or deceit, or any other offense reasonably related to the qualifications, functions, or duties of a person engaged in the business in accordance with the provisions of this division.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receipt of a request, the matter shall be set for hearing to commence within 30 days after such receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of such notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to this section, the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under the law.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting business.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 31.SEC. 30.Chapter 3.1 (commencing with Section 22655) is added to Division 9 of the Financial Code, to read:3.1.Commercial Financing for Small Businesses1.Definitions22655.As used in this chapter:
(a)Accounts receivable purchase transaction has the same meaning as defined in Section 22800.
(b)Annual percentage rate or APR means an annualized rate calculated pursuant to Subchapter 3 (commencing with Section 900) of Chapter 3 of Title 10 of the California Code of Regulations.
(c)Asset-based lending transaction has the same meaning as defined in Section 22800.
(d)(1)Charge includes the aggregate interest, fees, bonuses, commissions, brokerage, discounts, expenses, and other forms of costs charged, contracted for, or received by a licensee or any other person in connection with the investigating, arranging, negotiating, procuring, guaranteeing, making, servicing, collecting, and enforcing of a commercial financing transaction or forbearance of money, credit, goods, or things in action, or any other service rendered.
(2)Charge includes a profit or advantage of any kind that a licensee may contract for, collect, receive, or obtain by a collateral sale, purchase, or agreement, in connection with negotiating, arranging, making, or otherwise in connection with any commercial financing transaction.
(e)(1)Commercial financing means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose.
(2)For purposes of determining the primary purpose of the financing within the meaning of this subdivision, the provider may rely on any written statement of intended purposes signed by the recipient. The statement may be a separate statement signed by the recipient or may be contained in a loan application or other document signed by the recipient. The provider is not required to ascertain that the proceeds of the financing are used in accordance with the statement of intended purposes.
(f)(1)Commercial financing broker means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider:
(A)Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
(B)Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
(C)Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
(D)Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipients sensitive data.
(E)(i)Subject to clause (ii), participating in the preparation of commercial financing documents, including, but not limited to, commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.
(ii)Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
(F)Communicating to a prospective recipient a commercial financing providers commercial financing approval decisions.
(G)Charging a fee to a prospective recipient for services related to a prospective recipients application for a commercial financing transaction from a commercial financing provider.
(2)Notwithstanding paragraph (1), a person is not a commercial financing broker solely because they take any of the following actions:
(A)Perform support tasks, including, but not limited to, typing, word processing, data entry, filing, billing, answering telephone calls, taking and receiving messages, and scheduling, in support of the performance by a broker of any of the activities described in subparagraphs (E) to (G), inclusive, of paragraph (1).
(B)Furnish a consumer report to a licensee by a consumer reporting agency in accordance with subsection (a) or (c) of Section 1681b of Title 15 of the United States Code.
(C)Furnish a consumer credit report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with subdivision (a) or paragraph (1) of subdivision (b) of Section 1785.11 of the Civil Code.
(D)Furnish a prequalifying report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with paragraph (2) of subdivision (b) of Section 1785.11 of the Civil Code.
(E)Distribute or disseminate to a prospective recipient of a providers marketing materials or factual information about the provider, its lending activities, or its loan products, including, but not limited to, the providers interest rates, the providers minimum or maximum loan amounts or loan periods, or a general description of the providers underwriting criteria.
(g)Commercial financing provider means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.
The fact that a commercial financing provider extended a specific offer of commercial financing on behalf of a depository institution shall not be construed to mean that the commercial financing provider engaged in, or originated, that financing.
(h)Commercial loan has the same meaning as defined in Section 22502.
(i)Commercial open-end credit plan has the same meaning as defined in Section 22800.
(j)Factoring has the same meaning as defined in Section 22800.
(k)Lease financing has the same meaning as defined in Section 22800.
(l)Recipient means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than five hundred thousand dollars ($500,000).
(m)Referral means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipients contact information to a commercial financing provider, for the purpose of making an introduction.
(n)Sensitive data means any of the following:
(1)A bank account number.
(2)A bank statement.
(3)A credit or debit card account number.
(4)A credit score, as defined in Section 1785.15.1 of the Civil Code.
(5)All of, or a portion of, a social security number.
(6)Personal or business income information, including information self-reported by the person.
(7)A taxpayer or employer identification number.
(o)(1)Small business means a business entity organized for profit with annual gross receipts of no more than sixteen million dollars ($16,000,000) or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Section 14837 of the Government Code, whichever is greater.
(2)For purposes of determining a business entitys annual gross receipts, a licensee may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing.
2.Exemptions22656.This chapter does not apply to any of the following:
(a)A commercial financing provider that is a lender regulated under Chapter 23 (commencing with Section 2001) of Title 12 of the United States Code.
(b)A commercial financing transaction secured by real property.
(c)A commercial financing transaction in which the recipient is either of the following:
(1)A dealer, as defined in Section 285 of the Vehicle Code, or an affiliate of a dealer.
(2)A vehicle rental company, or an affiliate of a vehicle rental company, pursuant to a specific commercial financing offer or commercial open-end credit plan of at least fifty thousand dollars ($50,000), including a commercial loan made pursuant to that commercial financing transaction.
(d)A person who makes one or fewer commercial financing transactions in the state in a 12-month period.
(e)A person who makes five or fewer commercial financing transactions in the state in a 12-month period that are incidental to the business of the person relying upon the exemption.
22657.Sections 22152, 22154, and 22155 do not apply to a commercial financing transaction or to a licensed commercial financing provider or licensed commercial financing broker in connection with any commercial financing transaction.
3.Regulations22658.A commercial financing agreement is not enforceable unless any of the following requirements is met:
(a)The person providing the commercial financing transaction is a licensed commercial financing provider.
(b)The person providing the commercial financing transaction has submitted a complete application and is awaiting approval or denial pursuant to subdivision (b) of Section 22100.6.
(c)The commercial financing transaction was entered into prior to January 1, 2028.
22659.(a)A commercial financing provider or a commercial financing broker shall not take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
(b)A commercial financing provider or a commercial financing broker shall not include a provision in a commercial financing transaction agreement or contract that authorizes a commercial financing provider or a commercial financing broker to attach or garnish any of a recipients money held in an account in a depository institution.
(c)A commercial financing transaction found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of this division and subject to the remedies specified in this division.
(d)A commercial financing provider or a commercial financing broker shall not include a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipients business activities with the commercial financing provider, including, but not limited to, terms or conditions of a product or service offered by the commercial financing provider.
(e)A commercial financing broker shall clearly and conspicuously display on their internet website the average and maximum annual percentage rates for the commercial financing transactions facilitated by them in the most recent calendar year.
22660.(a)For purposes of this section:
(1)Amount financed has the same meaning as defined in Section 900 of Title 10 of the California Code of Regulations.
(2)Type of commercial financing means the types of commercial financing listed in subdivision (a) of Section 917 of Title 10 of the California Code of Regulations.
(b)Except as provided in subdivision (c) or (d), on or before March 15 of each year, beginning in 2029, a commercial financing provider shall file electronically through the departments internet website a report verified by an authorized officer containing all of the following information for activity during the preceding calendar year:
(1)The commercial financing providers identifying and contact information, including name, any fictitious business names, entity type, mailing address, telephone number, email address, internet website address, and designated contact person.
(2)By type of commercial financing, the total number of commercial financing transactions and total dollar amount financed with recipients.
(3)By type of commercial financing, the number of commercial financing transactions with recipients for each of the following amounts financed:
(A)Ten thousand dollars ($10,000) or less.
(B)Over ten thousand dollars ($10,000) but not over twenty-five thousand dollars ($25,000).
(C)Over twenty-five thousand dollars ($25,000) but not over fifty thousand dollars ($50,000).
(D)Over fifty thousand dollars ($50,000) but not over one hundred thousand dollars ($100,000).
(E)Over one hundred thousand dollars ($100,000) but not over two hundred fifty thousand dollars ($250,000).
(F)Over two hundred fifty thousand dollars ($250,000) but not over five hundred thousand dollars ($500,000).
(4)(A)Except as provided in subparagraph (B), by type of commercial financing and for each interval described in paragraph (3), the minimum, maximum, average, and median annual percentage rate disclosed in disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations.
(B)For a given type of commercial financing and interval, if the commercial financing provider did not provide any disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations, the commercial financing provider shall indicate that on the report and is not required to calculate or report that information.
(c)A commercial financing provider shall not include in the report required by subdivision (a) information for commercial loan activity conducted under the authority of Chapter 1 (commencing with Section 22000) or Chapter 3 (commencing with Section 22500).
(d)For purposes of this section, if a commercial financing does not meet any of the types of commercial financing, the commercial financing provider shall include the transaction as an other type.
22661.(a)It is unlawful for a commercial financing provider or commercial financing broker to engage or have engaged in any unlawful, unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or commercial financing brokering services to a recipient.
(b)For purposes of subdivision (a), an act or practice is unfair if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice causes or is likely to cause substantial injury to recipients.
(B)The injury is not reasonably avoidable by recipients.
(C)The injury is not outweighed by countervailing benefits to recipients or to competition.
(2)It is unfair in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(c)For purposes of subdivision (a), an act or practice, including, but not limited to, a representation or an omission, is deceptive if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice misleads or is likely to mislead the recipient.
(B)The recipients interpretation of the act or practice is reasonable under the circumstances.
(C)The act or practice is material.
(2)It is deceptive in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(d)For purposes of subdivision (a) an act or practice is abusive if either of the following conditions is met:
(1)It materially interferes with the ability of a recipient to understand a term or condition of commercial financing or commercial financing brokering services.
(2)It takes unreasonable advantage of any of the following:
(A)A lack of understanding on the part of the recipient of the material risks, costs, or conditions of the commercial financing or commercial financing brokering services.
(B)The inability of the recipient to protect its interests in selecting or using commercial financing.
(C)The reasonable reliance by the recipient on a commercial financing provider or commercial financing broker to act in the interests of the recipient.
4.Operative Date22662.This chapter shall become operative on January 1, 2028.
SEC. 32.SEC. 31.Section 22700 of the Financial Code is amended to read:22700.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licenses issued under this division shall remain in effect until they are surrendered, revoked, or suspended.
(b)Mortgage loan originator licenses issued under this division shall be renewed annually upon the payment of an annual assessment, and, if renewed by the licensee, shall remain in effect until they are surrendered, revoked, or suspended.
(c)Surrender of a license becomes effective 30 days after receipt of an application to surrender the license or within a shorter period of time that the commissioner may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the surrender is instituted within 30 days after the application is filed. If a proceeding is pending or instituted, surrender of a license becomes effective at the time and upon the conditions that the commissioner determines.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 33.SEC. 32.Section 22701 of the Financial Code is amended to read:22701.(a)For the purpose of discovering violations of this division or securing information required by the commissioner in the administration and enforcement of this division, the commissioner may at any time investigate the loans, commercial financing transactions, assessment contracts, and business, and examine the books, accounts, records, and files used in the business, of every person engaged in the business of a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, whether the person acts or claims to act as principal or agent, or under or without the authority of this division. For the purpose of examination, the commissioner and the commissioners representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all these persons.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 34.SEC. 33.Section 22712 of the Financial Code is amended to read:22712.(a)(1) Whenever, in the opinion of the commissioner, any person is engaged or has engaged in business as a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, as defined in this division, without a license from the commissioner, or any licensee is violating or has violated any provision of this division, any provision of an order, or any regulation adopted pursuant to this division, the commissioner may order that person or licensee to desist and to refrain from engaging in the business or further continuing that violation. In addition, the commissioner may include a claim for ancillary relief. The ancillary relief may include, but not be limited to, refunds, restitution or disgorgement, or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action. If, within 30 days after the order is served, a written request for a hearing is filed and no hearing is held within 30 days thereafter, the order is rescinded.
(2)For purposes of this subdivision, licensee includes a mortgage loan originator.
(b)Notwithstanding subdivision (a), if, after an investigation, the commissioner has reasonable grounds to believe that a person is conducting or has conducted business in an unsafe or injurious manner, the commissioner shall, by written order addressed to that person, direct the discontinuance of the unsafe or injurious practices. The order shall be effective immediately but shall not become final except in accordance with the provisions of Section 22717.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 35.SEC. 34.Section 22714 of the Financial Code is amended to read:22714.(a)The commissioner shall suspend or revoke any license, upon notice and reasonable opportunity to be heard, if the commissioner finds any of the following:
(1)The licensee has failed to comply with any demand, ruling, or requirement of the commissioner made pursuant to and within the authority of this division.
(2)The licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division.
(3)A fact or condition exists that, if it had existed at the time of the original application for the license, reasonably would have warranted the commissioner in refusing to issue the license originally.
(4)There has been repeated failure by the finance lender, when making or negotiating loans, to take into consideration in determining the size and duration of loans, the financial ability of the borrower to repay the loan in the time and manner provided in the loan contract, or to refinance the loan at maturity.
(5)There has been repeated failure by the program administrator, when administering assessment contracts, to take into consideration in determining the size and duration of the assessment contracts, the property owners ability to meet the annual PACE obligations in the time and manner provided in the contract.
(6)There has been repeated failure by the commercial financing provider, when making or negotiating commercial financing transactions, to take into consideration in determining the size, duration, and repayment features, the financial ability of the recipient to repay the commercial financing transaction in the time and manner provided in the commercial financing agreement or contract or to refinance the commercial financing transaction at maturity.
(b)A master license shall not be suspended or revoked pursuant to this section as a result of any action or failure to act by a subsidiary licensee unless grounds exist for the suspension or revocation of the master license pursuant to this section. An order suspending or revoking a license or imposing sanctions against a licensee shall not affect other licensed locations unless expressly stated in the order.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 35.Section 22807 of the Financial Code is amended and renumbered to read:22807.22808.(a)A violation of this division by a person licensed under the California Financing Law (Division 9 (commencing with Section 22000)) shall be deemed a violation of the California Financing Law if the violation relates to a commercial financing transaction that is subject to the California Financing Law.
(b)A violation of this provision shall be deemed an unfair, deceptive, or abusive act or practice under the California Consumer Financial Protection Law (Division 24 (commencing with Section 90000)) if the violation relates to a commercial financing transaction that is not subject to the California Financing Law (Division 9 (commencing with Section 22000)).
SEC. 36.Section 22807 is added to the Financial Code, to read:22807.The commissioner may require that rates of charge be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or recipients.
SEC. 36.SEC. 37.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
(a)This division shall be liberally construed and applied to promote its underlying purposes and policies, which are:
(1)To ensure an adequate supply of credit to borrowers in this state.
(2)To simplify, clarify, and modernize the law governing loans made by finance lenders.
(3)To foster competition among finance lenders.
(4)To protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders.
(5)To permit and encourage the development of fair and economically sound lending practices.
(6)To encourage and foster a sound economic climate in this state.
(7)To protect property owners from deceptive and misleading practices that threaten the efficacy and viability of property assessed clean energy financing programs.
(8)To protect small businesses against unfair practices by some commercial financing providers, having due regard for the interest of legitimate and scrupulous commercial financing providers.
(b)Consumer loans, as defined in Sections 22203 and 22204, are subject to this chapter, Chapter 2 (commencing with Section 22200), Article 1 (commencing with Section 22700) of Chapter 4, and Article 2 (commencing with Section 22750) of Chapter 4.
(c)Commercial loans, as defined in Section 22502, are subject to this chapter, Chapter 3 (commencing with Section 22500), Article 1 (commencing with Section 22700) of Chapter 4, and Article 3 (commencing with Section 22780) of Chapter 4.
(d)A program administrator, as defined in Section 22018, is subject to this chapter, Chapter 3.5 (commencing with Section 22680), and Article 1 (commencing with Section 22700) of Chapter 4.
(e)Commercial financing, as defined in Section 22655, is subject to this chapter, Chapter 3.1 (commencing with Section 22655), and Article 1 (commencing with Section 22700) and Article 3 (commencing with Section 22780) of Chapter 4.
(f)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 2.Section 22002 of the Financial Code is amended to read:22002.(a)To accomplish its underlying purposes and policies, this division creates a class of exempt persons pursuant to Section 1 of Article XV of the California Constitution. The class of exempt persons includes any person licensed under this division.
It(b)(1)It is the intent of the Legislature to preserve existing exemptions under Section 1 of Article XV of the Constitution and statutory law for (a) personal all of the following:
(A)Personal property brokers formerly regulated by the Personal Property Brokers Law; (b) lenders Law.
(B)Lenders formerly regulated by the Consumer Finance Lenders Law; and (c) lenders Law.
(C)Lenders formerly regulated by the Commercial Finance Lenders Law; and no Law.
(2)No finding that any provision of this division is invalid with respect to a particular lender or class of lenders shall affect the enforceability of this division with respect to any of the foregoing classifications of lenders, lenders described in paragraph (1), which shall in all events continue to be exempted by this division.
SEC. 2.SEC. 3.Section 22007 of the Financial Code is amended to read:22007.(a)Licensee means any finance lender, broker, commercial financing provider, commercial financing broker, or program administrator who receives a license in accordance with this division.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 3.SEC. 4.Section 22010 of the Financial Code is amended to read:22010.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator do not include employees regularly employed at the location specified in the license of the finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, except that an employee, when acting within the scope of the employees employment, shall be exempt from any other law from which the employees employer is exempt.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 4.SEC. 5.Section 22021 is added to the Financial Code, to read:22021.(a)Except in Sections 22064 and 22687, recipient has the same meaning as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 5.SEC. 6.Section 22022 is added to the Financial Code, to read:22022.(a)Commercial financing and commercial financing provider have the same meanings as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 6.SEC. 7.Section 22100.6 is added to the Financial Code, to read:22100.6.(a)A person shall not engage in the business of a commercial financing provider or a commercial financing broker without obtaining a license from the commissioner.
(b)Notwithstanding subdivision (a), a person may engage in the business of a commercial financing provider or a commercial financing broker if the person submits a complete application on or before January 1, 2028, and is awaiting approval or denial of the application.
(b)(c)This section shall become operative on January 1, 2028.
SEC. 7.SEC. 8.Section 22101 of the Financial Code is amended to read:22101.(a)An application for a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall be in the form and contain the information that the commissioner may by rule or order require and shall be filed upon payment of the fee specified in Section 22103.
(b)Notwithstanding any other law, an applicant who does not currently hold a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall furnish, with their application, a full set of fingerprints and related information for purposes of the commissioner conducting a criminal history record check. The commissioner shall obtain and receive criminal history information from the Department of Justice and the Federal Bureau of Investigation pursuant to Section 22101.5.
(c)This section does not prevent a licensee from engaging in the business of a finance lender or program administrator through a subsidiary corporation if the subsidiary corporation is licensed pursuant to this division.
(d)For purposes of this section, subsidiary corporation means a corporation that is wholly owned by a licensee.
(e)A new application shall not be required for a change in the address of an existing location previously licensed under this division. However, the licensee shall comply with the requirements of Section 22153.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require an application to be made through the Nationwide Mortgage Licensing System and Registry, and may require fees, fingerprints, financial statements, supporting documents, changes of address, and any other information, and amendments or modifications thereto, to be submitted in the same manner.
(g)Notwithstanding any other law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. This section does not require the commissioner to accept electronic records or electronic signatures.
(h)For purposes of this section, the following terms have the following meanings:
(1)Electronic record means an initial license application, or material modification of that license application, and any other record created, generated, sent, communicated, received, or stored by electronic means. Electronic records also includes, but is not limited to, all of the following:
(A)An application, amendment, supplement, and exhibit, filed for any license, consent, or other authority.
(B)A financial statement, a report, or advertising.
(C)An order, license, consent, or other authority.
(D)A notice of public hearing, accusation, and statement of issues in connection with any application, license, consent, or other authority.
(E)A proposed decision of a hearing officer and a decision of the commissioner.
(F)The transcripts of a hearing and correspondence between a party and the commissioner directly relating to the record.
(G)A release, newsletter, interpretive opinion, determination, or specific ruling.
(H)Correspondence between a party and the commissioner directly relating to any document listed in subparagraphs (A) to (G), inclusive.
(2)Electronic signature means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.
(i)The Legislature finds and declares that the Department of Financial Protection and Innovation has continuously implemented methods to accept records filed electronically, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal.
(j)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 8.SEC. 9.Section 22101.5 of the Financial Code is amended to read:22101.5.(a)The commissioner shall submit to the Department of Justice fingerprint images and related information required by the Department of Justice of all finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license candidates, as defined by subdivision (a) of Section 22101, for purposes of obtaining information as to the existence and content of a record of state or federal convictions, state or federal arrests, and information as to the existence and content of a record of state or federal arrests for which the Department of Justice establishes that the person is free on bail or on the persons own recognizance pending trial or appeal.
(b)When received, the Department of Justice shall forward to the Federal Bureau of Investigation requests for federal summary criminal history information received pursuant to this section. The Department of Justice shall review the information returned from the Federal Bureau of Investigation and compile and disseminate a response to the commissioner.
(c)The Department of Justice shall provide a response to the commissioner pursuant to paragraph (1) of subdivision (p) of Section 11105 of the Penal Code.
(d)The commissioner shall request from the Department of Justice subsequent arrest notification service, as provided pursuant to Section 11105.2 of the Penal Code, for license candidates described in subdivision (a).
(e)The Department of Justice shall charge a fee sufficient to cover the costs of processing the requests pursuant to this section.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require fingerprints submitted by an applicant to be submitted to the Nationwide Mortgage Licensing System and Registry in addition to the Department of Justice.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 9.SEC. 10.Section 22102 of the Financial Code is amended to read:22102.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeking to engage in business at a new location shall submit an application for a branch office license to the commissioner at least 10 days before engaging in business at a new location and pay the fee required by Section 22103. The commissioner may require an applicant seeking to engage in business at a new location to submit its application, or parts thereof, through the Nationwide Mortgage Licensing System and Registry.
(b)The licensee may engage in business at the new location 10 days after the date of submission of a branch office application.
(c)(1)The commissioner shall approve or deny the person responsible for the lending or financing activity at the new location in accordance with Section 22109, and shall notify the licensee of this decision within 90 days of the date of receipt of the application.
(2)If the commissioner denies the application, the licensee shall, within 10 days of the date of receipt of notification of the commissioners denial, submit a new application to the commissioner designating a different person responsible for the lending or financing activity at the new location. The commissioner shall approve or deny the different person as provided in paragraph (1).
(d)A licensee shall not engage in business at a new location in a name other than a name approved by the commissioner.
(e)The commissioner may adopt regulations to implement the requirements of this section.
(f)A branch office license to engage in business at a new location shall be issued in accordance with this section. A change of street address of a place of business designated in a license shall be made in accordance with Section 22153 and shall not constitute a new location subject to the requirements of this section.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 10.SEC. 11.Section 22103 of the Financial Code is amended to read:22103.(a)At the time of filing the application for a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or branch office license, the applicant shall pay to the commissioner the sum of one hundred dollars ($100) as a fee for investigating the application, plus the cost of fingerprint processing and the criminal history record check under Section 22101.5, and two hundred dollars ($200) as an application fee. The investigation fee, including the amount for the criminal history record check, and the application fee are not refundable if an application is denied or withdrawn.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 11.SEC. 12.Section 22104 of the Financial Code is amended to read:22104.(a)The applicant shall file with the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license financial statements prepared in accordance with generally accepted accounting principles and acceptable to the commissioner that indicate a net worth of at least twenty-five thousand dollars ($25,000). Except as provided in subdivisions (b) and (c), a licensee shall maintain a net worth of at least twenty-five thousand dollars ($25,000) at all times.
(b)A licensed finance lender or broker, that employs one or more mortgage loan originators and that makes residential mortgage loans, shall continuously maintain a minimum net worth of at least two hundred fifty thousand dollars ($250,000).
(c)A licensed finance broker, that employs one or more mortgage loan originators and that arranges, but does not make, residential mortgage loans, shall continuously maintain a minimum net worth of at least fifty thousand dollars ($50,000).
(d)The commissioner may promulgate rules or regulations with respect to the requirements for minimum net worth, as are necessary to accomplish the purposes of this division and comply with the SAFE Act.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 12.SEC. 13.Section 22105 of the Financial Code is amended to read:22105.(a)Upon the filing of an application pursuant to Section 22101 and the payment of the fees, the commissioner shall investigate the applicant and its general partners and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or any person responsible for the conduct of the applicants lending, financing, or program administration activities in this state, if the applicant is a partnership. If the applicant is a corporation, trust, limited liability company, or association, including an unincorporated organization, the commissioner shall investigate the applicant, its principal officers, directors, managing members, and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding equity securities or any person responsible for the conduct of the applicants lending or financing activities or for administering PACE programs for the applicant in this state. Upon the filing of an application pursuant to Section 22102 and the payment of the fees, the commissioner shall investigate the person responsible for the lending or financing activity of the licensee, or for administering one or more PACE programs for the licensee, at the new location described in the application. The investigation may be limited to information that was not included in prior applications filed pursuant to this division. If the commissioner determines that the applicant has satisfied this division and does not find facts constituting reasons for denial under Section 22109, the commissioner shall issue and deliver a license to the applicant.
(b)For the purposes of this section, principal officers shall mean president, chief executive officer, treasurer, and chief financial officer, as may be applicable, and any other officer with direct responsibility for the conduct of the applicants lending or financing activities or for PACE program administration for the applicant within the state.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 13.SEC. 14.Section 22106 of the Financial Code is amended to read:22106.(a)The finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license shall state the name of the licensee, and if the licensee is a partnership, the names of its general partners, and if a corporation or an association, the date and place of its incorporation or organization, and the address of the licensees principal business location. On the approval and licensing of a location pursuant to Section 22101 or 22102, the commissioner shall issue an original license endorsed to show the address of the authorized location and, if applicable, the name of the subsidiary corporation licensed to operate the location. The license shall state whether the licensee is licensed as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator.
(b)(1)An application for a license for a business location outside this state shall constitute an agreement by the applicant to do all of the following:
(A)Make the licensees books, accounts, papers, records, and files available to the commissioner or the commissioners representatives in this state.
(B)Pay the reasonable expenses for travel, meals, and lodging of the commissioner or the commissioners representatives incurred during any investigation or examination made at the licensees location outside this state.
(2)A licensee located outside this state is not required to maintain books and records regarding licensed loans or licensed commercial financing transactions separate from those for other loans or other commercial financing transactions if the licensed loans or licensed commercial financing transactions can be readily identified.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 14.SEC. 15.Section 22107 of the Financial Code is amended to read:22107.(a)Each finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee shall pay to the commissioner its pro rata share of all costs and expenses, including the costs and expenses associated with the licensing of mortgage loan originators it employs, reasonably incurred in the administration of this division, as estimated by the commissioner, for the ensuing year and any deficit actually incurred or anticipated in the administration of the program in the year in which the assessment is made. The pro rata share shall be the proportion that a licensees gross income bears to the aggregate gross income of all licensees as shown by the annual financial reports to the commissioner, for the costs and expenses remaining after the amount assessed pursuant to subdivision (c).
(b)On or before September 30 in each year, the commissioner shall notify each licensee of the amount assessed and levied against it and that amount shall be paid by October 31. If payment is not made by October 31, the commissioner shall assess and collect a penalty, in addition to the assessment, of 1 percent of the assessment for each month or part of a month that the payment is delayed or withheld.
(c)In the levying and collection of the assessment, a licensee shall neither be assessed for nor be permitted to pay less than two hundred fifty dollars ($250) per licensed location per year.
(d)If a licensee fails to pay the assessment on or before the October 31, the commissioner may by order summarily suspend or revoke the certificate issued to the licensee. If, after an order is made, a request for a hearing is filed in writing within 30 days, and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when its certificate is revoked or suspended, a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee and any mortgage loan originator licensee employed by the finance lender or broker shall not conduct business pursuant to this division except as may be permitted by order of the commissioner. However, the revocation, suspension, or surrender of a certificate shall not affect the powers of the commissioner as provided in this division.
(e)The commissioner shall, by rule, establish the timelines, fees, and assessments applicable to applicants for original mortgage loan originator licenses, license renewals, and license changes under this division.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require licensees to pay assessments through the Nationwide Mortgage Licensing System and Registry.
(g)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 15.SEC. 16.Section 22109 of the Financial Code is amended to read:22109.(a)Upon reasonable notice and opportunity to be heard, the commissioner may deny the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license for any of the following reasons:
(1)A false statement of a material fact has been made in the application.
(2)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has, within the last 10 years, been convicted of or pleaded nolo contendere to a crime, or committed an act involving dishonesty, fraud, or deceit, if the crime or act is substantially related to the qualifications, functions, or duties of a person engaged in business in accordance with this division.
(3)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has violated any provision of this division or the rules thereunder or any similar regulatory scheme of the State of California or a foreign jurisdiction.
(4)The applicant employs a mortgage loan originator who is not licensed, or has not initiated an application to become licensed, pursuant to this division.
(b)The application shall be considered withdrawn within the meaning of this section if the applicant fails to respond to a written notification of a deficiency in the application within 90 days of the date of the notification.
(c)The commissioner shall, within 60 days from the filing of a full and complete application for a license with the fees, either issue a license or file a statement of issues prepared in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 16.SEC. 17.Section 22112 of the Financial Code is amended to read:22112.(a)A licensee shall maintain a surety bond in accordance with this subdivision in a minimum amount of twenty-five thousand dollars ($25,000). The bond shall be payable to the commissioner and issued by an insurer authorized to do business in this state. An original surety bond, including any and all riders and endorsements executed subsequent to the effective date of the bond, shall be filed with the commissioner within 10 days of execution. For licensees with multiple licensed locations, only one surety bond is required. The bond shall be used for the recovery of expenses, fines, and fees levied by the commissioner in accordance with this division or for losses or damages incurred by borrowers, recipients, or consumers as the result of a licensees noncompliance with the requirements of this division.
(b)When an action is commenced on a licensees bond, the commissioner may require the filing of a new bond. Immediately upon recovery of any action on the bond, the licensee shall file a new bond. Failure to file a new bond within 10 days of the recovery on a bond, or within 10 days after notification by the commissioner that a new bond is required, constitutes sufficient grounds for the suspension or revocation of the license.
(c)The commissioner may by rule require a higher bond amount for a licensee who employs one or more mortgage loan originators and who makes or arranges residential mortgage loans, based on the dollar amount of residential mortgage loans originated by that licensee and any mortgage loan originators employed by that licensee. Every mortgage loan originator employed by the licensee shall be covered by the surety bond.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 17.SEC. 18.Section 22151 of the Financial Code is amended to read:22151.(a)A finance lender license, broker license, commercial financing provider license, commercial financing broker license, program administrator license, and the license of every mortgage loan originator employed by a lender or finance broker, along with any currently effective order of the commissioner approving a different name pursuant to Section 22155, shall be conspicuously posted in the place of business authorized by the license.
(b)A license is not transferable or assignable. A license issued to a partnership or a limited partnership is not transferred or assigned within the meaning of this section by the death, withdrawal, or admission of a partner, general partner, or limited partner, unless the death, withdrawal, or admission dissolves the partnership to which the license was issued.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 18.Section 22152 of the Financial Code is amended to read:22152.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee shall maintain only one place of business under a duplicate or original license issued pursuant to Section 22101 or 22102. The commissioner may issue more than one license to the same licensee upon compliance with all the provisions of this division governing an original issuance of a license.(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028. SEC. 19.Section 22153 of the Financial Code is amended to read:22153.(a)If a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeks to change its place of business to a street address other than that designated in its license, the licensee shall provide notice to the commissioner at least 10 days before the change. The commissioner shall notify the licensee within 10 days if the commissioner disapproves the change, and if the commissioner does not notify the licensee of disapproval within 10 days, the change in address shall be deemed approved. The commissioner may require an applicant to submit its application to change its place of business through the Nationwide Mortgage Licensing System and Registry.
(b)If notice is not given at least 10 days before the change of a street address of a place of business, as required by subdivision (a), or notice is not given at least 10 days before engaging in business at a new location, as required by Section 22102, the commissioner may assess a civil or administrative penalty on the licensee not to exceed five hundred dollars ($500).
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 20.Section 22154 of the Financial Code is amended to read:22154.(a)Subject to Section 22157.1, a licensee shall not conduct the business of making loans or commercial financing transactions or administering a PACE program under this division within any office, room, or place of business in which any other business is solicited or engaged in, or in association or conjunction therewith, except as is authorized in writing by the commissioner upon the commissioners finding that the character of the other business is such that the granting of the authority would not facilitate evasions of this division or of the rules and regulations made pursuant to this division. An authorization, once granted, remains in effect until revoked by the commissioner. The commissioner may authorize the other business through the Nationwide Mortgage Licensing System and Registry.(b)The products or services of an affiliated corporation of the licensee that is a supervised financial institution, or a parent or subsidiary of a supervised financial institution that is an affiliate of the licensee, may be provided, offered, or sold at the licensed location of the licensee without authorization by the commissioner pursuant to subdivision (a) if both of the following are met:(1)The activity is not prohibited by, or in violation of, the laws applicable to the affiliate or supervised financial institution.(2)The products and services are not offered and sold in a manner that restricts the ability of the borrower, recipient, or customer to individually select or reject a product or service that is offered.(c)The following definitions govern the construction of this section:(1)Affiliated or affiliate means the following: A corporation is an affiliate of, or a corporation is affiliated with, another specified corporation if it directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the other specified corporation.(2)Supervised financial institution means any commercial bank, industrial bank, credit card bank, trust company, savings and loan association, savings bank, credit union, California finance lender, residential mortgage lender or servicer, or insurer, provided that the institution is subject to supervision by an official or agency of this state or of the United States.(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.SEC. 21.Section 22155 of the Financial Code is amended to read:22155.(a)Subject to Section 22157.1, a finance lender, broker, commercial financing provider, commercial financing broker, mortgage loan originator, or program administrator licensee shall not transact the business licensed or make any loan or commercial financing transaction or administer any PACE program provided for by this division under any other name or at any other place of business than that named in the license except pursuant to a currently effective written order of the commissioner authorizing the other name or other place of business. The commissioners order, while effective, shall be deemed to amend the original license issued pursuant to Section 22105 or 22109.1.(b)Notwithstanding subdivision (a), a finance lender, program administrator, broker, commercial financing provider, commercial financing broker, or mortgage loan originator licensee may make any loan or commercial financing transaction and engage in any other business provided for by this division, other than the business described in subdivision (b) of Section 22154, at a place other than the licensed location under either of the following conditions:(1)The borrower or recipient requests, either orally or in writing, that a loan or commercial financing transaction be initiated or made at a location other than the licensees licensed location. The use by the licensee of a preprinted solicitation form returned to the licensee by the borrower or recipient shall not constitute a request by the borrower or recipient that a loan or commercial financing transaction be initiated or made at a location other than the licensees licensed location.(2)The licensee makes a solicitation or advertises for, or makes an offer of, a loan, commercial financing transaction, or assessment contract displayed on home pages or similar methods by the licensee on the internet, the World Wide Web, or similar proprietary or common carrier electronic systems, and the prospective borrower, recipient, or property owner may transmit information over these electronic systems to the licensee in connection with the licensees offer to make a loan, commercial financing transaction, or assessment contract.(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.SEC. 22.SEC. 20.Section 22156 of the Financial Code is amended to read:22156.(a)Finance lender, broker, commercial financing provider, commercial financing broker, program administrator, and mortgage loan originator licensees shall keep and use in their business, books, accounts, and records which will enable the commissioner to determine if the licensee is complying with the provisions of this division and with the rules and regulations made by the commissioner. On any loan secured by real property in which loan proceeds were disbursed to an independent escrowholder, the licensee shall retain records and documents as set forth by rules of the commissioner adopted pursuant to Section 22150. Upon request of the commissioner, licensees shall file an authorization for disclosure to the commissioner of financial records of the licensed business pursuant to Section 7473 of the Government Code.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 23.SEC. 21.Section 22157 of the Financial Code is amended to read:22157.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and mortgage loan originator licensees shall preserve their books, accounts, and records, if any, for at least three years after making the final entry on any loan or commercial financing transaction recorded therein.
(b)Except as otherwise specified by applicable law, including paragraph (3) of subdivision (b) of Section 5913 of the Streets and Highways Code, program administrator licensees shall preserve their books, accounts, and records for at least three years after the extinguishment of a PACE assessment is recorded therein.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 24.SEC. 22.Section 22157.1 of the Financial Code is amended to read:22157.1.(a)For purposes of this section:
(1)Encrypted has the same meaning as provided in paragraph (4) of subdivision (i) of Section 1798.82 of the Civil Code.
(2)Remote location means a personal residence or a temporary, nonpublic location not owned or leased by the licensee or an affiliate of the licensee that is not simultaneously accessible by anyone other than a single employee and individuals who maintain a common household with the employee.
(b)A licensee may designate an employee, when acting within the scope of employment, to perform work on the licensees behalf at a remote location if the licensee does all of the following:
(1)Prohibits in-person consumer interactions, including the physical receipt of cash or other monetary value or the disbursement of loan or commercial financing transaction proceeds, at a remote location and does not designate a remote location to the public as a business location.
(2)Prohibits records required pursuant to Section 22156 from being physically mailed to, shipped to, or stored at a remote location except for storage on an encrypted device or encrypted media.
(3)Prohibits the physical receipt of mail related to the licensees licensed business at a remote location.
(4)Prohibits a consumers personal information from being physically stored at a remote location except for storage on an encrypted device or encrypted media.
(5)Provides an employee working at a remote location with appropriate equipment, which may include encrypted devices, virtual private networks, and similar technology, to perform work and safeguard licensee records and consumer personal information.
(6)Adopts and adheres to appropriate, as determined by the department, written policies and procedures to supervise and maintain appropriate control over the work of employees at remote locations and safeguard the licensees records and consumer personal information in connection with work at a remote location, including, but not limited to, all of the following elements:
(A)Employee data security training.
(B)Maintenance of security logs of remote logins.
(C)Procedures designed to detect suspicious logins or attempted logins and to suspend access by potentially compromised accounts or equipment.
(D)Data breach response procedures.
(7)(A)Records telephone calls with consumers conducted from a remote location to the same extent as telephone calls with consumers conducted from licensed locations.
(B)This paragraph does not require telephone call recording if the licensee does not do so in the normal course of business for the employee or business in question.
(8)All books, records, and persons that the commissioner is entitled to examine, inspect, or interview shall be made available to the commissioner at a licensed location.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 25.SEC. 23.Section 22159 of the Financial Code is amended to read:22159.(a)(1)Each finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licensee shall file an annual report with the commissioner, on or before March 15th, 15, giving the relevant information that the commissioner reasonably requires concerning the business and operations conducted by the licensee or authorized by the program administrator licensee within the state during the preceding calendar year for each licensed place of business. The individual annual reports filed pursuant to this section shall be made available to the public for inspection except, upon request in the annual report to the commissioner, the balance sheet contained in the annual report of a sole proprietor or any other nonpublicly traded person. The report shall be made under oath and in the form prescribed by the commissioner.
(2)As used in this subdivision, nonpublicly traded person means a person with securities owned by 35 or fewer individuals.
(b)A licensee shall make other special reports required by the commissioner.
(c)The commissioner may require a licensee that employs one or more mortgage loan originators to submit to the Nationwide Mortgage Licensing System and Registry reports of condition, which shall be in the form and shall contain the information as the Nationwide Mortgage Licensing System and Registry may require.
(d)The commissioner may by rule or order require a mortgage loan originator to submit reports of condition to the Nationwide Mortgage Licensing System and Registry, in lieu of the reports of condition required of the mortgage loan originators employer pursuant to subdivision (c).
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 26.SEC. 24.Section 22161 of the Financial Code is amended to read:22161.(a)A person subject to this division shall not do any of the following:
(1)Make a materially false or misleading statement or representation to a borrower or recipient about the terms or conditions of that borrowers loan or that recipients commercial financing transaction when making or brokering the loan or commercial financing transaction.
(2)Make a materially false or misleading statement or representation to a property owner about the terms or conditions of an assessment contract.
(3)Advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast in any manner, any statement or representation with regard to the business subject to the provisions of this division, including the rates, terms, or conditions for making or negotiating loans, making or negotiating commercial financing transactions, or for making or negotiating assessment contracts, that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements not false, misleading, or deceptive, or in the case of a licensee, that refers to the supervision of the business by the state or any department or official of the state.
(4)Commit an act in violation of Section 1695.13 of the Civil Code.
(5)Engage in any act in violation of Section 17200 of the Business and Professions Code.
(6)Knowingly misrepresent, circumvent, or conceal, through subterfuge or device, any material aspect or information regarding a transaction to which the person is a party.
(7)Commit an act that constitutes fraud or dishonest dealings.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 27.SEC. 25.Section 22162 of the Financial Code is amended to read:22162.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or mortgage loan originator licensee shall not place an advertisement disseminated primarily in this state for a loan or commercial financing transaction unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the loan or commercial financing transaction would be made or arranged.
(b)A program administrator licensee shall not place an advertisement disseminated primarily in this state for an assessment contract unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the assessment contract would be administered.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 28.SEC. 26.Section 22163 of the Financial Code is amended to read:22163.(a)The commissioner may require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers, recipients, or property owners.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 29.SEC. 27.Section 22164 of the Financial Code is amended to read:22164.(a)If any person engaged in the business regulated by this division refers in any advertising to rates of interest, charges, or cost of loans, commercial financing transactions, or assessment contracts, the commissioner shall require that the rates, charges, or costs are stated fully and clearly in the manner that the commissioner deems necessary to give adequate information to prospective borrowers or property owners. If the rates or costs advertised do not apply to loans or assessment contracts of all classes made or negotiated by the person, this fact shall be clearly indicated in the advertisement.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 30.SEC. 28.Section 22167.1 is added to the Financial Code, to read:22167.1.(a)A licensed commercial financing provider may act as a commercial financing broker at its licensed place of business without obtaining an additional license as a commercial financing broker under this division only if the licensee has notified the commissioner of the action in writing.
(b)This section shall become operative on January 1, 2028.
SEC. 31.SEC. 29.Section 22168 of the Financial Code is amended to read:22168.(a)The commissioner may, after appropriate notice and opportunity for hearing, suspend for a period not to exceed 12 months or bar a person from any position of employment with a licensee if the commissioner finds that the person has willfully used or claimed without authority a designation or certification of special education, practice, or skill that the person has not attained, or willfully held out to the public a confusingly similar designation or certification for the purpose of misleading the public regarding the persons qualifications or experience.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receiving a request, the matter shall be set for hearing to commence within 30 days after receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of the notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to subdivision (a), the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under this division.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting its business. This subdivision does not prohibit suspended or barred persons from having their personal transactions processed by a licensed finance lender, broker, commercial financing provider, commercial financing broker, mortgage loan originator, or program administrator.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 32.SEC. 30.Section 22169 of the Financial Code is amended to read:22169.(a)The commissioner may, after appropriate notice and opportunity for hearing, by order, censure or suspend for a period not exceeding 12 months, or bar a person, including a mortgage loan originator, from any position of employment with, or management or control of, any finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or any other person, if the commissioner finds either of the following:
(1)That the censure, suspension, or bar is in the public interest and that the person has committed or caused a violation of this division or rule or order of the commissioner, which violation was either known or should have been known by the person committing or causing it or has caused material damage to the finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, or to the public.
(2)That the person has been convicted of or pleaded nolo contendere to any crime, or has been held liable in any civil action by final judgment, or any administrative judgment by any public agency, if that crime or civil or administrative judgment involved any offense involving dishonesty, fraud, or deceit, or any other offense reasonably related to the qualifications, functions, or duties of a person engaged in the business in accordance with the provisions of this division.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receipt of a request, the matter shall be set for hearing to commence within 30 days after such receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of such notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to this section, the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under the law.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting business.
(e)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 33.SEC. 31.Chapter 3.1 (commencing with Section 22655) is added to Division 9 of the Financial Code, to read:3.1.Commercial Financing for Small Businesses1.Definitions22655.As used in this chapter:
(a)Accounts receivable purchase transaction has the same meaning as defined in Section 22800.
(b)Annual percentage rate or APR means an annualized rate calculated pursuant to Subchapter 3 (commencing with Section 900) of Chapter 3 of Title 10 of the California Code of Regulations.
(c)Asset-based lending transaction has the same meaning as defined in Section 22800.
(d)(1)Charge includes the aggregate interest, fees, bonuses, commissions, brokerage, discounts, expenses, and other forms of costs charged, contracted for, or received by a licensee or any other person in connection with the investigating, arranging, negotiating, procuring, guaranteeing, making, servicing, collecting, and enforcing of a commercial financing transaction or forbearance of money, credit, goods, or things in action, or any other service rendered.
(2)Charge includes a profit or advantage of any kind that a licensee may contract for, collect, receive, or obtain by a collateral sale, purchase, or agreement, in connection with negotiating, arranging, making, or otherwise in connection with any commercial financing transaction.
(e)(1)Commercial financing means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose.
(2)For purposes of determining the primary purpose of the financing within the meaning of this subdivision, the provider may rely on any written statement of intended purposes signed by the recipient. The statement may be a separate statement signed by the recipient or may be contained in a loan application or other document signed by the recipient. The provider is not required to ascertain that the proceeds of the financing are used in accordance with the statement of intended purposes.
(f)(1)Commercial financing broker means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider:
(A)Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
(B)Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
(C)Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
(D)Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipients sensitive data.
(E)(i)Subject to clause (ii), participating in the preparation of commercial financing documents, including, but not limited to, commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.
(ii)Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
(F)Communicating to a prospective recipient a commercial financing providers commercial financing approval decisions.
(G)Charging a fee to a prospective recipient for services related to a prospective recipients application for a commercial financing transaction from a commercial financing provider.
(2)Notwithstanding paragraph (1), a person is not a commercial financing broker solely because they take any of the following actions:
(A)Perform support tasks, including, but not limited to, typing, word processing, data entry, filing, billing, answering telephone calls, taking and receiving messages, and scheduling, in support of the performance by a broker of any of the activities described in subparagraphs (E) to (G), inclusive, of paragraph (1).
(B)Furnish a consumer report to a licensee by a consumer reporting agency in accordance with subsection (a) or (c) of Section 1681b of Title 15 of the United States Code.
(C)Furnish a consumer credit report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with subdivision (a) or paragraph (1) of subdivision (b) of Section 1785.11 of the Civil Code.
(D)Furnish a prequalifying report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with paragraph (2) of subdivision (b) of Section 1785.11 of the Civil Code.
(E)Distribute or disseminate to a prospective recipient of a providers marketing materials or factual information about the provider, its lending activities, or its loan products, including, but not limited to, the providers interest rates, the providers minimum or maximum loan amounts or loan periods, or a general description of the providers underwriting criteria.
(g)Commercial financing provider means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.
The fact that a commercial financing provider extended a specific offer of commercial financing on behalf of a depository institution shall not be construed to mean that the commercial financing provider engaged in, or originated, that financing.
(h)Commercial loan has the same meaning as defined in Section 22502.
(i)Commercial open-end credit plan has the same meaning as defined in Section 22800.
(j)Factoring has the same meaning as defined in Section 22800.
(k)Lease financing has the same meaning as defined in Section 22800.
(l)Recipient means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than five hundred thousand dollars ($500,000).
(m)Referral means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipients contact information to a commercial financing provider, for the purpose of making an introduction.
(n)Sensitive data means any of the following:
(1)A bank account number.
(2)A bank statement.
(3)A credit or debit card account number.
(4)A credit score, as defined in Section 1785.15.1 of the Civil Code.
(5)All of, or a portion of, a social security number.
(6)Personal or business income information, including information self-reported by the person.
(7)A taxpayer or employer identification number.
(o)(1)Small business means a business entity organized for profit with annual gross receipts of no more than sixteen million dollars ($16,000,000) or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Section 14837 of the Government Code, whichever is greater.
(2)For purposes of determining a business entitys annual gross receipts, a licensee may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing.
2.Exemptions22656.This chapter does not apply to any of the following:
(a)A commercial financing provider that is a lender regulated under Chapter 23 (commencing with Section 2001) of Title 12 of the United States Code.
(b)A commercial financing transaction secured by real property.
(c)A commercial financing transaction in which the recipient is either of the following:
(1)A dealer, as defined in Section 285 of the Vehicle Code, or an affiliate of a dealer.
(2)A vehicle rental company, or an affiliate of a vehicle rental company, pursuant to a specific commercial financing offer or commercial open-end credit plan of at least fifty thousand dollars ($50,000), including a commercial loan made pursuant to that commercial financing transaction.
(d)A person who makes one or fewer commercial financing transactions in the state in a 12-month period.
(e)A person who makes five or fewer commercial financing transactions in the state in a 12-month period that are incidental to the business of the person relying upon the exemption.
22657.Sections 22152, 22154, and 22155 do not apply to a commercial financing transaction or to a licensed commercial financing provider or licensed commercial financing broker in connection with any commercial financing transaction.
3.Regulations22657.22658.A commercial financing agreement is not enforceable if the unless any of the following requirements is met:
(a)The person providing the commercial financing provider is not licensed pursuant to Section 22100.6. transaction is a licensed commercial financing provider.
(b)The person providing the commercial financing transaction has submitted a complete application and is awaiting approval or denial pursuant to subdivision (b) of Section 22100.6.
(c)The commercial financing transaction was entered into prior to January 1, 2028.
22658.22659.(a)A commercial financing provider or a commercial financing broker shall not take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
(b)A commercial financing provider or a commercial financing broker shall not include a provision in a commercial financing transaction agreement or contract that authorizes a commercial financing provider or a commercial financing broker to attach or garnish any of a recipients money held in an account in a depository institution.
(c)A commercial financing transaction found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of this division and subject to the remedies specified in this division.
(d)A commercial financing provider or a commercial financing broker shall not include a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipients business activities with the commercial financing provider, including, but not limited to, terms or conditions of a product or service offered by the commercial financing provider.
(e)A commercial financing broker shall clearly and conspicuously display on their internet website the average and maximum annual percentage rates for the commercial financing transactions facilitated by them in the most recent calendar year.
22659.22660.(a)For purposes of this section:
(1)Amount financed has the same meaning as defined in Section 900 of Title 10 of the California Code of Regulations.
(2)Type of commercial financing means the types of commercial financing listed in subdivision (a) of Section 917 of Title 10 of the California Code of Regulations.
(b)Except as provided in subdivision (c) or (d), on or before March 15 of each year, beginning in 2029, a commercial financing provider shall file electronically through the departments internet website a report verified by an authorized officer containing all of the following information for activity during the preceding calendar year:
(1)The commercial financing providers identifying and contact information, including name, any fictitious business names, entity type, mailing address, telephone number, email address, internet website address, and designated contact person.
(2)By type of commercial financing, the total number of commercial financing transactions and total dollar amount financed with recipients.
(3)By type of commercial financing, the number of commercial financing transactions with recipients for each of the following amounts financed:
(A)Ten thousand dollars ($10,000) or less.
(B)Over ten thousand dollars ($10,000) but not over twenty-five thousand dollars ($25,000).
(C)Over twenty-five thousand dollars ($25,000) but not over fifty thousand dollars ($50,000).
(D)Over fifty thousand dollars ($50,000) but not over one hundred thousand dollars ($100,000).
(E)Over one hundred thousand dollars ($100,000) but not over two hundred fifty thousand dollars ($250,000).
(F)Over two hundred fifty thousand dollars ($250,000) but not over five hundred thousand dollars ($500,000).
(4)(A)Except as provided in subparagraph (B), by type of commercial financing and for each interval described in paragraph (3), the minimum, maximum, average, and median annual percentage rate disclosed in disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations.
(B)For a given type of commercial financing and interval, if the commercial financing provider did not provide any disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations, the commercial financing provider shall indicate that on the report and is not required to calculate or report that information.
(c)A commercial financing provider shall not include in the report required by subdivision (a) information for commercial loan activity conducted under the authority of Chapter 1 (commencing with Section 22000) or Chapter 3 (commencing with Section 22500).
(d)For purposes of this section, if a commercial financing does not meet any of the types of commercial financing, the commercial financing provider shall include the transaction as an other type.
22660.22661.(a)It is unlawful for a commercial financing provider or commercial financing broker to engage or have engaged in any unlawful, unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or commercial financing brokering services to a recipient.
(b)For purposes of subdivision (a), an act or practice is unfair if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice causes or is likely to cause substantial injury to recipients.
(B)The injury is not reasonably avoidable by recipients.
(C)The injury is not outweighed by countervailing benefits to recipients or to competition.
(2)It is unfair in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(c)For purposes of subdivision (a), an act or practice, including, but not limited to, a representation or an omission, is deceptive if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice misleads or is likely to mislead the recipient.
(B)The recipients interpretation of the act or practice is reasonable under the circumstances.
(C)The act or practice is material.
(2)It is deceptive in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(d)For purposes of subdivision (a) an act or practice is abusive if either of the following conditions is met:
(1)It materially interferes with the ability of a recipient to understand a term or condition of commercial financing or commercial financing brokering services.
(2)It takes unreasonable advantage of any of the following:
(A)A lack of understanding on the part of the recipient of the material risks, costs, or conditions of the commercial financing or commercial financing brokering services.
(B)The inability of the recipient to protect its interests in selecting or using commercial financing.
(C)The reasonable reliance by the recipient on a commercial financing provider or commercial financing broker to act in the interests of the recipient.
4.Operative Date22661.22662.This chapter shall become operative on January 1, 2028.
SEC. 34.SEC. 32.Section 22700 of the Financial Code is amended to read:22700.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licenses issued under this division shall remain in effect until they are surrendered, revoked, or suspended.
(b)Mortgage loan originator licenses issued under this division shall be renewed annually upon the payment of an annual assessment, and, if renewed by the licensee, shall remain in effect until they are surrendered, revoked, or suspended.
(c)Surrender of a license becomes effective 30 days after receipt of an application to surrender the license or within a shorter period of time that the commissioner may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the surrender is instituted within 30 days after the application is filed. If a proceeding is pending or instituted, surrender of a license becomes effective at the time and upon the conditions that the commissioner determines.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 35.SEC. 33.Section 22701 of the Financial Code is amended to read:22701.(a)For the purpose of discovering violations of this division or securing information required by the commissioner in the administration and enforcement of this division, the commissioner may at any time investigate the loans, commercial financing transactions, assessment contracts, and business, and examine the books, accounts, records, and files used in the business, of every person engaged in the business of a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, whether the person acts or claims to act as principal or agent, or under or without the authority of this division. For the purpose of examination, the commissioner and the commissioners representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all these persons.
(b)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 36.SEC. 34.Section 22712 of the Financial Code is amended to read:22712.(a)(1) Whenever, in the opinion of the commissioner, any person is engaged or has engaged in business as a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, as defined in this division, without a license from the commissioner, or any licensee is violating or has violated any provision of this division, any provision of an order, or any regulation adopted pursuant to this division, the commissioner may order that person or licensee to desist and to refrain from engaging in the business or further continuing that violation. In addition, the commissioner may include a claim for ancillary relief. The ancillary relief may include, but not be limited to, refunds, restitution or disgorgement, or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action. If, within 30 days after the order is served, a written request for a hearing is filed and no hearing is held within 30 days thereafter, the order is rescinded.
(2)For purposes of this subdivision, licensee includes a mortgage loan originator.
(b)Notwithstanding subdivision (a), if, after an investigation, the commissioner has reasonable grounds to believe that a person is conducting or has conducted business in an unsafe or injurious manner, the commissioner shall, by written order addressed to that person, direct the discontinuance of the unsafe or injurious practices. The order shall be effective immediately but shall not become final except in accordance with the provisions of Section 22717.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 37.SEC. 35.Section 22714 of the Financial Code is amended to read:22714.(a)The commissioner shall suspend or revoke any license, upon notice and reasonable opportunity to be heard, if the commissioner finds any of the following:
(1)The licensee has failed to comply with any demand, ruling, or requirement of the commissioner made pursuant to and within the authority of this division.
(2)The licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division.
(3)A fact or condition exists that, if it had existed at the time of the original application for the license, reasonably would have warranted the commissioner in refusing to issue the license originally.
(4)There has been repeated failure by the finance lender, when making or negotiating loans, to take into consideration in determining the size and duration of loans, the financial ability of the borrower to repay the loan in the time and manner provided in the loan contract, or to refinance the loan at maturity.
(5)There has been repeated failure by the program administrator, when administering assessment contracts, to take into consideration in determining the size and duration of the assessment contracts, the property owners ability to meet the annual PACE obligations in the time and manner provided in the contract.
(6)There has been repeated failure by the commercial financing provider, when making or negotiating commercial financing transactions, to take into consideration in determining the size, duration, and repayment features, the financial ability of the recipient to repay the commercial financing transaction in the time and manner provided in the commercial financing agreement or contract or to refinance the commercial financing transaction at maturity.
(b)A master license shall not be suspended or revoked pursuant to this section as a result of any action or failure to act by a subsidiary licensee unless grounds exist for the suspension or revocation of the master license pursuant to this section. An order suspending or revoking a license or imposing sanctions against a licensee shall not affect other licensed locations unless expressly stated in the order.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 38.SEC. 36.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
(a)This division shall be liberally construed and applied to promote its underlying purposes and policies, which are:
(1)To ensure an adequate supply of credit to borrowers in this state.
(2)To simplify, clarify, and modernize the law governing loans made by finance lenders.
(3)To foster competition among finance lenders.
(4)To protect borrowers against unfair practices by some lenders, having due regard for the interests of legitimate and scrupulous lenders.
(5)To permit and encourage the development of fair and economically sound lending practices.
(6)To encourage and foster a sound economic climate in this state.
(7)To protect property owners from deceptive and misleading practices that threaten the efficacy and viability of property assessed clean energy financing programs.
(8)To protect small businesses against unfair practices by some commercial financing providers, having due regard for the interest of legitimate and scrupulous commercial financing providers.
(b)Consumer loans, as defined in Sections 22203 and 22204, are subject to this chapter, Chapter 2 (commencing with Section 22200), Article 1 (commencing with Section 22700) of Chapter 4, and Article 2 (commencing with Section 22750) of Chapter 4.
(c)Commercial loans, as defined in Section 22502, are subject to this chapter, Chapter 3 (commencing with Section 22500), Article 1 (commencing with Section 22700) of Chapter 4, and Article 3 (commencing with Section 22780) of Chapter 4.
(d)A program administrator, as defined in Section 22018, is subject to this chapter, Chapter 3.5 (commencing with Section 22680), and Article 1 (commencing with Section 22700) of Chapter 4.
(e)Commercial financing, as defined in Section 22655, is subject to this chapter, Chapter 3.1 (commencing with Section 22655), and Article 1 (commencing with Section 22700) and Article 3 (commencing with Section 22780) of Chapter 4.
(e)This(f)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 2.Section 22007 of the Financial Code is amended to read:22007.(a)Licensee means any finance lender, broker, commercial financing provider, commercial financing broker, or program administrator who receives a license in accordance with this division.
(b)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 3.Section 22010 of the Financial Code is amended to read:22010.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator do not include employees regularly employed at the location specified in the license of the finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, except that an employee, when acting within the scope of his or her the employees employment, shall be exempt from any other law from which his or her the employees employer is exempt.
(b)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 4.Section 22021 is added to the Financial Code, to read:22021.(a)Except in Sections 22064 and 22687, recipient has the same meaning as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 5.Section 22022 is added to the Financial Code, to read:22022.(a)Commercial financing and commercial financing provider have the same meanings as defined in Section 22655.
(b)This section shall become operative on January 1, 2028.
SEC. 6.Section 22100.6 is added to the Financial Code, to read:22100.6.(a)A person shall not engage in the business of a commercial financing provider or a commercial financing broker without obtaining a license from the commissioner.
(b)This section shall become operative on January 1, 2028.
SEC. 7.Section 22101 of the Financial Code is amended to read:22101.(a)An application for a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall be in the form and contain the information that the commissioner may by rule or order require and shall be filed upon payment of the fee specified in Section 22103.
(b)Notwithstanding any other law, an applicant who does not currently hold a license as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator under this division shall furnish, with their application, a full set of fingerprints and related information for purposes of the commissioner conducting a criminal history record check. The commissioner shall obtain and receive criminal history information from the Department of Justice and the Federal Bureau of Investigation pursuant to Section 22101.5.
(c)This section does not prevent a licensee from engaging in the business of a finance lender or program administrator through a subsidiary corporation if the subsidiary corporation is licensed pursuant to this division.
(d)For purposes of this section, subsidiary corporation means a corporation that is wholly owned by a licensee.
(e)A new application shall not be required for a change in the address of an existing location previously licensed under this division. However, the licensee shall comply with the requirements of Section 22153.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require an application to be made through the Nationwide Mortgage Licensing System and Registry, and may require fees, fingerprints, financial statements, supporting documents, changes of address, and any other information, and amendments or modifications thereto, to be submitted in the same manner.
(g)Notwithstanding any other law, the commissioner may by rule or order prescribe circumstances under which to accept electronic records or electronic signatures. This section does not require the commissioner to accept electronic records or electronic signatures.
(h)For purposes of this section, the following terms have the following meanings:
(1)Electronic record means an initial license application, or material modification of that license application, and any other record created, generated, sent, communicated, received, or stored by electronic means. Electronic records also includes, but is not limited to, all of the following:
(A)An application, amendment, supplement, and exhibit, filed for any license, consent, or other authority.
(B)A financial statement, a report, or advertising.
(C)An order, license, consent, or other authority.
(D)A notice of public hearing, accusation, and statement of issues in connection with any application, license, consent, or other authority.
(E)A proposed decision of a hearing officer and a decision of the commissioner.
(F)The transcripts of a hearing and correspondence between a party and the commissioner directly relating to the record.
(G)A release, newsletter, interpretive opinion, determination, or specific ruling.
(H)Correspondence between a party and the commissioner directly relating to any document listed in subparagraphs (A) to (G), inclusive.
(2)Electronic signature means an electronic sound, symbol, or process attached to or logically associated with an electronic record and executed or adopted by a person with the intent to sign the electronic record.
(i)The Legislature finds and declares that the Department of Financial Protection and Innovation has continuously implemented methods to accept records filed electronically, and is encouraged to continue to expand its use of electronic filings to the extent feasible, as budget, resources, and equipment are made available to accomplish that goal.
(j)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 8.Section 22101.5 of the Financial Code is amended to read:22101.5.(a)The commissioner shall submit to the Department of Justice fingerprint images and related information required by the Department of Justice of all finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license candidates, as defined by subdivision (a) of Section 22101, for purposes of obtaining information as to the existence and content of a record of state or federal convictions, state or federal arrests, and information as to the existence and content of a record of state or federal arrests for which the Department of Justice establishes that the person is free on bail or on his or her the persons own recognizance pending trial or appeal.
(b)When received, the Department of Justice shall forward to the Federal Bureau of Investigation requests for federal summary criminal history information received pursuant to this section. The Department of Justice shall review the information returned from the Federal Bureau of Investigation and compile and disseminate a response to the commissioner.
(c)The Department of Justice shall provide a response to the commissioner pursuant to paragraph (1) of subdivision (p) of Section 11105 of the Penal Code.
(d)The commissioner shall request from the Department of Justice subsequent arrest notification service, as provided pursuant to Section 11105.2 of the Penal Code, for license candidates described in subdivision (a).
(e)The Department of Justice shall charge a fee sufficient to cover the costs of processing the requests pursuant to this section.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require fingerprints submitted by an applicant to be submitted to the Nationwide Mortgage Licensing System and Registry in addition to the Department of Justice.
(g)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 9.Section 22102 of the Financial Code is amended to read:22102.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeking to engage in business at a new location shall submit an application for a branch office license to the commissioner at least 10 days before engaging in business at a new location and pay the fee required by Section 22103. The commissioner may require an applicant seeking to engage in business at a new location to submit its application, or parts thereof, through the Nationwide Mortgage Licensing System and Registry.
(b)The licensee may engage in business at the new location 10 days after the date of submission of a branch office application.
(c)(1)The commissioner shall approve or deny the person responsible for the lending or financing activity at the new location in accordance with Section 22109, and shall notify the licensee of this decision within 90 days of the date of receipt of the application.
(2)If the commissioner denies the application, the licensee shall, within 10 days of the date of receipt of notification of the commissioners denial, submit a new application to the commissioner designating a different person responsible for the lending or financing activity at the new location. The commissioner shall approve or deny the different person as provided in paragraph (1).
(d)A licensee shall not engage in business at a new location in a name other than a name approved by the commissioner.
(e)The commissioner may adopt regulations to implement the requirements of this section.
(f)A branch office license to engage in business at a new location shall be issued in accordance with this section. A change of street address of a place of business designated in a license shall be made in accordance with Section 22153 and shall not constitute a new location subject to the requirements of this section.
(g)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 10.Section 22103 of the Financial Code is amended to read:22103.(a)At the time of filing the application for a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or branch office license, the applicant shall pay to the commissioner the sum of one hundred dollars ($100) as a fee for investigating the application, plus the cost of fingerprint processing and the criminal history record check under Section 22101.5, and two hundred dollars ($200) as an application fee. The investigation fee, including the amount for the criminal history record check, and the application fee are not refundable if an application is denied or withdrawn.
(b)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 11.Section 22104 of the Financial Code is amended to read:22104.(a)The applicant shall file with the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license financial statements prepared in accordance with generally accepted accounting principles and acceptable to the commissioner that indicate a net worth of at least twenty-five thousand dollars ($25,000). Except as provided in subdivisions (b) and (c), a licensee shall maintain a net worth of at least twenty-five thousand dollars ($25,000) at all times.
(b)A licensed finance lender or broker, that employs one or more mortgage loan originators and that makes residential mortgage loans, shall continuously maintain a minimum net worth of at least two hundred fifty thousand dollars ($250,000).
(c)A licensed finance broker, that employs one or more mortgage loan originators and that arranges, but does not make, residential mortgage loans, shall continuously maintain a minimum net worth of at least fifty thousand dollars ($50,000).
(d)The commissioner may promulgate rules or regulations with respect to the requirements for minimum net worth, as are necessary to accomplish the purposes of this division and comply with the SAFE Act.
(e)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 12.Section 22105 of the Financial Code is amended to read:22105.(a)Upon the filing of an application pursuant to Section 22101 and the payment of the fees, the commissioner shall investigate the applicant and its general partners and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or any person responsible for the conduct of the applicants lending lending, financing, or program administration activities in this state, if the applicant is a partnership. If the applicant is a corporation, trust, limited liability company, or association, including an unincorporated organization, the commissioner shall investigate the applicant, its principal officers, directors, managing members, and persons owning or controlling, directly or indirectly, 10 percent or more of the outstanding equity securities or any person responsible for the conduct of the applicants lending or financing activities or for administering PACE programs for the applicant in this state. Upon the filing of an application pursuant to Section 22102 and the payment of the fees, the commissioner shall investigate the person responsible for the lending or financing activity of the licensee, or for administering one or more PACE programs for the licensee, at the new location described in the application. The investigation may be limited to information that was not included in prior applications filed pursuant to this division. If the commissioner determines that the applicant has satisfied this division and does not find facts constituting reasons for denial under Section 22109, the commissioner shall issue and deliver a license to the applicant.
(b)For the purposes of this section, principal officers shall mean president, chief executive officer, treasurer, and chief financial officer, as may be applicable, and any other officer with direct responsibility for the conduct of the applicants lending or financing activities or for PACE program administration for the applicant within the state.
(c)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 13.Section 22106 of the Financial Code is amended to read:22106.(a)The finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license shall state the name of the licensee, and if the licensee is a partnership, the names of its general partners, and if a corporation or an association, the date and place of its incorporation or organization, and the address of the licensees principal business location. On the approval and licensing of a location pursuant to Section 22101 or 22102, the commissioner shall issue an original license endorsed to show the address of the authorized location and, if applicable, the name of the subsidiary corporation licensed to operate the location. The license shall state whether the licensee is licensed as a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator.
(b)(1)An application for a license for a business location outside this state shall constitute an agreement by the applicant to do all of the following:
(A)Make the licensees books, accounts, papers, records, and files available to the commissioner or the commissioners representatives in this state.
(B)Pay the reasonable expenses for travel, meals, and lodging of the commissioner or the commissioners representatives incurred during any investigation or examination made at the licensees location outside this state.
(2)A licensee located outside this state is not required to maintain books and records regarding licensed loans or licensed commercial financing transactions separate from those for other loans or other commercial financing transactions if the licensed loans or licensed commercial financing transactions can be readily identified.
(c)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 14.Section 22107 of the Financial Code is amended to read:22107.(a)Each finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee shall pay to the commissioner its pro rata share of all costs and expenses, including the costs and expenses associated with the licensing of mortgage loan originators it employs, reasonably incurred in the administration of this division, as estimated by the commissioner, for the ensuing year and any deficit actually incurred or anticipated in the administration of the program in the year in which the assessment is made. The pro rata share shall be the proportion that a licensees gross income bears to the aggregate gross income of all licensees as shown by the annual financial reports to the commissioner, for the costs and expenses remaining after the amount assessed pursuant to subdivision (c).
(b)On or before September 30th 30 in each year, the commissioner shall notify each licensee of the amount assessed and levied against it and that amount shall be paid by October 31. If payment is not made by October 31, the commissioner shall assess and collect a penalty, in addition to the assessment, of 1 percent of the assessment for each month or part of a month that the payment is delayed or withheld.
(c)In the levying and collection of the assessment, a licensee shall neither be assessed for nor be permitted to pay less than two hundred fifty dollars ($250) per licensed location per year.
(d)If a licensee fails to pay the assessment on or before the October 31st, 31, the commissioner may by order summarily suspend or revoke the certificate issued to the licensee. If, after an order is made, a request for a hearing is filed in writing within 30 days, and a hearing is not held within 60 days thereafter, the order is deemed rescinded as of its effective date. During any period when its certificate is revoked or suspended, a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee and any mortgage loan originator licensee employed by the finance lender or broker shall not conduct business pursuant to this division except as may be permitted by order of the commissioner. However, the revocation, suspension, or surrender of a certificate shall not affect the powers of the commissioner as provided in this division.
(e)The commissioner shall, by rule, establish the timelines, fees, and assessments applicable to applicants for original mortgage loan originator licenses, license renewals, and license changes under this division.
(f)Notwithstanding subdivisions (a) to (e), inclusive, the commissioner may by rule require licensees to pay assessments through the Nationwide Mortgage Licensing System and Registry.
(g)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 15.Section 22109 of the Financial Code is amended to read:22109.(a)Upon reasonable notice and opportunity to be heard, the commissioner may deny the application for a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator license for any of the following reasons:
(1)A false statement of a material fact has been made in the application.
(2)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has, within the last 10 years, been convicted of or pleaded nolo contendere to a crime, or committed an act involving dishonesty, fraud, or deceit, if the crime or act is substantially related to the qualifications, functions, or duties of a person engaged in business in accordance with this division.
(3)The applicant or an officer, director, general partner, person responsible for the applicants lending or financing activities or administering PACE programs for the applicant in this state, or person owning or controlling, directly or indirectly, 10 percent or more of the outstanding interests or equity securities of the applicant has violated any provision of this division or the rules thereunder or any similar regulatory scheme of the State of California or a foreign jurisdiction.
(4)The applicant employs a mortgage loan originator who is not licensed, or has not initiated an application to become licensed, pursuant to this division.
(b)The application shall be considered withdrawn within the meaning of this section if the applicant fails to respond to a written notification of a deficiency in the application within 90 days of the date of the notification.
(c)The commissioner shall, within 60 days from the filing of a full and complete application for a license with the fees, either issue a license or file a statement of issues prepared in accordance with Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code.
(d)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 16.Section 22112 of the Financial Code is amended to read:22112.(a)A licensee shall maintain a surety bond in accordance with this subdivision in a minimum amount of twenty-five thousand dollars ($25,000). The bond shall be payable to the commissioner and issued by an insurer authorized to do business in this state. An original surety bond, including any and all riders and endorsements executed subsequent to the effective date of the bond, shall be filed with the commissioner within 10 days of execution. For licensees with multiple licensed locations, only one surety bond is required. The bond shall be used for the recovery of expenses, fines, and fees levied by the commissioner in accordance with this division or for losses or damages incurred by borrowers borrowers, recipients, or consumers as the result of a licensees noncompliance with the requirements of this division.
(b)When an action is commenced on a licensees bond, the commissioner may require the filing of a new bond. Immediately upon recovery of any action on the bond, the licensee shall file a new bond. Failure to file a new bond within 10 days of the recovery on a bond, or within 10 days after notification by the commissioner that a new bond is required, constitutes sufficient grounds for the suspension or revocation of the license.
(c)The commissioner may by rule require a higher bond amount for a licensee who employs one or more mortgage loan originators and who makes or arranges residential mortgage loans, based on the dollar amount of residential mortgage loans originated by that licensee and any mortgage loan originators employed by that licensee. Every mortgage loan originator employed by the licensee shall be covered by the surety bond.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 17.Section 22151 of the Financial Code is amended to read:22151.(a)A finance lender license, broker license, commercial financing provider license, commercial financing broker license, program administrator license, and the license of every mortgage loan originator employed by a lender or finance broker, along with any currently effective order of the commissioner approving a different name pursuant to Section 22155, shall be conspicuously posted in the place of business authorized by the license.
(b)A license is not transferable or assignable. A license issued to a partnership or a limited partnership is not transferred or assigned within the meaning of this section by the death, withdrawal, or admission of a partner, general partner, or limited partner, unless the death, withdrawal, or admission dissolves the partnership to which the license was issued.
(c)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 18.Section 22152 of the Financial Code is amended to read:22152.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee shall maintain only one place of business under a duplicate or original license issued pursuant to Section 22101 or 22102. The commissioner may issue more than one license to the same licensee upon compliance with all the provisions of this division governing an original issuance of a license.
(b)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 19.Section 22153 of the Financial Code is amended to read:22153.(a)If a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator licensee seeks to change its place of business to a street address other than that designated in its license, the licensee shall provide notice to the commissioner at least 10 days before the change. The commissioner shall notify the licensee within 10 days if the commissioner disapproves the change, and if the commissioner does not notify the licensee of disapproval within 10 days, the change in address shall be deemed approved. The commissioner may require an applicant to submit its application to change its place of business through the Nationwide Mortgage Licensing System and Registry.
(b)If notice is not given at least 10 days before the change of a street address of a place of business, as required by subdivision (a), or notice is not given at least 10 days before engaging in business at a new location, as required by Section 22102, the commissioner may assess a civil or administrative penalty on the licensee not to exceed five hundred dollars ($500).
(c)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 20.Section 22154 of the Financial Code is amended to read:22154.(a)Subject to Section 22157.1, a licensee shall not conduct the business of making loans or commercial financing transactions or administering a PACE program under this division within any office, room, or place of business in which any other business is solicited or engaged in, or in association or conjunction therewith, except as is authorized in writing by the commissioner upon the commissioners finding that the character of the other business is such that the granting of the authority would not facilitate evasions of this division or of the rules and regulations made pursuant to this division. An authorization, once granted, remains in effect until revoked by the commissioner. The commissioner may authorize the other business through the Nationwide Mortgage Licensing System and Registry.
(b)The products or services of an affiliated corporation of the licensee that is a supervised financial institution, or a parent or subsidiary of a supervised financial institution that is an affiliate of the licensee, may be provided, offered, or sold at the licensed location of the licensee without authorization by the commissioner pursuant to subdivision (a) if both of the following are met:
(1)The activity is not prohibited by, or in violation of, the laws applicable to the affiliate or supervised financial institution.
(2)The products and services are not offered and sold in a manner that restricts the ability of the borrower borrower, recipient, or customer to individually select or reject a product or service that is offered.
(c)The following definitions govern the construction of this section:
(1)Affiliated or affiliate means the following: A corporation is an affiliate of, or a corporation is affiliated with, another specified corporation if it directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, the other specified corporation.
(2)Supervised financial institution means any commercial bank, industrial bank, credit card bank, trust company, savings and loan association, savings bank, credit union, California finance lender, residential mortgage lender or servicer, or insurer, provided that the institution is subject to supervision by an official or agency of this state or of the United States.
(d)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 21.Section 22155 of the Financial Code is amended to read:22155.(a)Subject to Section 22157.1, a finance lender, broker, commercial financing provider, commercial financing broker, mortgage loan originator, or program administrator licensee shall not transact the business licensed or make any loan or commercial financing transaction or administer any PACE program provided for by this division under any other name or at any other place of business than that named in the license except pursuant to a currently effective written order of the commissioner authorizing the other name or other place of business. The commissioners order, while effective, shall be deemed to amend the original license issued pursuant to Section 22105 or 22109.1. Notwithstanding any provision of this section, a finance lender, program administrator, broker, or mortgage loan originator licensee may make any loan and engage in any other business provided for by this division, other than the business described in subdivision (b) of Section 22154, at a place other than the licensed location under either of the following conditions:
(b)Notwithstanding subdivision (a), a finance lender, program administrator, broker, commercial financing provider, commercial financing broker, or mortgage loan originator licensee may make any loan or commercial financing transaction and engage in any other business provided for by this division, other than the business described in subdivision (b) of Section 22154, at a place other than the licensed location under either of the following conditions:
(a)(1)The borrower or recipient requests, either orally or in writing, that a loan or commercial financing transaction be initiated or made at a location other than the licensees licensed location. The use by the licensee of a preprinted solicitation form returned to the licensee by the borrower or recipient shall not constitute a request by the borrower or recipient that a loan or commercial financing transaction be initiated or made at a location other than the licensees licensed location.
(b)(2)The licensee makes a solicitation or advertises for, or makes an offer of, a loan loan, commercial financing transaction, or assessment contract displayed on home pages or similar methods by the licensee on the internet, the World Wide Web, or similar proprietary or common carrier electronic systems, and the prospective borrower borrower, recipient, or property owner may transmit information over these electronic systems to the licensee in connection with the licensees offer to make a loan loan, commercial financing transaction, or assessment contract.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 22.Section 22156 of the Financial Code is amended to read:22156.(a)Finance lender, broker, commercial financing provider, commercial financing broker, program administrator, and mortgage loan originator licensees shall keep and use in their business, books, accounts, and records which will enable the commissioner to determine if the licensee is complying with the provisions of this division and with the rules and regulations made by the commissioner. On any loan secured by real property in which loan proceeds were disbursed to an independent escrowholder, the licensee shall retain records and documents as set forth by rules of the commissioner adopted pursuant to Section 22150. Upon request of the commissioner, licensees shall file an authorization for disclosure to the commissioner of financial records of the licensed business pursuant to Section 7473 of the Government Code.
(b)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 23.Section 22157 of the Financial Code is amended to read:22157.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and mortgage loan originator licensees shall preserve their books, accounts, and records, if any, for at least three years after making the final entry on any loan or commercial financing transaction recorded therein.
(b)Except as otherwise specified by applicable law, including paragraph (3) of subdivision (b) of Section 5913 of the Streets and Highways Code, program administrator licensees shall preserve their books, accounts, and records for at least three years after the extinguishment of a PACE assessment is recorded therein.
(c)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 24.Section 22157.1 of the Financial Code is amended to read:22157.1.(a)For purposes of this section:
(1)Encrypted has the same meaning as provided in paragraph (4) of subdivision (i) of Section 1798.82 of the Civil Code.
(2)Remote location means a personal residence or a temporary, nonpublic location not owned or leased by the licensee or an affiliate of the licensee that is not simultaneously accessible by anyone other than a single employee and individuals who maintain a common household with the employee.
(b)A licensee may designate an employee, when acting within the scope of employment, to perform work on the licensees behalf at a remote location if the licensee does all of the following:
(1)Prohibits in-person consumer interactions, including the physical receipt of cash or other monetary value or the disbursement of loan or commercial financing transaction proceeds, at a remote location and does not designate a remote location to the public as a business location.
(2)Prohibits records required pursuant to Section 22156 from being physically mailed to, shipped to, or stored at a remote location except for storage on an encrypted device or encrypted media.
(3)Prohibits the physical receipt of mail related to the licensees licensed business at a remote location.
(4)Prohibits a consumers personal information from being physically stored at a remote location except for storage on an encrypted device or encrypted media.
(5)Provides an employee working at a remote location with appropriate equipment, which may include encrypted devices, virtual private networks, and similar technology, to perform work and safeguard licensee records and consumer personal information.
(6)Adopts and adheres to appropriate, as determined by the department, written policies and procedures to supervise and maintain appropriate control over the work of employees at remote locations and safeguard the licensees records and consumer personal information in connection with work at a remote location, including, but not limited to, all of the following elements:
(A)Employee data security training.
(B)Maintenance of security logs of remote logins.
(C)Procedures designed to detect suspicious logins or attempted logins and to suspend access by potentially compromised accounts or equipment.
(D)Data breach response procedures.
(7)(A)Records telephone calls with consumers conducted from a remote location to the same extent as telephone calls with consumers conducted from licensed locations.
(B)This paragraph does not require telephone call recording if the licensee does not do so in the normal course of business for the employee or business in question.
(8)All books, records, and persons that the commissioner is entitled to examine, inspect, or interview shall be made available to the commissioner at a licensed location.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 25.Section 22159 of the Financial Code is amended to read:22159.(a)(1)Each finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licensee shall file an annual report with the commissioner, on or before March 15th, giving the relevant information that the commissioner reasonably requires concerning the business and operations conducted by the licensee or authorized by the program administrator licensee within the state during the preceding calendar year for each licensed place of business. The individual annual reports filed pursuant to this section shall be made available to the public for inspection except, upon request in the annual report to the commissioner, the balance sheet contained in the annual report of a sole proprietor or any other nonpublicly traded person. Nonpublicly traded person for purposes of this section means persons with securities owned by 35 or fewer individuals. The report shall be made under oath and in the form prescribed by the commissioner.
(2)As used in this subdivision, nonpublicly traded person means a person with securities owned by 35 or fewer individuals.
(b)A licensee shall make other special reports that may be required by the commissioner.
(c)The commissioner may require a licensee that employs one or more mortgage loan originators to submit to the Nationwide Mortgage Licensing System and Registry reports of condition, which shall be in the form and shall contain the information as the Nationwide Mortgage Licensing System and Registry may require.
(d)The commissioner may by rule or order require a mortgage loan originator to submit reports of condition to the Nationwide Mortgage Licensing System and Registry, in lieu of the reports of condition required of his or her the mortgage loan originators employer pursuant to subdivision (c).
(e)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 26.Section 22161 of the Financial Code is amended to read:22161.(a)A person subject to this division shall not do any of the following:
(1)Make a materially false or misleading statement or representation to a borrower or recipient about the terms or conditions of that borrowers loan, loan or that recipients commercial financing transaction when making or brokering the loan. loan or commercial financing transaction.
(2)Make a materially false or misleading statement or representation to a property owner about the terms or conditions of an assessment contract.
(3)Advertise, print, display, publish, distribute, or broadcast, or cause or permit to be advertised, printed, displayed, published, distributed, or broadcast in any manner, any statement or representation with regard to the business subject to the provisions of this division, including the rates, terms, or conditions for making or negotiating loans, making or negotiating commercial financing transactions, or for making or negotiating assessment contracts, that is false, misleading, or deceptive, or that omits material information that is necessary to make the statements not false, misleading, or deceptive, or in the case of a licensee, that refers to the supervision of the business by the state or any department or official of the state.
(4)Commit an act in violation of Section 1695.13 of the Civil Code.
(5)Engage in any act in violation of Section 17200 of the Business and Professions Code.
(6)Knowingly misrepresent, circumvent, or conceal, through subterfuge or device, any material aspect or information regarding a transaction to which the person is a party.
(7)Commit an act that constitutes fraud or dishonest dealings.
(b)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 27.Section 22162 of the Financial Code is amended to read:22162.(a)A finance lender, broker, commercial financing provider, commercial financing broker, or mortgage loan originator licensee shall not place an advertisement disseminated primarily in this state for a loan or commercial financing transaction unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the loan or commercial financing transaction would be made or arranged.
(b)A program administrator licensee shall not place an advertisement disseminated primarily in this state for an assessment contract unless the licensee discloses in the printed text of the advertisement, or in the oral text in the case of a radio or television advertisement, the license under which the assessment contract would be administered.
(c)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 28.Section 22163 of the Financial Code is amended to read:22163.(a)The commissioner may require that rates of charge, if stated by a licensee, be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers borrowers, recipients, or property owners.
(b)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 29.Section 22164 of the Financial Code is amended to read:22164.(a)If any person engaged in the business regulated by this division refers in any advertising to rates of interest, charges, or cost of loans loans, commercial financing transactions, or assessment contracts, the commissioner shall require that the rates, charges, or costs are stated fully and clearly in the manner that he or she the commissioner deems necessary to give adequate information to prospective borrowers or property owners. If the rates or costs advertised do not apply to loans or assessment contracts of all classes made or negotiated by the person, this fact shall be clearly indicated in the advertisement.
(b)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 30.Section 22167.1 is added to the Financial Code, to read:22167.1.(a)A licensed commercial financing provider may act as a commercial financing broker at its licensed place of business without obtaining an additional license as a commercial financing broker under this division only if the licensee has notified the commissioner of the action in writing.
(b)This section shall become operative on January 1, 2028.
SEC. 31.Section 22168 of the Financial Code is amended to read:22168.(a)The commissioner may, after appropriate notice and opportunity for hearing, suspend for a period not to exceed 12 months or bar a person from any position of employment with a licensee if the commissioner finds that the person has willfully used or claimed without authority a designation or certification of special education, practice, or skill that the person has not attained, or willfully held out to the public a confusingly similar designation or certification for the purpose of misleading the public regarding his or her the persons qualifications or experience.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receiving a request, the matter shall be set for hearing to commence within 30 days after receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of the notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to subdivision (a), the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under this division.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a licensed finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator is conducting its business. This subdivision does not prohibit suspended or barred persons from having their personal transactions processed by a licensed finance lender, broker, commercial financing provider, commercial financing broker, mortgage loan originator, or program administrator.
(e)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 32.Section 22169 of the Financial Code is amended to read:22169.(a)The commissioner may, after appropriate notice and opportunity for hearing, by order, censure or suspend for a period not exceeding 12 months, or bar a person, including a mortgage loan originator, from any position of employment with, or management or control of, any finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or any other person, if the commissioner finds either of the following:
(1)That the censure, suspension, or bar is in the public interest and that the person has committed or caused a violation of this division or rule or order of the commissioner, which violation was either known or should have been known by the person committing or causing it or has caused material damage to the finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, or to the public.
(2)That the person has been convicted of or pleaded nolo contendere to any crime, or has been held liable in any civil action by final judgment, or any administrative judgment by any public agency, if that crime or civil or administrative judgment involved any offense involving dishonesty, fraud, or deceit, or any other offense reasonably related to the qualifications, functions, or duties of a person engaged in the business in accordance with the provisions of this division.
(b)Within 15 days from the date of a notice of intention to issue an order pursuant to subdivision (a), the person may request a hearing under the Administrative Procedure Act (Chapter 4.5 (commencing with Section 11400) of Part 1 of Division 3 of Title 2 of the Government Code). Upon receipt of a request, the matter shall be set for hearing to commence within 30 days after such receipt unless the person subject to this division consents to a later date. If no hearing is requested within 15 days after the mailing or service of such notice and none is ordered by the commissioner, the failure to request a hearing shall constitute a waiver of the right to a hearing.
(c)Upon receipt of a notice of intention to issue an order pursuant to this section, the person who is the subject of the proposed order is immediately prohibited from engaging in any activities subject to licensure under the law.
(d)Persons suspended or barred under this section are prohibited from participating in any business activity of a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, and from engaging in any business activity on the premises where a finance lender, broker, program administrator, or mortgage loan originator is conducting business.
(e)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 33.Chapter 3.1 (commencing with Section 22655) is added to Division 9 of the Financial Code, to read:3.1.Commercial Financing for Small Businesses1.Definitions22655.As used in this chapter:
(a)Accounts receivable purchase transaction has the same meaning as defined in Section 22800.
(b)Annual percentage rate or APR means an annualized rate calculated pursuant to Subchapter 3 (commencing with Section 900) of Chapter 3 of Title 10 of the California Code of Regulations.
(c)Asset-based lending transaction has the same meaning as defined in Section 22800.
(d)(1)Charge includes the aggregate interest, fees, bonuses, commissions, brokerage, discounts, expenses, and other forms of costs charged, contracted for, or received by a licensee or any other person in connection with the investigating, arranging, negotiating, procuring, guaranteeing, making, servicing, collecting, and enforcing of a commercial financing transaction or forbearance of money, credit, goods, or things in action, or any other service rendered.
(2)Charge includes a profit or advantage of any kind that a licensee may contract for, collect, receive, or obtain by a collateral sale, purchase, or agreement, in connection with negotiating, arranging, making, or otherwise in connection with any commercial financing transaction.
(e)(1)Commercial financing means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose.
(2)For purposes of determining the primary purpose of the financing within the meaning of this subdivision, the provider may rely on any written statement of intended purposes signed by the recipient. The statement may be a separate statement signed by the recipient or may be contained in a loan application or other document signed by the recipient. The provider is not required to ascertain that the proceeds of the financing are used in accordance with the statement of intended purposes.
(f)(1)Commercial financing broker means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider:
(A)Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
(B)Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
(C)Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
(D)Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipients sensitive data.
(E)(i)Subject to clause (ii), participating in the preparation of commercial financing documents, including, but not limited to, commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.
(ii)Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
(F)Communicating to a prospective recipient a commercial financing providers commercial financing approval decisions.
(G)Charging a fee to a prospective recipient for services related to a prospective recipients application for a commercial financing transaction from a commercial financing provider.
(2)Notwithstanding paragraph (1), a person is not a commercial financing broker solely because they take any of the following actions:
(A)Perform support tasks, including, but not limited to, typing, word processing, data entry, filing, billing, answering telephone calls, taking and receiving messages, and scheduling, in support of the performance by a broker of any of the activities described in subparagraphs (E) to (G), inclusive, of paragraph (1).
(B)Furnish a consumer report to a licensee by a consumer reporting agency in accordance with subsection (a) or (c) of Section 1681b of Title 15 of the United States Code.
(C)Furnish a consumer credit report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with subdivision (a) or paragraph (1) of subdivision (b) of Section 1785.11 of the Civil Code.
(D)Furnish a prequalifying report, as defined in Section 1785.3 of the Civil Code, to a licensee by a consumer credit reporting agency in accordance with paragraph (2) of subdivision (b) of Section 1785.11 of the Civil Code.
(E)Distribute or disseminate to a prospective recipient of a providers marketing materials or factual information about the provider, its lending activities, or its loan products, including, but not limited to, the providers interest rates, the providers minimum or maximum loan amounts or loan periods, or a general description of the providers underwriting criteria.
(g)Commercial financing provider means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.
The fact that a commercial financing provider extended a specific offer of commercial financing on behalf of a depository institution shall not be construed to mean that the commercial financing provider engaged in, or originated, that financing.
(h)Commercial loan has the same meaning as defined in Section 22502.
(i)Commercial open-end credit plan has the same meaning as defined in Section 22800.
(j)Factoring has the same meaning as defined in Section 22800.
(k)Lease financing has the same meaning as defined in Section 22800.
(l)Recipient means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than five hundred thousand dollars ($500,000).
(m)Referral means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipients contact information to a commercial financing provider, for the purpose of making an introduction.
(n)Sensitive data means any of the following:
(1)A bank account number.
(2)A bank statement.
(3)A credit or debit card account number.
(4)A credit score, as defined in Section 1785.15.1 of the Civil Code.
(5)All of, or a portion of, a social security number.
(6)Personal or business income information, including information self-reported by the person.
(7)A taxpayer or employer identification number.
(o)(1)Small business means a business entity organized for profit with annual gross receipts of no more than sixteen million dollars ($16,000,000) or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Section 14837 of the Government Code, whichever is greater.
(2)For purposes of determining a business entitys annual gross receipts, a licensee may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing.
2.Exemptions22656.This chapter does not apply to any of the following:
(a)A commercial financing provider that is a lender regulated under Chapter 23 (commencing with Section 2001) of Title 12 of the United States Code.
(b)A commercial financing transaction secured by real property.
(c)A commercial financing transaction in which the recipient is either of the following:
(1)A dealer, as defined in Section 285 of the Vehicle Code, or an affiliate of a dealer.
(2)A vehicle rental company, or an affiliate of a vehicle rental company, pursuant to a specific commercial financing offer or commercial open-end credit plan of at least fifty thousand dollars ($50,000), including a commercial loan made pursuant to that commercial financing transaction.
(d)A person who makes one or fewer commercial financing transactions in the state in a 12-month period.
(e)A person who makes five or fewer commercial financing transactions in the state in a 12-month period that are incidental to the business of the person relying upon the exemption.
3.Regulations22657.A commercial financing agreement is not enforceable if the commercial financing provider is not licensed pursuant to Section 22100.6.
22658.(a)A commercial financing provider or a commercial financing broker shall not take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
(b)A commercial financing provider or a commercial financing broker shall not include a provision in a commercial financing transaction agreement or contract that authorizes a commercial financing provider or a commercial financing broker to attach or garnish any of a recipients money held in an account in a depository institution.
(c)A commercial financing transaction found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of this division and subject to the remedies specified in this division.
(d)A commercial financing provider or a commercial financing broker shall not include a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipients business activities with the commercial financing provider, including, but not limited to, terms or conditions of a product or service offered by the commercial financing provider.
(e)A commercial financing broker shall clearly and conspicuously display on their internet website the average and maximum annual percentage rates for the commercial financing transactions facilitated by them in the most recent calendar year.
22659.(a)For purposes of this section:
(1)Amount financed has the same meaning as defined in Section 900 of Title 10 of the California Code of Regulations.
(2)Type of commercial financing means the types of commercial financing listed in subdivision (a) of Section 917 of Title 10 of the California Code of Regulations.
(b)Except as provided in subdivision (c) or (d), on or before March 15 of each year, beginning in 2029, a commercial financing provider shall file electronically through the departments internet website a report verified by an authorized officer containing all of the following information for activity during the preceding calendar year:
(1)The commercial financing providers identifying and contact information, including name, any fictitious business names, entity type, mailing address, telephone number, email address, internet website address, and designated contact person.
(2)By type of commercial financing, the total number of commercial financing transactions and total dollar amount financed with recipients.
(3)By type of commercial financing, the number of commercial financing transactions with recipients for each of the following amounts financed:
(A)Ten thousand dollars ($10,000) or less.
(B)Over ten thousand dollars ($10,000) but not over twenty-five thousand dollars ($25,000).
(C)Over twenty-five thousand dollars ($25,000) but not over fifty thousand dollars ($50,000).
(D)Over fifty thousand dollars ($50,000) but not over one hundred thousand dollars ($100,000).
(E)Over one hundred thousand dollars ($100,000) but not over two hundred fifty thousand dollars ($250,000).
(F)Over two hundred fifty thousand dollars ($250,000) but not over five hundred thousand dollars ($500,000).
(4)(A)Except as provided in subparagraph (B), by type of commercial financing and for each interval described in paragraph (3), the minimum, maximum, average, and median annual percentage rate disclosed in disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations.
(B)For a given type of commercial financing and interval, if the commercial financing provider did not provide any disclosures required to comply with subdivision (a) of Section 920 of Title 10 of the California Code of Regulations, the commercial financing provider shall indicate that on the report and is not required to calculate or report that information.
(c)A commercial financing provider shall not include in the report required by subdivision (a) information for commercial loan activity conducted under the authority of Chapter 1 (commencing with Section 22000) or Chapter 3 (commencing with Section 22500).
(d)For purposes of this section, if a commercial financing does not meet any of the types of commercial financing, the commercial financing provider shall include the transaction as an other type.
22660.(a)It is unlawful for a commercial financing provider or commercial financing broker to engage or have engaged in any unlawful, unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or commercial financing brokering services to a recipient.
(b)For purposes of subdivision (a), an act or practice is unfair if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice causes or is likely to cause substantial injury to recipients.
(B)The injury is not reasonably avoidable by recipients.
(C)The injury is not outweighed by countervailing benefits to recipients or to competition.
(2)It is unfair in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(c)For purposes of subdivision (a), an act or practice, including, but not limited to, a representation or an omission, is deceptive if either of the following conditions is met:
(1)It meets all of the following conditions:
(A)The act or practice misleads or is likely to mislead the recipient.
(B)The recipients interpretation of the act or practice is reasonable under the circumstances.
(C)The act or practice is material.
(2)It is deceptive in accordance with Section 17200 of the Business and Professions Code and the case law thereunder.
(d)For purposes of subdivision (a) an act or practice is abusive if either of the following conditions is met:
(1)It materially interferes with the ability of a recipient to understand a term or condition of commercial financing or commercial financing brokering services.
(2)It takes unreasonable advantage of any of the following:
(A)A lack of understanding on the part of the recipient of the material risks, costs, or conditions of the commercial financing or commercial financing brokering services.
(B)The inability of the recipient to protect its interests in selecting or using commercial financing.
(C)The reasonable reliance by the recipient on a commercial financing provider or commercial financing broker to act in the interests of the recipient.
4.Operative Date22661.This chapter shall become operative on January 1, 2028.
SEC. 34.Section 22700 of the Financial Code is amended to read:22700.(a)Finance lender, broker, commercial financing provider, commercial financing broker, and program administrator licenses issued under this division shall remain in effect until they are surrendered, revoked, or suspended.
(b)Mortgage loan originator licenses issued under this division shall be renewed annually upon the payment of an annual assessment, and, if renewed by the licensee, shall remain in effect until they are surrendered, revoked, or suspended.
(c)Surrender of a license becomes effective 30 days after receipt of an application to surrender the license or within a shorter period of time that the commissioner may determine, unless a revocation or suspension proceeding is pending when the application is filed or a proceeding to revoke or suspend or to impose conditions upon the surrender is instituted within 30 days after the application is filed. If a proceeding is pending or instituted, surrender of a license becomes effective at the time and upon the conditions that the commissioner determines.
(d)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 35.Section 22701 of the Financial Code is amended to read:22701.(a)For the purpose of discovering violations of this division or securing information required by him or her the commissioner in the administration and enforcement of this division, the commissioner may at any time investigate the loans, commercial financing transactions, assessment contracts, and business, and examine the books, accounts, records, and files used in the business, of every person engaged in the business of a finance lender, broker, commercial financing provider, commercial financing broker, or program administrator, whether the person acts or claims to act as principal or agent, or under or without the authority of this division. For the purpose of examination, the commissioner and his or her the commissioners representatives shall have free access to the offices and places of business, books, accounts, papers, records, files, safes, and vaults of all these persons.
(b)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 36.Section 22712 of the Financial Code is amended to read:22712.(a)(1) Whenever, in the opinion of the commissioner, any person is engaged or has engaged in business as a finance lender, broker, commercial financing provider, commercial financing broker, program administrator, or mortgage loan originator, as defined in this division, without a license from the commissioner, or any licensee is violating or has violated any provision of this division, any provision of an order, or any regulation adopted pursuant to this division, the commissioner may order that person or licensee to desist and to refrain from engaging in the business or further continuing that violation. In addition, the commissioner may include a claim for ancillary relief. The ancillary relief may include, but not be limited to, refunds, restitution or disgorgement, or damages on behalf of the persons injured by the act or practice constituting the subject matter of the action. If, within 30 days after the order is served, a written request for a hearing is filed and no hearing is held within 30 days thereafter, the order is rescinded. For purposes of this section, licensee includes a mortgage loan originator.
(2)For purposes of this subdivision, licensee includes a mortgage loan originator.
(b)Notwithstanding subdivision (a), if, after an investigation, the commissioner has reasonable grounds to believe that a person is conducting or has conducted business in an unsafe or injurious manner, the commissioner shall, by written order addressed to that person, direct the discontinuance of the unsafe or injurious practices. The order shall be effective immediately, immediately but shall not become final except in accordance with the provisions of Section 22717.
(c)The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2028.
SEC. 37.Section 22714 of the Financial Code is amended to read:22714.(a)The commissioner shall suspend or revoke any license, upon notice and reasonable opportunity to be heard, if the commissioner finds any of the following:
(1)The licensee has failed to comply with any demand, ruling, or requirement of the commissioner made pursuant to and within the authority of this division.
(2)The licensee has violated any provision of this division or any rule or regulation made by the commissioner under and within the authority of this division.
(3)A fact or condition exists that, if it had existed at the time of the original application for the license, reasonably would have warranted the commissioner in refusing to issue the license originally.
(4)There has been repeated failure by the finance lender, when making or negotiating loans, to take into consideration in determining the size and duration of loans, the financial ability of the borrower to repay the loan in the time and manner provided in the loan contract, or to refinance the loan at maturity.
(5)There has been repeated failure by the program administrator, when administering assessment contracts, to take into consideration in determining the size and duration of the assessment contracts, the property owners ability to meet the annual PACE obligations in the time and manner provided in the contract.
(6)There has been repeated failure by the commercial financing provider, when making or negotiating commercial financing transactions, to take into consideration in determining the size, duration, and repayment features, the financial ability of the recipient to repay the commercial financing transaction in the time and manner provided in the commercial financing agreement or contract or to refinance the commercial financing transaction at maturity.
(b)A master license shall not be suspended or revoked pursuant to this section as a result of any action or failure to act by a subsidiary licensee unless grounds exist for the suspension or revocation of the master license pursuant to this section. An order suspending or revoking a license or imposing sanctions against a licensee shall not affect other licensed locations unless expressly stated in the order.
(c)This The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2019. 2028.
SEC. 38.No reimbursement is required by this act pursuant to Section 6 of Article XIIIB of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIIIB of the California Constitution.
All matter omitted in this version of the bill appears in the bill as amended in the Assembly, April 16, 2026. (JR11)(a)The bureaus administration of this article or Article 13 (commencing with Section 94919) shall not preclude the authority of the Department of Financial Protection and Innovation over, and application of the California Consumer Financial Protection Law to, any covered persons as defined by Section 90005 of the Financial Code, including, but not limited to, private postsecondary educational institutions.
(b)Nothing in this chapter shall constitute regulation of an institutions financial product or service pursuant to subparagraph (B) of paragraph (2) of subdivision (a) of Section 90009 of the Financial Code, or shall otherwise be construed to limit the Department of Financial Protection and Innovations jurisdiction with respect to an institutions financial product or service.
(c)An institution subject to this chapter shall not be considered acting under the authority of its status with the bureau pursuant to subdivision (a) of Section 90002 of the Financial Code when offering financial products or services.
SEC. 2.Section 90000 of the Financial Code is amended to read:90000.(a)The Legislature finds and declares all of the following:
(1)California consumers are vulnerable to abuse if the state lacks a dedicated financial services regulator with broad authority over providers of financial products and services. The lack of such a regulator has left consumers vulnerable to abuse and forced California businesses to compete with unscrupulous providers. The financial victimization of economically vulnerable consumers, including individuals who lack a safety net, not only harms the individual but also has a broader social and economic cost on all of California, and could lead to increased caseloads for social safety net programs. These problems become even more acute in times of crisis, including the global COVID-19 pandemic and economic fallout. Consequently, where feasible, the Legislature should enact statutory measures to protect California residents from financial abuses in the marketplace for financial products and services.
(2)Robust consumer protections enable wealth building and promote a vibrant economy. They are especially important among various populations, including, but not limited to, military service members, seniors, students, and new Californians. Unfair, deceptive, or abusive practices in the provision of financial products and services undermine the public confidence that is essential to the continued functioning of the financial system and sound extensions of credit to consumers.
(3)Technological innovation offers great promise to the more effective and efficient provision of consumer financial products and services to the population of California and also poses risks to consumers and challenges to law enforcement in addressing those risks.
(4)Small business owners are often similarly situated as consumers with regards to their sophistication and bargaining power relative to providers of financial services and products. Many of the rationales supporting legal protections for consumers apply also to small business owners. Small businesses have a better chance to survive and grow if they are able to access safe and effective financial products and are protected from unfair, deceptive, or abusive practices when accessing financial products and services.
(5)It is the intent of the Legislature to enact the California Consumer Financial Protection Law to strengthen consumer protections by expanding the ability of the Department of Financial Protection and Innovation to improve accountability and transparency in the California financial system, provide consumer financial education, and protect consumers and small businesses from abusive financial practices, while prioritizing the prevention of unethical businesses from harming the most vulnerable populations including military service members, seniors, students, low- and moderate-income individuals, and new Californians.
(b)The purpose of the California Consumer Financial Protection Law shall be to promote consumer welfare, fair competition, and wealth creation in this state by doing all of the following:
(1)Promoting nondiscriminatory access to responsible, affordable credit on terms that reasonably reflect consumers ability to repay.
(2)Promoting nondiscriminatory access to consumer financial products and services that are understandable and not unfair, deceptive, or abusive.
(3)Protecting consumers from discrimination and unfair, deceptive, and abusive acts and practices in connection with financial practices and services.
(4)Promoting nondiscriminatory consumer-protective innovation in consumer financial products and services.
(5)Promoting the interests of small businesses and protecting them from harm in connection with financial practices and services, in manners similar to those undertaken for consumers.
SEC. 3.Section 90002 of the Financial Code is amended to read:90002.(a)This division shall not apply to a licensee, or an employee of a licensee, of any state agency other than the Department of Financial Protection and Innovation to the extent that licensee or employee is acting under the authority of the other state agencys license.
(b)This division shall not apply to a person or employee of that person to the extent that person or employee is acting under the authority of one of the following licenses, certificates, or charters issued by the Department of Financial Protection and Innovation:
(1)Any person licensed as an escrow agent under Division 6 (commencing with Section 17000) of the Financial Code.
(2)Any person licensed as a finance lender, broker, program administrator, or mortgage loan originator under Division 9 (commencing with Section 22000) of the Financial Code.
(3)Any person licensed as a broker-dealer or investment adviser under Division 1 (commencing with Section 25000) of Title 4 the Corporations Code.
(4)Any person licensed as a residential mortgage lender, a mortgage servicer, or a mortgage loan originator under Division 20 (commencing with Section 50000) of the Financial Code.
(5)Any person licensed as a check seller, bill payer, or prorater under Division 3 (commencing with Section 12000) of the Financial Code.
(6)Any person licensed as a capital access company under Division 3 (commencing with Section 28000) of Title 4 of the Corporations Code.
(7)Any person doing business under a license, charter, or certificate issued under the Financial Institutions Law, including Division 1 (commencing with Section 99), Division 1.1 (commencing with Section 1000), Division 1.2 (commencing with Section 2000), Division 1.6 (commencing with Section 4800), Division 2 (commencing with Section 5000), Division 5 (commencing with Section 14000), Division 7 (commencing with Section 18000), and Division 15 (commencing with Section 31000) of the Financial Code.
(c)This division shall not apply to a bank, bank holding company, trust company, savings and loan association, savings and loan holding company, credit union, or an organization subject to oversight of the Farm Credit Administration, when acting under the authority of a license, certificate, or charter under federal law or the laws of another state.
(d)This division applies to all other covered persons, as defined in Section 90005.
SEC. 4.Section 90003 of the Financial Code is amended to read:90003.(a)It is unlawful for a covered person or service provider, as defined in Section 90005, to do any of the following:
(1)Engage, have engaged, or propose to engage in any unlawful, unfair, deceptive, or abusive act or practice with respect to consumer financial products or services.
(2)Offer or provide to a consumer any financial product or service not in conformity with any consumer financial law or otherwise commit any act or omission in violation of a consumer financial law.
(3)Fail or refuse, as required by a consumer financial law or any rule or order issued by the department thereunder, to do any of the following:
(A)Permit the department access to or copying of records.
(B)Establish or maintain records.
(C)Make reports or provide information to the department.
(b)For any person who knowingly or recklessly provides substantial assistance to a covered person or service provider in violation of subdivision (a) or any rule or order issued thereunder, the provider of that substantial assistance shall be deemed to be in violation of that section to the same extent as the person to whom that assistance is provided.
(c)Notwithstanding subdivision (b), a person shall not be held to have violated paragraph (1) of subdivision (a) solely by virtue of providing or selling time or space to a covered person or service provider placing an advertisement.
SEC. 5.Section 90004.1 is added to the Financial Code, to read:90004.1.(a)Commencing January 1, 2028, a person shall not engage in the business of offering to provide or providing commercial financing products to California residents without first registering with the commissioner in accordance with the rules prescribed pursuant to Section 90009.1.
(b)A commercial financing provider or a commercial financing broker shall not take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
(c)A commercial financing provider or a commercial financing broker shall not include a provision in a commercial financing transaction agreement or contract that authorizes a commercial financing provider or commercial financing broker to attach or garnish any of a recipients money held in an account in a depository institution.
(d)A commercial financing transaction found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of this division and subject to the remedies specified in this division.
(e)A commercial financing provider or a commercial financing broker shall not include a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipients business activities with the registrant, including, but not limited to, terms or conditions of a product or service offered by the registrant.
(f)A commercial financing broker shall clearly and conspicuously display on their internet website the average and maximum annual percentage rates for the commercial financing transactions facilitated by them in the most recent calendar year.
SEC. 6.Section 90005 of the Financial Code is amended to read:90005.The definitions in this section apply throughout this division, except as otherwise provided in this division or if the context clearly indicates otherwise:
(a)Affiliate means any person that controls, is controlled by, or is under common control with another person. For purposes of this definition, control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person.
(b)California resident has the same meaning as resident as that term is defined in Section 17014 of the Revenue and Taxation Code.
(c)Commercial financing has the same meaning as that term is defined in Section 22800.
(d)(1)Commercial financing brokerage services means the following acts in connection with a commercial financing transaction:
(A)Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
(B)Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
(C)Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
(D)Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipients sensitive data.
(E)(i)Participating in the preparation of commercial financing documents, including commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.
(ii)Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents within the meaning of this subparagraph.
(F)Communicating to a prospective recipient a commercial financing providers commercial financing approval decisions.
(G)Charging a fee to a prospective recipient for services related to a prospective recipients application for a commercial financing transaction from a commercial financing provider.
(2)Notwithstanding paragraph (1), the following acts in connection with a commercial financing transaction do not constitute commercial financing brokerage services:
(A)Performing support tasks, including, but not limited to, typing, word processing, data entry, filing, billing, answering telephone calls, taking and receiving messages, and scheduling, in support of the performance by a broker of any of the activities described in subparagraphs (E) to (G), inclusive, of paragraph (1).
(B)Furnishing a consumer report to a covered person by a consumer reporting agency in accordance with subsection (a) or (c) of Section 1681b of Title 15 of the United States Code.
(C)Furnishing a consumer credit report, as defined in Section 1785.3 of the Civil Code, to a covered person by a consumer credit reporting agency in accordance with subdivision (a) or paragraph (1) of subdivision (b) of Section 1785.11 of the Civil Code.
(D)Furnishing a prequalifying report, as defined in Section 1785.3 of the Civil Code, to a covered person by a consumer credit reporting agency in accordance with paragraph (2) of subdivision (b) of Section 1785.11 of the Civil Code.
(E)Distributing or disseminating to a prospective recipient of a providers marketing materials or factual information about the provider, its lending activities, or its loan products, including, but not limited to, the providers interest rates, the providers minimum or maximum loan amounts or loan periods, or a general description of the providers underwriting criteria.
(3)For purposes of this subdivision, sensitive data means any of the following:
(A)A bank account number.
(B)A bank statement.
(C)A credit or debit card account number.
(D)A credit score, as defined in Section 1785.15.1 of the Civil Code.
(4)For purposes of this subdivision, referral means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipients contact information to a commercial financing provider, for the purposes of making an introduction.
(e)Commercial financing product means either of the following products or services:
(1)Commercial financing transactions as defined in this section.
(2)Commercial financing brokerage services as defined in this section.
(f)(1)Commercial financing transaction means a consummated commercial financing transaction that is equal to or less than five hundred thousand dollars ($500,000) and for which a disclosure is provided in accordance with subsection (a) of Section 920 of Title 10 of the California Code of Regulations.
(2)Commercial financing transaction does not include a commercial financing transaction in which the recipient is a dealer, as defined in Section 285 of the Vehicle Code, or an affiliate of the dealer, or a vehicle rental company, or an affiliate of the company, pursuant to a specific commercial financing offer or commercial open-end credit plan of at least fifty thousand dollars ($50,000), including any commercial loan made pursuant to the commercial financing transaction.
(g)Consumer means an individual or an agent, trustee, or representative acting on behalf of an individual or the estate, trust, or joint trust of an individual, however denominated.
(h)Consumer financial law means a federal or California law that directly and specifically regulates the manner, content, or terms and conditions of any financial transaction, or any account, product, or service related thereto, with respect to a consumer.
(i)Consumer financial product or service means either of the following:
(1)A financial product or service that is delivered, offered, or provided for use by consumers primarily for personal, family, or household purposes.
(2)A financial product or service as described in paragraph (11) of subdivision (p).
(j)Covered person means, to the extent not preempted by federal law, any of the following:
(1)Any person that engages in offering or providing a consumer financial product or service to a resident of this state.
(2)Any affiliate of a person described in this subdivision if the affiliate acts as a service provider to the person.
(3)Any service provider to the extent that the person engages in the offering or provision of its own consumer financial product or service.
(k)Credit means the right granted by a person to another person to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment for those purchases.
(l)Debt means any obligation of a person to pay another person money regardless of whether the obligation is absolute or contingent, has been reduced to judgment, is fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured and includes any obligation that gives rise to right of an equitable remedy for breach of performance if the breach gives rise to a right to payment.
(m)Department means the Department of Financial Protection and Innovation.
(n)Deposit-taking activity means any of the following:
(1)The acceptance of deposits, maintenance of deposit accounts, or the provision of services related to the acceptance of deposits or the maintenance of deposit accounts.
(2)The acceptance of funds, the provision of other services related to the acceptance of funds, or the maintenance of member share accounts by a credit union.
(3)The receipt of funds or the equivalent thereof, as the department may determine by rule or order, received or held by a covered person or an agent for a covered person for the purpose of facilitating a payment or transferring funds or value of funds between a consumer and a third party.
(o)Commissioner means the Commissioner of Financial Protection and Innovation.
(p)Financial product or service means:
(1)Extending credit and servicing extensions of credit, including acquiring, purchasing, selling, brokering extensions of credit, other than solely extending commercial credit to a person who originates consumer credit transactions.
(2)Extending or brokering leases of personal or real property that are the functional equivalent of purchase finance arrangements, if all of the following:
(A)The lease is on a nonoperating basis.
(B)The initial term of the lease is at least 90 days.
(C)In the case of a lease involving real property, at the inception of the initial lease, the transaction is intended to result in ownership of the leased property to be transferred to the lessee, subject to standards prescribed by the department.
(3)Providing real estate settlement services.
(4)Engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds or any financial instrument for use by or on behalf of a consumer.
(5)Selling, providing, or issuing stored value or payment instruments, except that, in the case of a sale of, or transaction to reload, stored value, only if the seller exercises substantial control over the terms or conditions of the stored value provided to the consumer where, for purposes of this paragraph, both:
(A)A seller shall not be found to exercise substantial control over the terms or conditions of the stored value if the seller is not a party to the contract with the consumer for the stored value product, and another person is principally responsible for establishing the terms or conditions of the stored value.
(B)Advertising the nonfinancial goods or services of the seller on the stored value card or device is not in itself an exercise of substantial control over the terms or conditions.
(6)Providing check cashing, check collection, or check guaranty services.
(7)Providing payments or other financial data processing products or services to a consumer by any technological means, including processing or storing financial or banking data for any payment instrument, or through any payment system or networks used for processing payment data, including payments made through an online banking system or mobile telecommunications network, except that a person shall not be deemed to be a covered person with respect to financial data processing solely because the person either:
(A)Is a merchant, retailer, or seller of any nonfinancial good or service who engages in financial data processing by transmitting or storing payment data about a consumer exclusively for purpose of initiating payment instructions by the consumer to pay that person for the purchase of, or to complete a commercial transaction for, the nonfinancial good or service sold directly by that person to the consumer.
(B)Provides access to a host server to a person for purposes of enabling that person to establish and maintain a website.
(8)Providing financial advisory services other than services relating to securities provided by a person regulated by the Securities Exchange Commission or a person regulated by a state securities commission, but only to the extent that such person acts in a regulated capacity, to consumers on individual financial matters or relating to proprietary financial products or services (other than by publishing any bona fide newspaper, news magazine, or business or financial publication of general and regular circulation, including publishing market data, news, or data analytics or investment information or recommendations that are not tailored to the individual needs of a particular consumer) including both of the following:
(A)Providing credit counseling to any consumer.
(B)Providing services to assist a consumer with debt management or debt settlement, modifying the terms of any extension of credit, or avoiding foreclosure.
(9)Collecting, analyzing, maintaining, or providing consumer report information or other account information, including information relating to the credit history of consumers, used or expected to be used in connection with any decision regarding the offering or provision of a consumer financial product or service, except to the extent that:
(A)A person does any of the following:
(i)Collects, analyzes, or maintains information that relates solely to the transactions between a consumer and that person.
(ii)Provides information to an affiliate of the person, as described in subdivision (a).
(iii)Provides information that is used or expected to be used solely in any decision regarding the offering or provision of a product or service that is not a consumer financial product or service.
(B)The information described in clause (i) of subparagraph (A) is not used by the person or affiliate in connection with any decision regarding the offering or provision of a consumer financial product or service to the consumer, other than credit described in subparagraph (A) of paragraph (1) of subdivision (e) of Section 90006.
(10)Collecting debt related to any consumer financial product or service.
(11)Directly or indirectly brokering the offer or sale of a franchise in this state on behalf of another.
(12)Offering another financial product or service as may be defined by the department, by regulation, for purposes of this division, if the department finds that the financial product or service is either:
(A)Entered into or conducted as a subterfuge or with a purpose to evade any consumer financial law.
(B)Permissible for a bank or for a financial holding company to offer or to provide under any provision of law or regulation applicable to a bank or a financial holding company, and has, or likely will have, a material impact on consumers, excluding, however, solely from the departments authority to define additional financial products and services under this subparagraph and not the exercise of any other authority it may have, the following activities provided to a covered person:
(i)Providing information products or services to a covered person for identity authentication.
(ii)Providing information products or services for fraud or identify theft detection, prevention, or investigation.
(iii)Providing document retrieval or delivery services.
(iv)Providing public records information retrieval.
(v)Providing information products or services for anti-money laundering activities.
(13)The term financial product or service does not include either of the following:
(A)Insurance, as defined in Section 22 of the Insurance Code, regulated by the Department of Insurance.
(B)The provision, by a person, of electronic data transmission, routing, intermediate or transient storage, or connections to a telecommunications system or network, not including a person that provides those electronic conduit services if, when providing those services, the person does any of the following:
(i)Selects or modifies the content of the electronic data.
(ii)Transmits, routes, stores, or provides connections for electronic data, including financial data, in a manner that the financial data is differentiated from other types of data of the same form that the person transmits, routes, or stores, or with respect to which, provides connections.
(iii)Is a payee, payor, correspondent, or similar party to a payment transaction with a consumer.
(q)Payment instrument means a check, draft, warrant, money order, travelers check, electronic instrument, or other instrument, payment of funds, or monetary value, other than currency.
(r)Person means an individual, corporation, business trust, estate, trust, partnership, proprietorship, syndicate, limited liability company, association, joint venture, government, governmental subdivision, agency or instrumentality, public corporation or joint stock company, or any other organization or legal or commercial entity.
(s)(1)Recipient means a small business whose activities are principally directed or managed from California.
(2)For purposes of determining whether activities are principally directed or managed from California, a registrant may rely on any relevant written representation by the small business, nonprofit, or family farm, including a business address provided in any application or agreement for commercial financing or other financial product or service.
(t)(1)Service provider means any person that provides a material service to a covered person in connection with the offering or provision by that covered person of a consumer financial product or service, including a person that either:
(A)Participates in designing, operating, or maintaining the consumer financial product or service.
(B)Processes transactions relating to the consumer financial product or service, other than unknowingly or incidentally transmitting or processing financial data in a manner that the data is undifferentiated from other types of data of the same form as the person transmits or processes.
(2)The term service provider does not include a person solely by virtue of that person offering or providing to a covered person either:
(A)A support service of a type provided to businesses generally or a similar ministerial service.
(B)Time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.
(u)(1)Small business means a business entity organized for profit with annual gross receipts of no more than sixteen million dollars ($16,000,000) or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Section 14837 of the Government Code, whichever is greater.
(2)For purposes of determining a business entitys annual gross receipts, a covered provider may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing.
(v)(1)Stored value means funds or monetary value represented in any electronic format, whether or not specially encrypted, and stored or capable of storage on electronic media in such a way as to be retrievable and transferred electronically, and includes a prepaid debit card or product, or any other similar product, regardless of whether the amount of the funds or monetary value may be increased or reloaded.
(2)Notwithstanding paragraph (1), the term stored value does not include a special purpose card or certificate, which shall be defined for purposes of this paragraph as funds or monetary value represented in any electronic format, whether or not specially encrypted, that is all of the following:
(A)Issued by a merchant, retailer, or other seller of nonfinancial goods or services.
(B)Redeemable only for transactions with the merchant, retailer, or seller of nonfinancial goods or services or with an affiliate of such person, which affiliate itself is a merchant, retailer, or seller of nonfinancial goods or services.
(C)Issued in a specified amount that, except in the case of a card or product used solely for telephone services, may not be increased or reloaded.
(D)Purchased on a prepaid basis in exchange for payment.
(E)Honored upon presentation to the merchant, retailer, or seller of nonfinancial goods or services or an affiliate of such person, which affiliate itself is a merchant, retailer, or seller of nonfinancial goods or services, only for any nonfinancial goods or services
(w)These definitions shall be interpreted consistently with the definitions in the Consumer Financial Protection Act of 2010 (12 U.S.C. Sec. 5481). Any inconsistency or ambiguity shall be resolved in favor of greater protections to the consumer and more expansive coverage.
SEC. 7.Section 90009.1 is added to the Financial Code, to read:90009.1.On or before January 1, 2028, the department shall prescribe rules regarding registration requirements applicable to covered persons seeking to offer or provide commercial financing products, consistent with the requirements of Section 90009. The limitations imposed by Section 90009.5 on registration requirements prescribed by the department pursuant to Section 90009 do not apply to regulations adopted pursuant to this section.
(a)The bureaus administration of this article or Article 13 (commencing with Section 94919) shall not preclude the authority of the Department of Financial Protection and Innovation over, and application of the California Consumer Financial Protection Law to, any covered persons as defined by subdivision (f) of Section 90005 of the Financial Code, including, but not limited to, private postsecondary educational institutions.
(b)Nothing in this chapter shall constitute regulation of an institutions financial product or service pursuant to subparagraph (B) of paragraph (2) of subdivision (a) of Section 90009 of the Financial Code, or shall otherwise be construed to limit the Department of Financial Protection and Innovations jurisdiction with respect to an institutions financial product or service.
(c)An institution subject to this chapter shall not be considered acting under the authority of its status with the bureau pursuant to subdivision (a) of Section 90002 of the Financial Code when offering financial products or services.
SEC. 2.Section 90000 of the Financial Code is amended to read:90000.(a)The Legislature finds and declares all of the following:
(1)California consumers are vulnerable to abuse if the state lacks a dedicated financial services regulator with broad authority over providers of financial products and services. The lack of such a regulator has left consumers vulnerable to abuse and forced California businesses to compete with unscrupulous providers. The financial victimization of economically vulnerable consumers, including individuals who lack a safety net, not only harms the individual but also has a broader social and economic cost on all of California, and could lead to increased caseloads for social safety net programs. These problems become even more acute in times of crisis, including the global Covid-19 COVID-19 pandemic and economic fallout. Consequently, where feasible, the Legislature should enact statutory measures to protect California residents from financial abuses in the marketplace for financial products and services.
(2)Robust consumer protections enable wealth building and promote a vibrant economy. They are especially important among various populations, including, but not limited to, military service members, seniors, students, and new Californians. Unfair, deceptive, or abusive practices in the provision of financial products and services undermine the public confidence that is essential to the continued functioning of the financial system and sound extensions of credit to consumers.
(3)Technological innovation offers great promise to the more effective and efficient provision of consumer financial products and services to the population of California and also poses risks to consumers and challenges to law enforcement in addressing those risks.
(4)Small business owners are often similarly situated as consumers with regards to their sophistication and bargaining power relative to providers of financial services and products. Many of the rationales supporting legal protections for consumers apply also to small business owners. Small businesses have a better chance to survive and grow if they are able to access safe and effective financial products and are protected from unfair, deceptive, or abusive practices when accessing financial products and services.
(4)(5)It is the intent of the Legislature to enact the California Consumer Financial Protection Law to strengthen consumer protections by expanding the ability of the Department of Financial Protection and Innovation to improve accountability and transparency in the California financial system, provide consumer financial education, and protect consumers and small businesses from abusive financial practices, while prioritizing the prevention of unethical businesses from harming the most vulnerable populations including military service members, seniors, students, low- and moderate-income individuals, and new Californians.
(b)The purpose of the California Consumer Financial Protection Law shall be to promote consumer welfare, fair competition, and wealth creation in this state by doing all of the following:
(1)Promoting nondiscriminatory access to responsible, affordable credit on terms that reasonably reflect consumers ability to repay.
(2)Promoting nondiscriminatory access to consumer financial products and services that are understandable and not unfair, deceptive, or abusive.
(3)Protecting consumers from discrimination and unfair, deceptive, and abusive acts and practices in connection with financial practices and services.
(4)Promoting nondiscriminatory consumer-protective innovation in consumer financial products and services.
(5)Promoting the interests of small businesses and protecting them from harm in connection with financial practices and services, in manners similar to those undertaken for consumers.
SEC. 3.Section 90002 of the Financial Code is amended to read:90002.(a)This division shall not apply to a licensee, or an employee of a licensee, of any state agency other than the Department of Financial Protection and Innovation to the extent that licensee or employee is acting under the authority of the other state agencys license.
(b)(1)Except as provided by paragraph (2), this This division shall not apply to a person or employee of that person to the extent that person or employee is acting under the authority of one of the following licenses, certificates, or charters issued by the Department of Financial Protection and Innovation:
(A)(1)Any person licensed as an escrow agent under Division 6 (commencing with Section 17000) of the Financial Code.
(B)(2)Any person licensed as a finance lender, broker, program administrator, or mortgage loan originator under Division 9 (commencing with Section 22000) of the Financial Code.
(C)(3)Any person licensed as a broker-dealer or investment adviser under Division 1 (commencing with Section 25000) of Title 4 the Corporations Code.
(D)(4)Any person licensed as a residential mortgage lender, a mortgage servicer, or a mortgage loan originator under Division 20 (commencing with Section 50000) of the Financial Code.
(E)(5)Any person licensed as a check seller, bill payer, or prorater under Division 3 (commencing with Section 12000) of the Financial Code.
(F)(6)Any person licensed as a capital access company under Division 3 (commencing with Section 28000) of Title 4 of the Corporations Code.
(G)(7)Any person doing business under a license, charter, or certificate issued under the Financial Institutions Law, including Division 1 (commencing with Section 99), Division 1.1 (commencing with Section 1000), Division 1.2 (commencing with Section 2000), Division 1.6 (commencing with Section 4800), Division 2 (commencing with Section 5000), Division 5 (commencing with Section 14000), Division 7 (commencing with Section 18000), and Division 15 (commencing with Section 31000) of the Financial Code.
(2)Nothing in this subdivision shall be deemed to prevent the commissioner from using the authority provided by this division to enforce Section 90003.(c)This division shall not apply to a bank, bank holding company, trust company, savings and loan association, savings and loan holding company, credit union, or an organization subject to oversight of the Farm Credit Administration, when acting under the authority of a license, certificate, or charter under federal law or the laws of another state.
(d)This division applies to all other covered persons, as defined in subdivision (f) of Section 90005.
SEC. 4.Section 90003 of the Financial Code is amended to read:90003.(a)It is unlawful for a covered person or service provider, as defined in subdivision (f) of Section 90005, to do any of the following:
(1)Engage, have engaged, or propose to engage in any unlawful, unfair, deceptive, or abusive act or practice with respect to consumer financial products or services.
(2)Offer or provide to a consumer any financial product or service not in conformity with any consumer financial law or otherwise commit any act or omission in violation of a consumer financial law.
(3)Fail or refuse, as required by a consumer financial law or any rule or order issued by the department thereunder, to do any of the following:
(A)Permit the department access to or copying of records.
(B)Establish or maintain records.
(C)Make reports or provide information to the department.
(b)For any person who knowingly or recklessly provides substantial assistance to a covered person or service provider in violation of subdivision (a) or any rule or order issued thereunder, the provider of that substantial assistance shall be deemed to be in violation of that section to the same extent as the person to whom that assistance is provided.
(c)Notwithstanding subdivision (b), a person shall not be held to have violated paragraph (1) of subdivision (a) solely by virtue of providing or selling time or space to a covered person or service provider placing an advertisement.
SEC. 5.Section 90004.1 is added to the Financial Code, to read:90004.1.(a)Commencing January 1, 2028, a person shall not engage in the business of offering to provide or providing commercial financing products to California residents without first registering with the commissioner in accordance with the rules prescribed pursuant to Section 90009.1.
(b)A commercial financing provider or a commercial financing broker shall not take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
(c)A commercial financing provider or a commercial financing broker shall not include a provision in a commercial financing transaction agreement or contract that authorizes a commercial financing provider or commercial financing broker to attach or garnish any of a recipients money held in an account in a depository institution.
(d)A commercial financing transaction found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of this division and subject to the remedies specified in this division.
(e)A commercial financing provider or a commercial financing broker shall not include a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipients business activities with the registrant, including, but not limited to, terms or conditions of a product or service offered by the registrant.
(f)A commercial financing broker shall clearly and conspicuously display on their internet website the average and maximum annual percentage rates for the commercial financing transactions facilitated by them in the most recent calendar year.
SEC. 6.Section 90005 of the Financial Code is amended to read:90005.The definitions in this section apply throughout this division, except as otherwise provided in this division or if the context clearly indicates otherwise:
(a)Affiliate means any person that controls, is controlled by, or is under common control with another person. For purposes of this definition, control means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person.
(b)Department means California resident has the Department same meaning as resident as that term is defined in Section 17014 of Financial Protection the Revenue and Innovation. Taxation Code.
(c)Commercial financing has the same meaning as that term is defined in Section 22800.
(d)(1)Commercial financing brokerage services means the following acts in connection with a commercial financing transaction:
(A)Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
(B)Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
(C)Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
(D)Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipients sensitive data.
(E)(i)Participating in the preparation of commercial financing documents, including commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.
(ii)Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents within the meaning of this subparagraph.
(F)Communicating to a prospective recipient a commercial financing providers commercial financing approval decisions.
(G)Charging a fee to a prospective recipient for services related to a prospective recipients application for a commercial financing transaction from a commercial financing provider.
(2)Notwithstanding paragraph (1), the following acts in connection with a commercial financing transaction do not constitute commercial financing brokerage services:
(A)Performing support tasks, including, but not limited to, typing, word processing, data entry, filing, billing, answering telephone calls, taking and receiving messages, and scheduling, in support of the performance by a broker of any of the activities described in subparagraphs (E) to (G), inclusive, of paragraph (1).
(B)Furnishing a consumer report to a covered person by a consumer reporting agency in accordance with subsection (a) or (c) of Section 1681b of Title 15 of the United States Code.
(C)Furnishing a consumer credit report, as defined in Section 1785.3 of the Civil Code, to a covered person by a consumer credit reporting agency in accordance with subdivision (a) or paragraph (1) of subdivision (b) of Section 1785.11 of the Civil Code.
(D)Furnishing a prequalifying report, as defined in Section 1785.3 of the Civil Code, to a covered person by a consumer credit reporting agency in accordance with paragraph (2) of subdivision (b) of Section 1785.11 of the Civil Code.
(E)Distributing or disseminating to a prospective recipient of a providers marketing materials or factual information about the provider, its lending activities, or its loan products, including, but not limited to, the providers interest rates, the providers minimum or maximum loan amounts or loan periods, or a general description of the providers underwriting criteria.
(3)For purposes of this subdivision, sensitive data means any of the following:
(A)A bank account number.
(B)A bank statement.
(C)A credit or debit card account number.
(D)A credit score, as defined in Section 1785.15.1 of the Civil Code.
(4)For purposes of this subdivision, referral means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipients contact information to a commercial financing provider, for the purposes of making an introduction.
(e)Commercial financing product means either of the following products or services:
(1)Commercial financing transactions as defined in this section.
(2)Commercial financing brokerage services as defined in this section.
(f)Commercial financing transaction means a consummated commercial financing transaction that is equal to or less than five hundred thousand dollars ($500,000) and for which a disclosure is provided in accordance with subsection (a) of Section 920 of Title 10 of the California Code of Regulations.
(c)(g)Consumer means an individual or an agent, trustee, or representative acting on behalf of an individual or the estate, trust, or joint trust of an individual, however denominated.
(d)(h)Consumer financial law means a federal or California law that directly and specifically regulates the manner, content, or terms and conditions of any financial transaction, or any account, product, or service related thereto, with respect to a consumer.
(e)(i)Consumer financial product or service means either of the following:
(1)A financial product or service that is delivered, offered, or provided for use by consumers primarily for personal, family, or household purposes.
(2)A financial product or service as described in paragraph (11) of subdivision (k). (p).
(f)(j)Covered person means, to the extent not preempted by federal law, any of the following:
(1)Any person that engages in offering or providing a consumer financial product or service to a resident of this state.
(2)Any affiliate of a person described in this subdivision if the affiliate acts as a service provider to the person.
(3)Any service provider to the extent that the person engages in the offering or provision of its own consumer financial product or service.
(g)(k)Credit means the right granted by a person to another person to defer payment of a debt, incur debt and defer its payment, or purchase property or services and defer payment for those purchases.
(h)(l)Debt means any obligation of a person to pay another person money regardless of whether the obligation is absolute or contingent, has been reduced to judgment, is fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured and includes any obligation that gives rise to right of an equitable remedy for breach of performance if the breach gives rise to a right to payment.
(m)Department means the Department of Financial Protection and Innovation.
(i)(n)Deposit-taking activity means any of the following:
(1)The acceptance of deposits, maintenance of deposit accounts, or the provision of services related to the acceptance of deposits or the maintenance of deposit accounts.
(2)The acceptance of funds, the provision of other services related to the acceptance of funds, or the maintenance of member share accounts by a credit union.
(3)The receipt of funds or the equivalent thereof, as the department may determine by rule or order, received or held by a covered person or an agent for a covered person for the purpose of facilitating a payment or transferring funds or value of funds between a consumer and a third party.
(j)(o)Commissioner means the Commissioner of Financial Protection and Innovation.
(k)(p)Financial product or service means:
(1)Extending credit and servicing extensions of credit, including acquiring, purchasing, selling, brokering extensions of credit, other than solely extending commercial credit to a person who originates consumer credit transactions.
(2)Extending or brokering leases of personal or real property that are the functional equivalent of purchase finance arrangements, if all of the following:
(A)The lease is on a nonoperating basis.
(B)The initial term of the lease is at least 90 days.
(C)In the case of a lease involving real property, at the inception of the initial lease, the transaction is intended to result in ownership of the leased property to be transferred to the lessee, subject to standards prescribed by the department.
(3)Providing real estate settlement services.
(4)Engaging in deposit-taking activities, transmitting or exchanging funds, or otherwise acting as a custodian of funds or any financial instrument for use by or on behalf of a consumer.
(5)Selling, providing, or issuing stored value or payment instruments, except that, in the case of a sale of, or transaction to reload, stored value, only if the seller exercises substantial control over the terms or conditions of the stored value provided to the consumer where, for purposes of this paragraph, both:
(A)A seller shall not be found to exercise substantial control over the terms or conditions of the stored value if the seller is not a party to the contract with the consumer for the stored value product, and another person is principally responsible for establishing the terms or conditions of the stored value.
(B)Advertising the nonfinancial goods or services of the seller on the stored value card or device is not in itself an exercise of substantial control over the terms or conditions.
(6)Providing check cashing, check collection, or check guaranty services.
(7)Providing payments or other financial data processing products or services to a consumer by any technological means, including processing or storing financial or banking data for any payment instrument, or through any payment system or networks used for processing payment data, including payments made through an online banking system or mobile telecommunications network, except that a person shall not be deemed to be a covered person with respect to financial data processing solely because the person either:
(A)Is a merchant, retailer, or seller of any nonfinancial good or service who engages in financial data processing by transmitting or storing payment data about a consumer exclusively for purpose of initiating payment instructions by the consumer to pay that person for the purchase of, or to complete a commercial transaction for, the nonfinancial good or service sold directly by that person to the consumer.
(B)Provides access to a host server to a person for purposes of enabling that person to establish and maintain a website.
(8)Providing financial advisory services other than services relating to securities provided by a person regulated by the Securities Exchange Commission or a person regulated by a state securities commission, but only to the extent that such person acts in a regulated capacity, to consumers on individual financial matters or relating to proprietary financial products or services (other than by publishing any bona fide newspaper, news magazine, or business or financial publication of general and regular circulation, including publishing market data, news, or data analytics or investment information or recommendations that are not tailored to the individual needs of a particular consumer) including both of the following:
(A)Providing credit counseling to any consumer.
(B)Providing services to assist a consumer with debt management or debt settlement, modifying the terms of any extension of credit, or avoiding foreclosure.
(9)Collecting, analyzing, maintaining, or providing consumer report information or other account information, including information relating to the credit history of consumers, used or expected to be used in connection with any decision regarding the offering or provision of a consumer financial product or service, except to the extent that:
(A)A person does any of the following:
(i)Collects, analyzes, or maintains information that relates solely to the transactions between a consumer and that person.
(ii)Provides information to an affiliate of the person, as described in subdivision (a).
(iii)Provides information that is used or expected to be used solely in any decision regarding the offering or provision of a product or service that is not a consumer financial product or service.
(B)The information described in clause (i) of subparagraph (A) is not used by the person or affiliate in connection with any decision regarding the offering or provision of a consumer financial product or service to the consumer, other than credit described in subparagraph (A) of paragraph (1) of subdivision (e) of Section 90006.
(10)Collecting debt related to any consumer financial product or service.
(11)Directly or indirectly brokering the offer or sale of a franchise in this state on behalf of another.
(12)Offering another financial product or service as may be defined by the department, by regulation, for purposes of this division, if the department finds that the financial product or service is either:
(A)Entered into or conducted as a subterfuge or with a purpose to evade any consumer financial law.
(B)Permissible for a bank or for a financial holding company to offer or to provide under any provision of law or regulation applicable to a bank or a financial holding company, and has, or likely will have, a material impact on consumers, excluding, however, solely from the departments authority to define additional financial products and services under this subparagraph and not the exercise of any other authority it may have, the following activities provided to a covered person:
(i)Providing information products or services to a covered person for identity authentication.
(ii)Providing information products or services for fraud or identify theft detection, prevention, or investigation.
(iii)Providing document retrieval or delivery services.
(iv)Providing public records information retrieval.
(v)Providing information products or services for anti-money laundering activities.
(13)The term financial product or service does not include either of the following:
(A)Insurance, as defined in Section 22 of the Insurance Code, regulated by the Department of Insurance.
(B)The provision, by a person, of electronic data transmission, routing, intermediate or transient storage, or connections to a telecommunications system or network, not including a person that provides those electronic conduit services if, when providing those services, the person does any of the following:
(i)Selects or modifies the content of the electronic data.
(ii)Transmits, routes, stores, or provides connections for electronic data, including financial data, in a manner that the financial data is differentiated from other types of data of the same form that the person transmits, routes, or stores, or with respect to which, provides connections.
(iii)Is a payee, payor, correspondent, or similar party to a payment transaction with a consumer.
(l)(q)Payment instrument means a check, draft, warrant, money order, travelers check, electronic instrument, or other instrument, payment of funds, or monetary value, other than currency.
(m)(r)Person means an individual, corporation, business trust, estate, trust, partnership, proprietorship, syndicate, limited liability company, association, joint venture, government, governmental subdivision, agency or instrumentality, public corporation or joint stock company, or any other organization or legal or commercial entity.
(s)(1)Recipient means a small business whose activities are principally directed or managed from California.
(2)For purposes of determining whether activities are principally directed or managed from California, a registrant may rely on any relevant written representation by the small business, nonprofit, or family farm, including a business address provided in any application or agreement for commercial financing or other financial product or service.
(n)(t)(1)Service provider means any person that provides a material service to a covered person in connection with the offering or provision by that covered person of a consumer financial product or service, including a person that either:
(A)Participates in designing, operating, or maintaining the consumer financial product or service.
(B)Processes transactions relating to the consumer financial product or service, other than unknowingly or incidentally transmitting or processing financial data in a manner that the data is undifferentiated from other types of data of the same form as the person transmits or processes.
(2)The term service provider does not include a person solely by virtue of that person offering or providing to a covered person either:
(A)A support service of a type provided to businesses generally or a similar ministerial service.
(B)Time or space for an advertisement for a consumer financial product or service through print, newspaper, or electronic media.
(u)(1)Small business means a business entity organized for profit with annual gross receipts of no more than sixteen million dollars ($16,000,000) or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Section 14837 of the Government Code, whichever is greater.
(2)For purposes of determining a business entitys annual gross receipts, a covered provider may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing.
(o)(v)(1)Stored value means funds or monetary value represented in any electronic format, whether or not specially encrypted, and stored or capable of storage on electronic media in such a way as to be retrievable and transferred electronically, and includes a prepaid debit card or product, or any other similar product, regardless of whether the amount of the funds or monetary value may be increased or reloaded.
(2)Notwithstanding paragraph (1), the term stored value does not include a special purpose card or certificate, which shall be defined for purposes of this paragraph as funds or monetary value represented in any electronic format, whether or not specially encrypted, that is all of the following:
(A)Issued by a merchant, retailer, or other seller of nonfinancial goods or services.
(B)Redeemable only for transactions with the merchant, retailer, or seller of nonfinancial goods or services or with an affiliate of such person, which affiliate itself is a merchant, retailer, or seller of nonfinancial goods or services.
(C)Issued in a specified amount that, except in the case of a card or product used solely for telephone services, may not be increased or reloaded.
(D)Purchased on a prepaid basis in exchange for payment.
(E)Honored upon presentation to the merchant, retailer, or seller of nonfinancial goods or services or an affiliate of such person, which affiliate itself is a merchant, retailer, or seller of nonfinancial goods or services, only for any nonfinancial goods or services
(p)(w)These definitions shall be interpreted consistently with the definitions in the Consumer Financial Protection Act of 2010 (12 U.S.C. Sec. 5481). Any inconsistency or ambiguity shall be resolved in favor of greater protections to the consumer and more expansive coverage.
SEC. 7.Section 90009.1 is added to the Financial Code, to read:90009.1.On or before January 1, 2028, the department shall prescribe rules regarding registration requirements applicable to covered persons seeking to offer or provide commercial financing products, consistent with the requirements of Section 90009. The limitations imposed by Section 90009.5 on registration requirements prescribed by the department pursuant to Section 90009 do not apply to regulations adopted pursuant to this section.
|
Date
|
Status
|
|---|---|
| Sep 30, 2026 | Chaptered by Secretary of State - Chapter 823, Statutes of 2026. |
| Sep 30, 2026 | Approved by the Governor. |
| Aug 27, 2026 | Enrolled and presented to the Governor at 4 p.m. |
| Aug 20, 2026 | Senate amendments concurred in. To Engrossing and Enrolling. (Ayes 76. Noes 0.). |
| Aug 20, 2026 | Senate amendments concurred in. To Engrossing and Enrolling. (Ayes 76. Noes 0. Page 6323.). |
| Aug 20, 2026 | Senate amendments concurred in. To Engrossing and Enrolling. |
| Aug 19, 2026 | In Assembly. Concurrence in Senate amendments pending. |
| Aug 19, 2026 | Read third time. Passed. Ordered to the Assembly. (Ayes 38. Noes 0. Page 5560.). |
| Aug 19, 2026 | Read third time. Passed. Ordered to the Assembly. (Ayes 37. Noes 0.). |
| Aug 17, 2026 | Read second time. Ordered to third reading. |
| Aug 13, 2026 | Read second time and amended. Ordered returned to second reading. |
| Aug 13, 2026 | From committee: Amend, and do pass as amended. (Ayes 7. Noes 0.) (August 13). |
| Aug 3, 2026 | In committee: Referred to APPR. suspense file. |
| Jul 2, 2026 | Read second time and amended. Re-referred to Com. on APPR. |
| Jul 1, 2026 | From committee: Amend, and do pass as amended and re-refer to Com. on APPR. (Ayes 13. Noes 0.) (June 30). |
| Jun 22, 2026 | Read second time and amended. Re-referred to Com. on JUD. |
| Jun 18, 2026 | From committee: Amend, and do pass as amended and re-refer to Com. on JUD. (Ayes 6. Noes 0.) (June 17). |
| Jun 4, 2026 | From committee chair, with author's amendments: Amend, and re-refer to committee. Read second time, amended, and re-referred to Com. on B. & F.I. |
| Jun 3, 2026 | Referred to Coms. on B. & F.I. and JUD. |
| May 22, 2026 | In Senate. Read first time. To Com. on RLS. for assignment. |
| May 22, 2026 | Read third time. Passed. Ordered to the Senate. (Ayes 73. Noes 0.) |
| May 22, 2026 | Read third time. Passed. Ordered to the Senate. (Ayes 73. Noes 0. Page 5263.) |
| May 18, 2026 | Read second time. Ordered to third reading. |
| May 14, 2026 | From committee: Do pass. (Ayes 15. Noes 0.) (May 14). |
| May 6, 2026 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| Apr 23, 2026 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 9. Noes 0.) (April 23). Re-referred to Com. on APPR. |
| Apr 20, 2026 | Re-referred to Com. on B. & F. |
| Apr 16, 2026 | From committee chair, with author's amendments: Amend, and re-refer to Com. on B. & F. Read second time and amended. |
| Mar 9, 2026 | Referred to Com. on B. & F. |
| Feb 19, 2026 | From printer. May be heard in committee March 21. |
| Feb 18, 2026 | Read first time. To print. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Aug 20, 2026 | AB 2116 Schiavo Concurrence in Senate Amendments | Assembly Floor |
Passed |
|
| Aug 19, 2026 | Assembly 3rd Reading AB2116 Schiavo By Reyes | Senate Floor |
Passed |
|
| Aug 13, 2026 | Do pass as amended | Senate Standing Committee on Appropriations |
Passed |
|
| Aug 3, 2026 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| Jun 30, 2026 | Do pass as amended, but first amend, and re-refer to the Committee on [Appropriations] | Senate Standing Committee on Judiciary |
Passed |
|
| Jun 17, 2026 | Do pass as amended, but first amend, and re-refer to the Committee on [Judiciary] | Senate Standing Committee on Banking and Financial Institutions |
Passed |
|
| May 22, 2026 | AB 2116 Schiavo Assembly Third Reading | Assembly Floor |
Passed |
|
| May 14, 2026 | Do pass. | Assembly Standing Committee on Appropriations |
Passed |
|
| Apr 23, 2026 | Do pass and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Banking and Finance |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Access Plus Capital | ** Support | |
| Accessity | ** Support | |
| Asian Pacific Islander Small Business Collaborative | ** Support | |
| ASiAN, Inc. | ** Support | |
| Asociacion De Emprendedor@s | ** Support | |
| Asociation de Emprendedor@s | ** Support | |
| California Association for Micro Enterprise Opportunity | ** Support | |
| California Coalition for Community Investment | ** Support | |
| California Coalition for Community Investment (CCCI) | ** Support | |
| California Low-Income Consumer Coalition | ** Support | |
| Cameo - California Association for Micro Enterprise Opportunity | ** Support | |
| CAMEO Network | ** Support | |
| Capitol Business Alliance | ** Support | |
| Community Development Services | ** Support | |
| Consumer Coalition of California | ** Support | |
| Consumer Federation Of California | ** Support | |
| Economic Development & Financing Corporation | ** Support | |
| Economic Development And Financing Corporation | ** Support | |
| El Pajaro Community Development Corporation | ** Support | |
| Financial Technology Association | ** Against | |
| Friends of the Public Bank East Bay | ** Support | |
| Greenlining Institute; The | ** Support | |
| Ica | ** Support | |
| Ica Fund | ** Support | |
| Icon CDC | ** Support | |
| Innovative Lending Platform Association | ** Against | |
| Jefferson Economic Development Institute | ** Support | |
| Kapitus | ** Support | |
| Microcare Community Development Solutions | ** Support | |
| MicroEnterprise Collaborative of Inland Southern California | ** Support | |
| Narratur Studio | ** Support | |
| National Consumer Law Center | ** Support | |
| Pacific Community Ventures | ** Support | |
| Public Counsel | ** Support | |
| Rapid Finance | ** Support | |
| Responsible Business Lending Coalition | ** Support | |
| Revenue Based Finance Association | ** Against | |
| Revenue Based Finance Coalition | ** Against | |
| Rise Economy | ** Support | |
| Santa Clarita Valley Chamber of Commerce | ** Support | |
| Small Business Majority | ** Support | |
| The Greenlining Institute | ** Support | |
| The Responsible Business Lending Coalition | ** Support | |
| United Chambers of Commerce | ** Support | |
| Uptima Entrepreneur Cooperative | ** Support | |
| Valley Industry Association Of Santa Clarita | ** Support | |
| West Business Development Center | ** Support | |
| Women's Economic Ventures | ** Support |
CONCURRENCE IN SENATE AMENDMENTS
CSA1 Bill Id:AB 2116
Author:(Schiavo)
As Amended Ver:August 19, 2026
Majority vote
SUMMARY
This bill expands the scope of the California Financing Law to cover specified commercial financing transactions offered to small businesses and establishes requirements and prohibitions on commercial financing providers and brokers engaged in such transactions.
Senate Amendments
- Requires licensure instead of registration with the Department of Financial Protection and Innovation (DFPI) for commercial finance providers and commercial finance brokers.
- Delays implementation of licensure by six months to July 1, 2028.
COMMENTS
- Background
The commercial financing landscape presents a diverse array of products with varying structures and terms, resulting in significantly disparate regulatory treatment under existing California law. Typically, financing products either align closely with legal definitions of "commercial loans" or exist as alternative products that, while not formally classified as loans, fulfill a functionally equivalent purpose—advancing capital or assets to a business for future repayment alongside interest or finance charges. In California, non-bank commercial loan providers are typically required to secure licensure from the Department of Financial Protection and Innovation (DFPI) and adhere to the California Financing Law (CFL). However, a regulatory gap exists for commercial financing products that fall outside the formal definition of a loan; these can currently be provided without a license and under significantly less DFPI oversight.
Baseline legal protections for small businesses within these markets are established by the California Consumer Financial Protection Law (CCFPL). Through the enactment of AB 1864 (Limón, Chapter 157, Statutes of 2020), the Legislature authorized the DFPI to promulgate regulations defining unfair, deceptive, and abusive acts and practices (UDAAPs) regarding commercial financing provided to small businesses, nonprofits, and family farms. The DFPI finalized these regulations in August 2023, thereby empowering the department to initiate enforcement actions against UDAAPs in small business financing sectors. This enforcement authority definitively carried over to the CFL in 2025 with the enactment of AB 825 (Limón, Chapter 355, Statutes of 2025).
Beyond these UDAAP provisions, the CCFPL further grants the DFPI authority to mandate the licensure of covered persons offering consumer financial products or services within the state.
- Current oversight of commercial financing.
Current law does not impose the same degree of regulation of, or oversight for, transactions relating to non-loan financing products offered to businesses. As it stands, entities offering financing products of $500,000 or less have to make specified disclosures regarding the terms of the financial products.[1] This bill would broaden the scope of state oversight regarding commercial financing activities, extending regulatory authority beyond the current parameters established by the California Financing Law (CFL). The landscape of "commercial financing transactions" generally bifurcates into two distinct classifications: those formally designated as "commercial loans" under the CFL and those alternative products that fall outside this definition. Notable examples within the latter category include merchant cash advances, accounts receivable financing, invoice factoring, and various revenue-based financing products. While commercial financing providers may offer a portfolio that includes both CFL-compliant loans and non-loan products, current law limits the Department of Financial Protection and Innovation's (DFPI) oversight primarily to activities governed by the CFL, leaving non-loan financing transactions largely outside the department's existing regulatory reach.
- What this bill does.
This bill proposes to expand DFPI oversight over a subcategory of commercial financing transactions that fall just out of reach of the CFL and meet certain requirements. First, the borrower must be a small business, which is defined as an entity organized for profit with no more than $16 million in annual gross revenue. Second, the commercial financing transaction is limited to $500,000. These parameters help tailor the bill in scope to the intended target of small business owners who may have less bargaining power or negotiations sophistication. For example, in seeking a $750,000 (three quarters million dollar) loan, it is far more likely that even if a business were smaller in size, it would not be unreasonable to assume that the small business owner has resources to secure legal advice to navigate the transaction.
As defined by this bill, a commercial financing transaction includes both loan and non-loan credit products. A provider or broker of a commercial loan is already required to be licensed under the CFL based on existing law, but this bill introduces several new conduct requirements that apply to commercial loans of $500,000 or less that are offered to small businesses. The requirements are reasonably tailored to protect small businesses from predatory practices, such as taking confessions of judgment. The proposed disclosure and reporting requirements make these financing markets more transparent, which has benefits for borrowers, fair competition, and focused supervision by DFPI.
According to the Author
Small businesses are the backbone of our economy, and they deserve a fair and transparent marketplace when seeking capital. Right now, traditional lenders operate under clear rules, but certain high-cost non-loan products — like merchant cash advances — function outside that framework. AB 2116 simply ensures consistent oversight so that all financing providers play by the same rules. This bill doesn't limit access to capital, rather it promotes transparency, strengthens accountability, and protects hardworking entrepreneurs from deceptive practices, helping our small businesses continue to grow and thrive.
Arguments in Support
"AB 2116 solves two problems:
- The "wild west" of small business brokering – Today, brokers routinely "steer" small business owners into financing that pays the broker the highest fee while charging the small business owner an unnecessarily high rate, echoing one of the causes of the subprime mortgage crisis. In fact, investigative reports have shown that many subprime mortgage brokers who lost their mortgage licenses simply moved over to the unregulated "wild west" of small business financing. AB 2116 empowers small business owners to make informed decisions and report bad actors, by establishing an oversight framework and transparency about the products and costs associated with the product that a commercial broker offers the small business owner on behalf of a high-cost commercial lender.
- Unfair practices in the financing shadows - While small business lenders are subject to oversight by DFPI, similar products that purport not to be loans evade these requirements and operate in the shadows. Additionally, California's 2022 ban on "confessions of judgement" (SB 688) is easily circumvented by legal devices used to take money straight from a small business owner's bank account without legal recourse. And "confidentiality clauses" are used to bully a small business owner into keeping silent about their experience and unexpected costs. AB 2116 will catalyze fair lending to small businesses by preventing bad-actor financing companies from taking unfair advantage of their competition and of small business customers." - California Association for Micro Enterprise Opportunity (Co-Sponsor).
Arguments in Opposition
"A. The Cost of Expanding Licensing
The DFPI has an existing backlog of pending CFL license applications. We respectfully ask the Committee to ensure the DFPI has sufficient resources and implementation guidance before expanding the CFL to license "commercial financing" providers and brokers. Expanding licensure to an entirely new segment of the commercial financing marketplace will require significant regulatory implementation by DFPI, including rulemaking, examinations, staffing, licensing infrastructure, and supervision. Based on recent news coverage about the cost of expanding the DFPI's licensing authority into new areas, we ask the Committee help ensure a successful implementation of expanded CFL licensing.
B. Striking Section 30 of AB 2116 would Expand CFL Licensing While Controlling Costs
RBFC supports expanding CFL licensing to include providers and brokers of sales-based financing. Expanded CFL licensing will allow the DFPI to utilize the CFL's infrastructure to protect California's small businesses and create a level playing field across the non-bank commercial financing marketplace.
However, Section 30 of AB 2116 goes beyond expanding CFL licensing. Section 30 would add an entirely new section to Division 9 of the Financial Code that applies to "Commercial Financing for Small Businesses." Adding Section 30 will unnecessarily add costs to implement AB 2116 with added complexity and overlapping definitions. We respectfully suggest that the committee limit the need for extensive rulemaking and other implementation costs by striking Section 30 of AB 2116."- Revenue Based Finance Association
FISCAL COMMENTS
The following is provided by the Senate Committee on Appropriations, reflecting amendments adopted on August 13, 2026.
The Department of Financial Protection and Innvoation (DFPI) estimates costs of $1.57 million in the first year and $1.46 ongoing (Financial Protection Fund) for an additional examiner, support staff, and one-time IT systems implementation expertise to implement the new licensure program. Annual assessment fees from licensees will help offset these ongoing administration and enforcement costs; however, actual revenues will depend on the number of licensees.
VOTES:
ASM BANKING AND FINANCE: 9-0-0
YES: Valencia, Chen, Dixon, Fong, Krell, Michelle Rodriguez, Blanca Rubio, Schiavo, Harabedian
ASM APPROPRIATIONS: 15-0-0
YES: Wicks, Hoover, Aguiar-Curry, Calderon, Caloza, Dixon, Fong, Mark González, Krell, Pacheco, Pellerin, Sharp-Collins, Solache, Ta, Tangipa
ASSEMBLY FLOOR: 73-0-7
YES: Addis, Aguiar-Curry, Ahrens, Alanis, Alvarez, Ávila Farías, Bains, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Caloza, Carrillo, Castillo, Connolly, Davies, DeMaio, Dixon, Elhawary, Ellis, Flora, Fong, Gallagher, Garcia, Gipson, Jeff Gonzalez, Mark González, Hadwick, Haney, Harabedian, Hart, Hoover, Irwin, Jackson, Johnson, Kalra, Krell, Lackey, Lee, Lowenthal, Macedo, McKinnor, Muratsuchi, Nguyen, Ortega, Pacheco, Papan, Patel, Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Ransom, Michelle Rodriguez, Rogers, Blanca Rubio, Sanchez, Schiavo, Schultz, Sharp-Collins, Solache, Soria, Stefani, Tangipa, Valencia, Wallis, Ward, Wilson, Zbur, Rivas
ABS, ABST OR NV: Arambula, Bauer-Kahan, Chen, Gabriel, Celeste Rodriguez, Ta, Wicks
SENATE FLOOR: 38-0-2
YES: Allen, Alvarado-Gil, Archuleta, Arreguín, Ashby, Becker, Cabaldon, Caballero, Cervantes, Choi, Cortese, Dahle, Durazo, Gonzalez, Grayson, Grove, Hurtado, Jones, Laird, McGuire, McNerney, Menjivar, Niello, Ochoa Bogh, Padilla, Pérez, Reyes, Richardson, Rubio, Seyarto, Smallwood-Cuevas, Stern, Strickland, Umberg, Valladares, Wahab, Weber Pierson, Wiener
ABS, ABST OR NV: Blakespear, Limón
UPDATED
VERSION: August 19, 2026
CONSULTANT: Desiree Nguyen Orth / B. & F. / (916) 319-3081 FN: 0003852
Fin.Code section 22802 and 22803. ↑
SENATE RULES COMMITTEE Office of Senate Floor Analyses (916) 651-4171 | AB 2116 |
THIRD READING
Bill No: AB 2116
Author: Schiavo (D)
Amended: 8/13/26 in Senate
Vote: 21
SENATE BANKING & F.I. COMMITTEE: 6-0, 6/17/26
AYES: Grayson, Cervantes, Hurtado, Reyes, Richardson, Strickland
NO VOTE RECORDED: Niello
SENATE JUDICIARY COMMITTEE: 13-0, 6/30/26
AYES: Umberg, Niello, Allen, Ashby, Caballero, Durazo, Laird, Reyes, Stern, Valladares, Wahab, Weber Pierson, Wiener
SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/13/26
AYES: Cervantes, Seyarto, Cabaldon, Dahle, Grayson, Richardson, Wahab
ASSEMBLY FLOOR: 73-0, 5/22/26 - See last page for vote
SUBJECT: Commercial financing
SOURCE: CAMEO Network, California Low-Income Consumer Coalition, Responsible Business Lending Coalition, and Small Business Majority
DIGEST:
This bill expands the scope of the California Financing Law to cover specified commercial financing transactions offered to small businesses and establishes requirements and prohibitions on commercial financing providers and brokers engaged in such transactions.
ANALYSIS:
Existing law:
- Establishes the following, pursuant to the California Financing Law (CFL):
- Requires the licensure and oversight by the Department of Financial Protection and Innovation (DFPI) of businesses that provide commercial loans in the state. (Division 9 of the Financial Code, Section 22000 et seq.)
- Defines “commercial loan” as a loan of a principal amount of $5,000 or more, or any loan under an open-end credit program, the proceeds of which are intended by the borrower for use primarily for other than personal, family, or household purposes. (Financial Code Section 22502)
- Establishes the following, pursuant to Division 9.5 of the Financial Code, commencing with Section 22800:
- Requires specified disclosures related to commercial financing, which includes, among other things, a requirement to disclose the annualized rate for a commercial financing offer presented to a recipient. (Financial Code Section 22802 and 22803)
- Defines “commercial financing” to mean an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes. (Financial Code Section 22800(d))
- Defines “provider” as a person who extends a specific offer of commercial financing to a recipient. Clarifies that “provider” also includes a nondepository institution, which enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution. (Financial Code Section 22800(m))
- Defines “recipient” as a person who is presented a specific commercial financing offer by a provider that is equal to or less than $500,000. (Financial Code Section 22800(n))
- Exempts the following persons or categories of transactions from the division:
- A depository institution.
- A commercial financing transaction secured by real property.
- Any person who makes no more than one commercial financing transaction in California in a 12-month period or any person who makes five or fewer commercial financing transactions in California in a 12-month period that are incidental to the business of the person relying upon the exemption. (Financial Code Section 22801)
- Does the following, pursuant to the California Consumer Financial Protection Law (CCFPL) and its implementing regulations:
- Authorizes DFPI to promulgate regulations that define unfair, deceptive, and abusive acts and practices in connection with the offering or provision of commercial financing to small business recipients, nonprofits, and family farms. (Financial Code Section 90009(e))
- Pursuant to (a), provides rules governing commercial financing products and services, including the following:
- Defines “covered entity” to mean a small business, nonprofit, or family farm whose activities are principally directed or managed from California. (Title 10 California Code of Regulations, Section 1060(d))
- Defines “covered provider” to mean any person engaged in the business of offering or providing commercial financing or another financial product or service to a covered entity, unless that person is exempt from the CCFPL pursuant to Financial Code Section 90002. (Title 10 California Code of Regulations, Section 1060(e))
- Defines “small business” to mean a business entity organized for profit with annual gross receipts of no more than $16,000,000 or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Government Code section 14837, subdivision (d)(3), whichever is greater. (Title 10 California Code of Regulations, Section 1060 (i))
- Provides that is unlawful for a covered provider to engage or have engaged in any unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or another financial product or service to a covered entity. (Title 10 California Code of Regulations, Section 1061(a))
This bill:
- Prohibits a person from engaging in the business of a commercial financing provider or commercial financing broker, on or after July 1, 2028, without obtaining a license from DFPI pursuant to the California Financing Law (CFL) or while awaiting an approval or denial of a completed application submitted on or before July 1, 2028.
The following provisions of this bill are operative on January 1, 2028.
- Subjects commercial financing providers and commercial financing brokers to the administrative and enforcement authorities provided by the CFL to DFPI.
- Defines the following terms, among others:
- “Commercial financing” means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose.
- “Commercial financing broker” means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider:
- Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
- Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
- Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
- Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipient’s sensitive data.
- Participating in the preparation of commercial financing documents, including commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents. Provides that transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
- Communicating to a prospective recipient a commercial financing provider’s commercial financing approval decisions.
- Charging a fee to a prospective recipient for services related to a prospective recipient’s application for a commercial financing transaction from a commercial financing provider.
- “Commercial financing provider” means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.
- “Recipient” means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than $500,000.
- “Referral” means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipient’s contact information to a commercial financing provider, for the purpose of making an introduction.
- “Small business” means a business entity organized for profit with annual gross receipts of the greater of no more than $16 million or the level as biennially adjusted by the Department of General Services, as specified. Provides specified exemptions to the proposed regulations of commercial financing transactions, including but not limited to, transactions secured by real property.
- Provides that a commercial financing agreement entered into on or after January 1, 2028, is not enforceable if the commercial financing provider is not licensed under the CFL.
- Prohibits a commercial financing provider or broker from the following acts:
- Taking a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
- Including a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipient’s business activities with the registrant, including, but not limited to, terms or conditions of a product or service offered by the registrant.
- Provides that a commercial financing transaction found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of the CFL.
- Requires a commercial financing broker to clearly and conspicuously display on their website the average and maximum annual percentage rates for the commercial financing transactions facilitated by the broker in the most recent calendar year.
- Requires a commercial financing provider to file annually a report with DFPI with information related to the type, size, and price of commercial financing transactions provided to recipients in the preceding calendar year.
- Exempts specified transactions or persons from the proposed licensing framework.
- Codifies the existing regulation related to unfair, deceptive, and abusive acts and practices into the CFL.
- Makes conforming changes to various general administrative and enforcement provisions within the CFL to reflect the addition of commercial financing transactions to the scope of the licensing law.
Comments
Background. The markets for commercial financing offer a variety of products that have different structures and terms, and the regulatory treatment of such products varies significantly under existing California law. Generally, there are financing products that fit neatly under legal definitions and interpretations as “commercial loans,” and there are financing products that may not be considered “loans” but that serve a similar basic function – providing a business with funds (or some other asset) that is expected to be repaid in the future, along with interest or other finance charges. In most cases, providers of commercial loans are required to be licensed by the Department of Financial Protection and Innovation (DFPI) and subject to oversight by the department pursuant to the California Financing Law (CFL), unless the provider is exempt from the CFL, such as is the case for banks that are subject to different licensing or chartering laws. Non-loan commercial financing products, however, may be provided without a license and with significantly less oversight from DFPI.
Commercial financing providers are less regulated than financing providers that serve consumers, likely based on the assumption that commercial transactions occur between parties that have higher levels of sophistication and knowledge than those involved in consumer transactions. But in the case of small business owners, is this assumption valid? It seems likely that many small business owners have a similar level of financial literacy, legal knowledge, and bargaining power as a typical consumer, which would support a similar policy approach that establishes baseline rules and oversight of providers of commercial financing to small businesses.
Scope of transactions covered by this bill. This bill extends state oversight of commercial financing activities beyond that which is currently provided by the CFL. Within the category of “commercial financing transactions,” there are two general categories: those transactions deemed “commercial loans” for the purposes of the CFL and those not deemed “commercial loans.” Examples in this latter category include products described as merchant cash advances, accounts receivable financing, invoice factoring, and other revenue-based financing products. Providers of commercial financing may offer both commercial loans covered by the CFL and non-loan financing products not covered by the CFL.
This bill expands the CFL to cover a subset of commercial financing transactions that meet all of the following criteria:
- Amount of financing: $500,000 or less.
- Borrower characteristics: Must be a small business located in California with less than $19 million of annual revenue.[1]
- Non-exempt provider: Certain entities and transactions are exempted by the bill, mostly in line with exemptions provided by the CFL for commercial loan transactions.
Given this scope, the new regulations proposed by this bill should affect few transactions between relatively sophisticated parties. The maximum transaction amount of $500,000 acknowledges that even if a borrower is considered a small business, that borrower is more likely to retain financial and legal advice, if necessary, to navigate larger and more complex transactions than the small business may be able to handle in-house. Additionally, the requirement that a borrower must be considered a “small business” in order for the regulations to apply means that small transactions between financing providers and larger business borrowers will not be subject to the new regulations. While the transaction amount and revenue threshold to be deemed a “small business” are arbitrary, the proposed amounts appear reasonably tailored to protect small business borrowers without adding unnecessary burdens to transactions between relatively sophisticated parties.
As defined by this bill, a commercial financing transaction includes both loan and non-loan credit products. A provider or broker of a commercial loan is already required to be licensed under the CFL based on existing law, but this bill introduces several new conduct requirements that apply to commercial loans of $500,000 or less that are offered to small businesses. The requirements are reasonably tailored to protect small businesses from predatory practices, such as taking confessions of judgment. The proposed disclosure and reporting requirements make these financing markets more transparent, which has benefits for borrowers, fair competition, and focused supervision by DFPI.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes
According to the Senate Appropriations Committee, “the Department of Financial Protection and Innvoation (DFPI) estimates costs of $1.57 million in the first year and $1.46 ongoing (Financial Protection Fund) for an additional examiner, support staff, and one-time IT systems implementation expertise to implement the new licensure program. Annual assessment fees from licensees will help offset these ongoing administration and enforcement costs; however, actual revenues will depend on the number of licensees.”
SUPPORT: (Verified 8/12/26)
Cameo Network (co-source)
California Low-income Consumer Coalition (co-source)
Responsible Business Lending Coalition (co-source)
Small Business Majority (co-source)
Access Plus Capital
Accessity
Asian Pacific Islander Small Business Collaborative
Asian, INC.
Asociacion De Emprendedor@s
California Coalition for Community Investment (CCCI)
Cameo - California Association for Micro Enterprise Opportunity
Community Development Services
Consumer Federation of California
Economic Development and Financing Corporation
El Pajaro Community Development Corporation
Friends of the Public Bank East Bay
Greenlining Institute; the
Ica
Ica Fund
Icon CDC
Jefferson Economic Development Institute
Microcare Community Development Solutions
Microenterprise Collaborative of Inland Southern California
Narratur Studio
National Consumer Law Center
Pacific Community Ventures
Public Counsel
Rise Economy
Santa Clarita Valley Chamber of Commerce
The Greenlining Institute
The Responsible Business Lending Coalition
United Chambers of Commerce
Uptima Entrepreneur Cooperative
Valley Industry Association of Santa Clarita
West Business Development Center
Women's Economic Ventures
OPPOSITION: (Verified 8/12/26)
Financial Technology Association
Revenue Based Finance Association
ARGUMENTS IN SUPPORT: CAMEO Network, California Low-Income Consumer Coalition, Responsible Business Lending Coalition, and Small Business Majority write in support:
Small business owners need access to capital – be it a loan or other ‘non-loan’ product. Currently, non-loan products are not subject to the same oversight as regulated loans. This bill requires companies that offer non-loan products and their brokers to be licensed by the Department of Financial Protection and Innovation to receive the same oversight as traditional small business products…
AB 2116 empowers the State to ensure that small business owners can make informed decisions and report bad actors, by establishing an oversight framework and transparency about the products and costs associated with the product that a commercial broker offers the small business owner on behalf of a high-cost commercial lender…
AB 2116 will catalyze fair lending to small businesses by preventing bad-actor financing companies from taking unfair advantage of their competition and of small business customers.
ARGUMENTS IN OPPOSITION: Revenue Based Finance Coalition writes in opposition to a specific provision of the bill, while supporting the broad concept of licensure:
California law already protects businesses against unconscionable contracts… This long-established doctrine already applies to commercial financing transactions.
Referencing this unconscionability standard in Section 30 of AB 2116 as a violation of the CFL does not create a new substantive protection for California businesses. Instead, it converts an existing equitable contract doctrine into an automatic regulatory violation carrying separate licensing and enforcement consequences…
Commercial financing providers should be able to evaluate their compliance with the CFL using clear, objective statutory standards. By tying licensing compliance to an inherently subjective judicial doctrine, Section 30 of AB 2116 introduces unnecessary legal uncertainty for responsible providers attempting to comply with California law in good faith. The result will be increased litigation costs for commercial financing providers and the DFPI, in addition to burdening California’s courts.
ASSEMBLY FLOOR: 73-0, 5/22/26
AYES: Addis, Aguiar-Curry, Ahrens, Alanis, Alvarez, Ávila Farías, Bains, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Caloza, Carrillo, Castillo, Connolly, Davies, DeMaio, Dixon, Elhawary, Ellis, Flora, Fong, Gallagher, Garcia, Gipson, Jeff Gonzalez, Mark González, Hadwick, Haney, Harabedian, Hart, Hoover, Irwin, Jackson, Johnson, Kalra, Krell, Lackey, Lee, Lowenthal, Macedo, McKinnor, Muratsuchi, Nguyen, Ortega, Pacheco, Papan, Patel, Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Ransom, Michelle Rodriguez, Rogers, Blanca Rubio, Sanchez, Schiavo, Schultz, Sharp-Collins, Solache, Soria, Stefani, Tangipa, Valencia, Wallis, Ward, Wilson, Zbur, Rivas
NO VOTE RECORDED: Arambula, Bauer-Kahan, Chen, Gabriel, Celeste Rodriguez, Ta, Wicks
Prepared by: Michael Burdick / B. & F.I. /
8/17/26 10:47:43
**** END ****
Per the limit established by DGS as of the published date of this analysis. ↑
SENATE COMMITTEE ON
Senator Sabrina Cervantes, Chair
2025 - 2026 Regular Session
AB 2116 (Schiavo) - Commercial financing
Version: | Policy Vote: |
Urgency: | Mandate: |
Hearing Date: | Consultant: |
Bill Summary:
AB 2116 expands the scope of the California Financing Law to cover specified commercial financing transactions offered to small businesses and establishes requirements and prohibitions on commercial financing providers and brokers engaged in such transactions.
*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********
The following information is revised to reflect amendments
adopted by the committee on August 13, 2026
Fiscal Impact:
The Department of Financial Protection and Innvoation (DFPI) estimates costs of $1.57 million in the first year and $1.46 ongoing (Financial Protection Fund) for an additional examiner, support staff, and one-time IT systems implementation expertise to implement the new licensure program. Annual assessment fees from licensees will help offset these ongoing administration and enforcement costs; however, actual revenues will depend on the number of licensees.
Author Amendments:
- Delay implementation to July 1, 2028.
- Revise commercial financing provider or broker prohibitions by deleting the provision that prohibits them from including contract terms authorizing the attachment or garnishment of any of a recipient’s money held in a depository institution account.
-- END --
SENATE COMMITTEE ON
Senator Sabrina Cervantes, Chair
2025 - 2026 Regular Session
AB 2116 (Schiavo) - Commercial financing
Version: | Policy Vote: |
Urgency: | Mandate: |
Hearing Date: | Consultant: |
Bill Summary:
AB 2116 expands the scope of the California Financing Law to cover specified commercial financing transactions offered to small businesses and establishes requirements and prohibitions on commercial financing providers and brokers engaged in such transactions.
Fiscal Impact:
The Department of Financial Protection and Innvoation (DFPI) estimates costs of $1.57 million in the first year and $1.46 ongoing (Financial Protection Fund) for an additional examiner, support staff, and one-time IT systems implementation expertise to implement the new licensure program. Annual assessment fees from licensees will help offset these ongoing administration and enforcement costs; however, actual revenues will depend on the number of licensees.
Background:
The markets for commercial financing offer a variety of products that have different structures and terms, and the regulatory treatment of such products varies significantly under existing California law. Generally, there are financing products that fit neatly under legal definitions and interpretations as “commercial loans,” and there are financing products that may not be considered “loans” but that serve a similar basic function – providing a business with funds (or some other asset) that is expected to be repaid in the future, along with interest or other finance charges. In most cases, providers of commercial loans are required to be licensed by DFPI and subject to oversight by the department pursuant to the CFL, unless the provider is exempt from the CFL, such as is the case for banks that are subject to different licensing or chartering laws. Non-loan commercial financing products, however, may be provided without a license and with significantly less oversight from DFPI.
Commercial financing providers are less regulated than financing providers that serve consumers, likely based on the assumption that commercial transactions occur between parties that have higher levels of sophistication and knowledge than those involved in consumer transactions. But in the case of small business owners, is this assumption valid? It seems likely that many small business owners have a similar level of financial literacy, legal knowledge, and bargaining power as a typical consumer, which would support a similar policy approach that establishes baseline rules and oversight of providers of commercial financing to small businesses.
Proposed Law:
- Extends the CFL to commercial financing transactions, beginning January 1, 2028.
- Prohibits a person from engaging in the business of a commercial financing provider or commercial financing broker without obtaining a license from the DFPI under the existing terms, and subject to the existing restrictions, for licensure under the CFL; a person may continue to engage in these businesses if the person submits a complete application for a license on or before January 1, 2028, and is awaiting approval or denial of the application.
- Subjects commercial financing providers and commercial financing brokers to the administrative and enforcement authorities provided by the CFL to the DFPI, with exceptions for specified provisions relating to businesses in more than one place of business or at more than one location.
- Defines the following relevant terms:
- “Commercial financing” means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose; for purposes of determining the primary purpose of the financing, the provider may rely on any written statement of intended purposes signed by the recipient, as specified.
- “Commercial financing broker” means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider, subject to specified exclusions:
- Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
- Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
- Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
- Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipient’s sensitive data.
- Participating in the preparation of commercial financing documents, including, but not limited to, commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents; however, transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
- Communicating to a prospective recipient a commercial financing provider’s commercial financing approval decisions.
- Charging a fee to a prospective recipient for services related to a prospective recipient’s application for a commercial financing transaction from a commercial financing provider.
- “Commercial financing provider” means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution; the fact that a commercial financing provider extended a specific offer of commercial financing on behalf of a depository institution shall not be construed to mean that the commercial financing provider engaged in, or originated, that finding.
- “Recipient” means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than $500,000.
- “Referral” means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipient’s contact information to a commercial financing provider, for the purposes of making an introduction.
- “Sensitive data” means any of the following:
- A bank account number.
- A bank statement.
- A credit or debit card account number.
- A credit score.
- All of, or a portion of, a social security number.
- Personal or business income, including information self-reported by the person.
- A taxpayer or employer identification number.
- “Small business” means a business entity organized for profit with annual gross receipts of no more than $16 million, or the annual gross receipt level as biennially adjusted by the Department of General Services, whichever is greater; a licensee may rely on any relevant written representation by the business entity for purposes of determining the entity’s annual gross receipts.
- Exempts certain commercial financing providers and transactions, including providers regulated under other laws, certain secured transactions, and certain vehicle transactions.
- Provides that a commercial financing agreement is not enforceable unless one of the following applies:
- The person providing the commercial financing transaction is a licensed commercial financing provider.
- The person providing the commercial financing transaction has submitted a complete application on or before January 1, 2026, and is awaiting approval.
- The commercial financing transaction was entered into prior to January 1, 2028.
- Prohibits a commercial financing provider or a commercial financing broker from doing any of the following:
- Take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
- Include a provision in a commercial financing transaction agreement or contract that authorizes a commercial financing provider or a commercial financing broker to attach or garnish any of a recipient’s money held in an account in a depository institution.
- Include a provision in a contract or agreement with the recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipient’s business activities with the commercial financing provider, including, but not limited to, terms and conditions of a product or service offered by the commercial financing provider.
- Provides that a commercial financing transaction found to be unconscionable under the Civil Code shall be deemed to be a violation of, and subject to the remedies specified in, the CFL.
- Requires a commercial financing broker to clearly and conspicuously display on their website the average and maximum annual percentage rates (APRs) for the commercial financing transactions facilitated by them in the most recent calendar year.
- Requires a commercial financing provider to file annually a report with the DFPI with information related to the type, size, and price of commercial financing transactions provided to recipients in the preceding calendar year.
- Codifies into the CFL the DFPI’s existing regulation related to unfair, deceptive, and abusive acts and practices committed by a licensee in connection with a commercial financing transaction.
- Recodifies the existing Section 22807 of the Financial Code as Section 22808 of the Financial Code.
- Makes conforming changes to various general administrative and enforcement provisions within the CFL to reflect the addition of commercial financing transactions to the scope of the licensing law.
Related Legislation:
SB 728 (Padilla, 2025) would have provided a registration program under the California Consumer Financial Protection Law for persons offering commercial financing or commercial financing brokerage services to California residents. SB 728 was held on the Suspense File in this committee.
SB 1482 (Glazer, 2024) would have provided a registration program under the CCFPL for persons providing commercial financing or commercial financing brokerage services to California residents. SB 1482 died on the Assembly inactive file.
SB 869 (Glazer, 2023) would have expanded the scope of the California Financing Law to cover specified commercial financing transactions offered to small businesses and would have established requirements and prohibitions on commercial financing providers and brokers engaged in such transactions. SB 869 was held on the Suspense File in this committee.
-- END --
Senator Thomas Umberg, Chair
2025-2026 Regular Session
Bill No: AB 2116 (Author:Schiavo)
Version: June 22, 2026
Hearing Date: June 30, 2026
Fiscal: Yes
Urgency: No
Consultant: AWM
SUBJECT
Commercial financing
DIGEST
This bill expands the scope of the California Financing Law (CFL) to cover specified commercial financing transactions offered to small businesses and establishes requirements and prohibitions on commercial financing providers and brokers engaged in such transactions; the bill’s provisions will take effect on January 1, 2028.
EXECUTIVE SUMMARY
The CFL regulates commercial and consumer loans in California. Its primary goals are to ensure an adequate supply of lending to borrowers in California, while protecting borrowers against unfair business practices. Currently, however, the CFL does not apply to non-loan financing products, which may include asset-based lending, accounts receivable purchase transactions, and open-ended credit plans. These forms of financing are often offered to businesses, particularly small businesses, which may not qualify for a traditional loan and which may be less financially sophisticated than larger businesses.
This bill takes the significant step of expanding the CFL to regulate providers and brokers who engage in all types commercial financing transactions with small businesses—not just loans—provided that the financing transaction is for $500,000 or less and meets other specified criteria. The bill also codifies existing regulations prohibiting certain types of predatory business practices in connection with a small business financing transaction. The author has agreed to amendments to address certain of the remaining opposition’s concerns.
This bill is sponsored by the CAMEO Network, the California Low-Income Consumer Coalition, the Responsible Business Lending Coalition, and Small Business Majority and is supported by numerous organizations, including consumer protection groups, finance companies, and business organizations. This bill is opposed by the Innovative Lending Platform Association and the Revenue Based Finance Coalition. The Senate Banking and Financial Institutions Committee passed this bill with a vote of 6-0.
PROPOSED CHANGES TO THE LAW
Existing law:
- Establishes the CFL, which regulates consumer and commercial loans with the goals of ensuring an adequate supply of credit to borrowers in the state and protecting borrowers against unfair lending practices. (Fin. Code, div. 9, §§ 22000 et seq.)
- Requires, under the CFL, the licensure of entities that provide certain consumer or commercial loans in the state, as administered and overseen by the Department of Financial Protection and Innovation (DFPI). (Fin. Code, div. 9, ch. 1, art. 3, §§ 22100 et seq.)
- A “consumer loan” is a loan, whether secured by real or personal property, or both, or unsecured, the proceeds of which are intended by the borrower for use primarily for personal, family, or household purposes. (Fin. Code, § 22203.)
- A “commercial loan” is a loan of a principal amount of $5,000 or more, or any loan under an open-end credit program, whether secured by real or personal property, or both, or unsecured, the proceeds of which are intended by the borrower for use primarily for other than personal, family, or household purposes. (Fin. Code, § 22502.)
- Establishes, in Division 9.5 of the Financial Code (Division 9.5), disclosure requirements related to commercial financing. (Fin. Code, div. 9.5, §§ 22800 et seq.)
- Exempts the following entities from the requirements in 3):
- A provider that is a depository institution.
- A provider that is a lender regulated under the federal Farm Credit Act.
- A commercial financing transaction secured by real property.
- A commercial financing transaction in which the recipient is a dealer, as defined, or a vehicle rental company, and other specified requirements are met.
- Any person who makes no more than one commercial financing transaction in California in a 12-month period or any person who makes 5 or fewer commercial financing transactions in a 12-month period that are incidental to the business of the person relying on the exemption. (Fin. Code, § 22801.)
- Defines the following relevant terms within Division 9.5:
- “Commercial financing” means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing intended by the recipient for use primarily for other than personal, family, or household purposes; for purposes of determining whether financing is covered by 2), the provider may rely on any written statement of intended purposes signed by the recipient, as specified.
- “Person” means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust, or an unincorporated organization.
- “Provider” means a person who extends a specific offer of commercial financing to a recipient, and includes a nondepository institution which enters into a written agreement with a depository to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.
- “Recipient” means a person who is presented a specific commercial financing offer by a provider that is equal to or less than $500,000. (Fin. Code, § 22800.)
- Establishes the California Consumer Financial Protection Law (CCFPL), which gives the DFPI oversight over entities engaged in the business of offering or providing consumer financial products or services. (Fin. Code, div. 24, §§ 90000 et seq.)
- Exempts from the CCFPL a variety of entities, including entities licensed under other specified state laws, such as a finance lender or broker licensed under the CFL. (Fin. Code, § 90002.)
- Authorizes the DFPI to promulgate regulations that define unfair, deceptive, and abusive acts and practices in connection with the offering or provision of commercial financing to small business recipients, nonprofits, and family farms. (Fin. Code, § 90009(e).)
- Authorizes the DFPI to conduct examinations on a periodic basis of a registrant for the purposes of assessing compliance with consumer financial laws, obtaining information about the activities and compliance systems or procedures of the registrant, and detecting and assessing risks to consumers, small businesses, and to markets for consumer financial products and services. (Fin. Code, § 90010.)
- Authorizes the DFPI to investigate suspected, and to take action against, violators of the CCFPL, including through administrative penalties and a civil action in the name of the People of the State of California brought in the superior court. (Fin. Code, § 90013.)
Existing regulations adopted by the DFPI:
- Define “covered entity” to mean a small business, nonprofit, or family farm whose activities are principally directed or managed from California. (Cal. Code Regs., tit. 10, § 1060(d).)
- Define “covered provider” to mean any person engaged in the business of offering or providing commercial financing or another financial product or service to a covered entity, unless that person is exempt from the CCFPL pursuant to Financial Code Section 90002. (Cal. Code Regs., tit. 10, § 1060(e).)
- Define “small business” to mean a business entity organized for profit with annual gross receipts of no more than $16,000,000 or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Government Code section 14837, subdivision (d)(3), whichever is greater. (Cal. Code Regs., tit. 10, § 1060 (i).)
- Provide that it is unlawful for a covered provider to engage, or have engaged, in any unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or another financial product or service to a covered entity. (Cal. Code Regs., tit. 10, § 1061(a).)
This bill:
- Extends the CFL to commercial financing transactions, beginning January 1, 2028, as set forth below.
- Prohibits a person from engaging in the business of a commercial financing provider or commercial financing broker without obtaining a license from the DFPI under the existing terms, and subject to the existing restrictions, for licensure under the CFL; a person may continue to engage in these businesses if the person submits a complete application for a license on or before January 1, 2028, and is awaiting approval or denial of the application.
- Subjects commercial financing providers and commercial financing brokers to the administrative and enforcement authorities provided by the CFL to the DFPI, with exceptions for specified provisions relating to businesses in more than one place of business or at more than one location.
- Defines the following relevant terms:
- “Commercial financing” means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose; for purposes of determining the primary purpose of the financing, the provider may rely on any written statement of intended purposes signed by the recipient, as specified.
- “Commercial financing broker” means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider, subject to specified exclusions:
- Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
- Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
- Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
- Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipient’s sensitive data.
- Participating in the preparation of commercial financing documents, including, but not limited to, commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents; however, transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
- Communicating to a prospective recipient a commercial financing provider’s commercial financing approval decisions.
- Charging a fee to a prospective recipient for services related to a prospective recipient’s application for a commercial financing transaction from a commercial financing provider.
- “Commercial financing provider” means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution; the fact that a commercial financing provider extended a specific offer of commercial financing on behalf of a depository institution shall not be construed to mean that the commercial financing provider engaged in, or originated, that finding.
- “Recipient” means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than $500,000.
- “Referral” means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipient’s contact information to a commercial financing provider, for the purposes of making an introduction.
- “Sensitive data” means any of the following:
- A bank account number.
- A bank statement.
- A credit or debit card account number.
- A credit score.
- All of, or a portion of, a social security number.
- Personal or business income, including information self-reported by the person.
- A taxpayer or employer identification number.
- “Small business” means a business entity organized for profit with annual gross receipts of no more than $16 million, or the annual gross receipt level as biennially adjusted by the Department of General Services, whichever is greater; a licensee may rely on any relevant written representation by the business entity for purposes of determining the entity’s annual gross receipts.
- Exempts, from 1), certain commercial financing providers and transactions, including providers regulated under other laws, certain secured transactions, and certain vehicle transactions.
- Provides that a commercial financing agreement is not enforceable unless one of the following applies:
- The person providing the commercial financing transaction is a licensed commercial financing provider.
- The person providing the commercial financing transaction has submitted a complete application on or before January 1, 2026, and is awaiting approval.
- The commercial financing transaction was entered into prior to January 1, 2028.
- Prohibits a commercial financing provider or a commercial financing broker from doing any of the following:
- Take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
- Include a provision in a commercial financing transaction agreement or contract that authorizes a commercial financing provider or a commercial financing broker to attach or garnish any of a recipient’s money held in an account in a depository institution.
- Include a provision in a contract or agreement with the recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipient’s business activities with the commercial financing provider, including, but not limited to, terms and conditions of a product or service offered by the commercial financing provider.
- Provides that a commercial financing transaction found to be unconscionable under the Civil Code shall be deemed to be a violation of, and subject to the remedies specified in, the CFL.
- Requires a commercial financing broker to clearly and conspicuously display on their website the average and maximum annual percentage rates (APRs) for the commercial financing transactions facilitated by them in the most recent calendar year.
- Requires a commercial financing provider to file annually a report with the DFPI with information related to the type, size, and price of commercial financing transactions provided to recipients in the preceding calendar year.
- Codifies into the CFL the DFPI’s existing regulation related to unfair, deceptive, and abusive acts and practices committed by a licensee in connection with a commercial financing transaction.
- Makes conforming changes to various general administrative and enforcement provisions within the CFL to reflect the addition of commercial financing transactions to the scope of the licensing law.
COMMENTS
- Author’s comment
According to the author:
Small businesses are the backbone of our economy, and they deserve a fair and transparent marketplace when seeking capital. Right now, traditional lenders operate under clear rules, but certain high-cost non-loan products — like merchant cash advances — function outside that framework. AB 2116 simply ensures consistent oversight so that all financing providers play by the same rules. This bill doesn’t limit access to capital, rather it promotes transparency, strengthens accountability, and protects hardworking entrepreneurs from deceptive practices, helping our small businesses continue to grow and thrive.
2. Background on California’s commercial financing laws and regulations
Consumer protection in the banking and finance sector is a priority for this state. The CFL sets forth a comprehensive regulatory framework for consumer and commercial loans issued by specified financial institutions.[1] The CFL’s goals include permitting and encouraging the development of economically sound lending practices and protecting borrowers against unfair practices by some lenders, and its provisions should be liberally construed to promote its purposes and policies.[2]
With the advent of different types of commercial financing, however, not all commercial financing entities are covered by the CFL. These alternative financing products include sales-based financing, like merchant advances, lease financing, and factoring – all of which are structured in ways that do not make them “loans” from a legal perspective, though each product serves the same basic function of providing a small business with funds that are paid back over time to the financing provider.
Some commercial financing providers offering non-loan products are otherwise subject to regulatory regimes; for example, federal law regulates depository institutions (banks and savings associations), and credit unions are regulated under federal or state law. Many “financial technology,” or “fintech” firms, however, do not cleanly fall within existing regulations for financial institutions, [3] and their financing products, when offered to businesses, do not fall within existing regulatory regimes specific to consumer financing.[4]
The sponsors of this bill argue that these regulatory regimes leave a gap in coverage for non-loan financial products offered to small businesses. They assert that many small business owners have a similar level of financial literacy, legal knowledge, and bargaining power as typical consumers, warranting additional protections for small businesses seeking financing.
3. This bill extends the CFL to cover small business financing
To provide additional protections for small businesses seeking financing, this bill extends state oversight of commercial financing activities under the CFL to include certain small business financing transactions. Specifically, this bill expands the CFL to cover commercial financing transactions that meet all of the following criteria:
- Amount of financing: $500,000 or less.
- Borrower characteristics: must be a small business located in California with less than $19 million of annual revenue.[5]
- Non-exempt provider: certain entities and transactions are exempted by the bill, mostly in line with exemptions provided by the CFL for commercial loan transactions.
Given the relatively low financing and income caps, the new regulations proposed by this bill should affect few transactions between relatively sophisticated parties. The maximum transaction amount of $500,000 also recognizes that, even if a borrower is considered a small business, they are more likely to retain counsel or otherwise obtain professional help for larger loan amounts, reducing the need for regulatory oversight. Additionally, the requirement that a borrower must be considered a “small business” in order for the regulations to apply means that small transactions between financing providers and larger business borrowers will not be subject to the new regulations. These proposed amounts appear reasonably tailored to protect small business borrowers without adding unnecessary burdens to transactions between relatively sophisticated parties.
As defined by this bill, a commercial financing transaction involving a small business includes both loan and non-loan credit products. Providers and brokers of commercial loans are already required to be licensed under the CFL based on existing law, so this bill introduces several new obligations and prohibitions that apply to commercial loans of $500,000 or less that are offered to small businesses. These new regulations appear reasonably tailored to protect small businesses from predatory practices, such as when a financing provider takes a confession of judgment from a business before a default, or contract clauses that permit the finance provider to garnish the small business’s bank accounts absent an entry of judgment in a court case. Additionally, the proposed disclosure and reporting requirements make these financing markets more transparent, which has benefits for borrowers, fair competition, and focused supervision by the DFPI.
4. Prior legislative attempts to regulate non-loan commercial financing transactions
This bill is the fourth attempt in three years to extend state oversight into the non-loan commercial financing markets that serve small businesses in California. Although the authors have changed, most of this bill’s sponsors were also sponsors of the prior measures.[6] These prior measures are, in reverse chronological order:
- SB 728 (Padilla, 2025) would have expanded the CCFPL, which governs all consumer financing transactions, to include financing offered to small businesses, defined as businesses with annual gross receipts of up to $16 million.
- SB 1482 (Glazer, 2024), as passed by this Committee, would have required commercial financing lenders and brokers who provide financing to small businesses or connect small businesses to financing offers to be licensed under the CFL. Like SB 728, SB 1482’s threshold for “small business” was a business with annual gross receipts of up to $16 million, and the bill extended to commercial financing offers of up to $500,000. The bill was subsequently substantially narrowed to merely prohibit certain business practices in connection with small business financing.
- SB 869 (Glazer, 2023) was substantially similar to SB 1482, with some differences relating to APR-related disclosures and notice requirements.
This Committee passed all three bills, but each eventually stalled in the Appropriations Committee of either the Senate or Assembly.
Unlike the prior three attempts, the commercial financing industry is generally in favor of the CFL expansion proposed by this bill, though there are still some remaining disputes. Prior bills elicited arguments that were more fundamental to the structure of those bills, such as that the effort to license commercial financing entities was premature, that many of the proposed industry-specific conduct requirements should not apply, or that a proposed registration scheme under a different law was not appropriate. With this bill, there is broad agreement among small business advocates and commercial financing providers related to the core structure of the bill (i.e., licensing providers and brokers under the CFL framework). The author agreed to amendments in the Senate Banking and Financial Institutions Committee which responded to many of the industry’s concerns, and has agreed to two additional amendments in response to one of the two remaining opposition groups, set forth below.
5. Amendments
As noted above, the author has agreed to amendments that address concerns raised by the Revenue Based Finance Coalition. The amendments are set forth below, subject to any nonsubstantive changes the Office of Legislative Counsel may make.
Amendment 1
Delete Section 26 of the bill.
Amendment 2
Recodify the existing Section 22807 of the Financial Code as Section 22808 of the Financial Code, and add the below as the new Section 22807:
The commissioner may require that rates of charge be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or recipients.
6. Arguments in support
According to the bill’s sponsors:
AB 2116 solves two problems:
1) The “wild west” of small business financing and brokering – Today, brokers routinely “steer” small business owners into financing that pays the broker the highest fee while charging the small business owner an unnecessarily high rate, echoing one of the causes of the subprime mortgage crisis. In fact, investigative reports have shown that many subprime mortgage brokers who lost their mortgage licenses simply moved over to the unregulated “wild west” of small business financing.
AB 2116 empowers that State to ensure that small business owners can make informed decisions and report bad actors, by establishing an oversight framework and transparency about the products and costs associated with the product that a commercial broker offers the small business owner on behalf of a high-cost commercial lender.
2) Unfair practices in the financing shadows - While small business lenders are subject to oversight by DFPI, similar products that purport not to be loans evade these requirements and operate in the shadows. Additionally, California’s 2022 ban on “confessions of judgement” (SB 688) is easily circumvented by legal devices used to take money straight from a small business owner's bank account without legal recourse. And “confidentiality clauses” are used to bully a small business owner into keeping silent about their experience and unexpected costs.
AB 2116 will catalyze fair lending to small businesses by preventing bad-actor financing companies from taking unfair advantage of their competition and of small business customers.
7. Arguments in opposition
According to the Innovative Lending Platform Association:
For over three years, ILPA has advocated for updating the definitions of Division 9 to include providers and brokers of non-loan commercial financing products, creating a single, uniform, and clearly understood regulatory framework for all commercial financing products. Specifically, we believe the legislature should strike the bill’s definition of “commercial financing provider” and instead replace the existing definition of “commercial loan” with “commercial finance,” and expand that definition to include asset-backed transitions, such as merchant cash advances and factoring transactions, as defined in the Commercial Financing Disclosure Law (Division 9.5). This approach would allow the California Financing Law to comprehensively regulate all commercial financing products and the brokers who facilitate them under a single, well-established licensing framework. Such an approach would avoid regulatory duplication, reduce compliance uncertainty, and better achieve the bill sponsor’s stated goal of creating a level playing field through a consistent, uniform regulatory framework for commercial financing providers.
SUPPORT
CAMEO Network (co-sponsor)
California Low-Income Consumer Coalition (co-sponsor)
Responsible Business Lending Coalition (co-sponsor)
Small Business Majority (co-sponsor)
Access Plus Capital
Accessity
Asian Pacific Islander Small Business Collaborative
ASIAN, Inc.
Asociation de Emprendedor@s
California Coalition for Community Investment
Capitol Business Alliance
Community Development Services
Consumer Coalition of California
Economic Development & Financing Corporation
El Pajaro Community Development Corporation
Friends of the Public Bank East Bay
ICA
ICON CDC
Jefferson Economic Development Institute
Kapitus
MicroCare Community Development Solutions
Microenterprise Collaborative of Inland Southern California
Narratur Studio
Pacific Community Ventures
Public Counsel
Rapid Finance
Rise Economy
Santa Clarita Valley Chamber of Commerce
The Greenlining Institute
Uptima Entrepreneur Cooperative
Valley Industry Association of Santa Clarita
West Business Development Center
Women’s Economic Ventures
Responsible Business Lending Coalition
OPPOSITION
Innovative Lending Platform Association
Revenue Based Finance Coalition
RELATED LEGISLATION
Pending legislation: None known.
Prior legislation:
SB 728 (Padilla, 2025) is discussed in Comment 4 of this analysis. SB 728 bill died in the Senate Appropriations Committee.
SB 1482 (Glazer, 2024) is discussed in Comment 4 of this analysis. SB 1482 bill died on the Assembly inactive file.
SB 869 (Glazer, 2024) is discussed in Comment 4 of this analysis. SB 869 died in the Senate Appropriations Committee.
PRIOR VOTES
Senate Banking and Financial Institutions Committee (Ayes 6, Noes 0)
Assembly Floor (Ayes 73, Noes 0)
Assembly Appropriations Committee (Ayes 15, Noes 0)
Assembly Banking and Finance Committee (Ayes 9, Noes 0)
**************
Fin. Code, div. 9, §§ 22000 et seq. ↑
Id., § 22001. ↑
“As Riley Quinn says, ‘when you hear “fintech,” think: “unlicensed bank.” ’ ” (Doctorow, When you hear “fintech,” think “unlicensed bank” (May 1, 2023) Medium, https://doctorow.medium.com/when-you-hear-fintech-think-unlicensed-bank-de5c47016f58. All links in this analysis are link current as of June 17, 2026. ↑
See Fin. Code, div. 24, §§ 90000 et seq. ↑
The bill establishes a cap of either $16 million or the small business limit as established by DGS, whichever is greater; DGS’s current cap is $19 million. (See Department of General Services, Procurement Division, Apply for Re-Apply for Certification as a Small Business and/or Disabled Veteran Business Enterprise, https://www.dgs.ca.gov/PD/Services/Page-Content/Procurement-Division-Services-List-Folder/Apply-for-or-Re-apply-as-Small-Business-Disabled-Veteran-Business-Enterprise ↑
The California Low-income Consumer Coalition is a sponsor of this bill but did not sponsor the previous measures. ↑
Senator Thomas Umberg, Chair
2025-2026 Regular Session
Bill No: AB 2116 (Author:Schiavo)
Version: June 22, 2026
Hearing Date: June 30, 2026
Fiscal: Yes
Urgency: No
Consultant: AWM
SUBJECT
Commercial financing
DIGEST
This bill expands the scope of the California Financing Law (CFL) to cover specified commercial financing transactions offered to small businesses and establishes requirements and prohibitions on commercial financing providers and brokers engaged in such transactions; the bill’s provisions will take effect on January 1, 2028.
EXECUTIVE SUMMARY
The CFL regulates commercial and consumer loans in California. Its primary goals are to ensure an adequate supply of lending to borrowers in California, while protecting borrowers against unfair business practices. Currently, however, the CFL does not apply to non-loan financing products, which may include asset-based lending, accounts receivable purchase transactions, and open-ended credit plans. These forms of financing are often offered to businesses, particularly small businesses, which may not qualify for a traditional loan and which may be less financially sophisticated than larger businesses.
This bill takes the significant step of expanding the CFL to regulate providers and brokers who engage in all types commercial financing transactions with small businesses—not just loans—provided that the financing transaction is for $500,000 or less and meets other specified criteria. The bill also codifies existing regulations prohibiting certain types of predatory business practices in connection with a small business financing transaction. The author has agreed to amendments to address certain of the remaining opposition’s concerns.
This bill is sponsored by the CAMEO Network, the California Low-Income Consumer Coalition, the Responsible Business Lending Coalition, and Small Business Majority and is supported by numerous organizations, including consumer protection groups, finance companies, and business organizations. This bill is opposed by the Innovative Lending Platform Association and the Revenue Based Finance Coalition. The Senate Banking and Financial Institutions Committee passed this bill with a vote of 6-0.
PROPOSED CHANGES TO THE LAW
Existing law:
- Establishes the CFL, which regulates consumer and commercial loans with the goals of ensuring an adequate supply of credit to borrowers in the state and protecting borrowers against unfair lending practices. (Fin. Code, div. 9, §§ 22000 et seq.)
- Requires, under the CFL, the licensure of entities that provide certain consumer or commercial loans in the state, as administered and overseen by the Department of Financial Protection and Innovation (DFPI). (Fin. Code, div. 9, ch. 1, art. 3, §§ 22100 et seq.)
- A “consumer loan” is a loan, whether secured by real or personal property, or both, or unsecured, the proceeds of which are intended by the borrower for use primarily for personal, family, or household purposes. (Fin. Code, § 22203.)
- A “commercial loan” is a loan of a principal amount of $5,000 or more, or any loan under an open-end credit program, whether secured by real or personal property, or both, or unsecured, the proceeds of which are intended by the borrower for use primarily for other than personal, family, or household purposes. (Fin. Code, § 22502.)
- Establishes, in Division 9.5 of the Financial Code (Division 9.5), disclosure requirements related to commercial financing. (Fin. Code, div. 9.5, §§ 22800 et seq.)
- Exempts the following entities from the requirements in 3):
- A provider that is a depository institution.
- A provider that is a lender regulated under the federal Farm Credit Act.
- A commercial financing transaction secured by real property.
- A commercial financing transaction in which the recipient is a dealer, as defined, or a vehicle rental company, and other specified requirements are met.
- Any person who makes no more than one commercial financing transaction in California in a 12-month period or any person who makes 5 or fewer commercial financing transactions in a 12-month period that are incidental to the business of the person relying on the exemption. (Fin. Code, § 22801.)
- Defines the following relevant terms within Division 9.5:
- “Commercial financing” means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing intended by the recipient for use primarily for other than personal, family, or household purposes; for purposes of determining whether financing is covered by 2), the provider may rely on any written statement of intended purposes signed by the recipient, as specified.
- “Person” means an individual, a corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock company, a trust, or an unincorporated organization.
- “Provider” means a person who extends a specific offer of commercial financing to a recipient, and includes a nondepository institution which enters into a written agreement with a depository to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.
- “Recipient” means a person who is presented a specific commercial financing offer by a provider that is equal to or less than $500,000. (Fin. Code, § 22800.)
- Establishes the California Consumer Financial Protection Law (CCFPL), which gives the DFPI oversight over entities engaged in the business of offering or providing consumer financial products or services. (Fin. Code, div. 24, §§ 90000 et seq.)
- Exempts from the CCFPL a variety of entities, including entities licensed under other specified state laws, such as a finance lender or broker licensed under the CFL. (Fin. Code, § 90002.)
- Authorizes the DFPI to promulgate regulations that define unfair, deceptive, and abusive acts and practices in connection with the offering or provision of commercial financing to small business recipients, nonprofits, and family farms. (Fin. Code, § 90009(e).)
- Authorizes the DFPI to conduct examinations on a periodic basis of a registrant for the purposes of assessing compliance with consumer financial laws, obtaining information about the activities and compliance systems or procedures of the registrant, and detecting and assessing risks to consumers, small businesses, and to markets for consumer financial products and services. (Fin. Code, § 90010.)
- Authorizes the DFPI to investigate suspected, and to take action against, violators of the CCFPL, including through administrative penalties and a civil action in the name of the People of the State of California brought in the superior court. (Fin. Code, § 90013.)
Existing regulations adopted by the DFPI:
- Define “covered entity” to mean a small business, nonprofit, or family farm whose activities are principally directed or managed from California. (Cal. Code Regs., tit. 10, § 1060(d).)
- Define “covered provider” to mean any person engaged in the business of offering or providing commercial financing or another financial product or service to a covered entity, unless that person is exempt from the CCFPL pursuant to Financial Code Section 90002. (Cal. Code Regs., tit. 10, § 1060(e).)
- Define “small business” to mean a business entity organized for profit with annual gross receipts of no more than $16,000,000 or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Government Code section 14837, subdivision (d)(3), whichever is greater. (Cal. Code Regs., tit. 10, § 1060 (i).)
- Provide that it is unlawful for a covered provider to engage, or have engaged, in any unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or another financial product or service to a covered entity. (Cal. Code Regs., tit. 10, § 1061(a).)
This bill:
- Extends the CFL to commercial financing transactions, beginning January 1, 2028, as set forth below.
- Prohibits a person from engaging in the business of a commercial financing provider or commercial financing broker without obtaining a license from the DFPI under the existing terms, and subject to the existing restrictions, for licensure under the CFL; a person may continue to engage in these businesses if the person submits a complete application for a license on or before January 1, 2028, and is awaiting approval or denial of the application.
- Subjects commercial financing providers and commercial financing brokers to the administrative and enforcement authorities provided by the CFL to the DFPI, with exceptions for specified provisions relating to businesses in more than one place of business or at more than one location.
- Defines the following relevant terms:
- “Commercial financing” means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose; for purposes of determining the primary purpose of the financing, the provider may rely on any written statement of intended purposes signed by the recipient, as specified.
- “Commercial financing broker” means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider, subject to specified exclusions:
- Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
- Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
- Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
- Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipient’s sensitive data.
- Participating in the preparation of commercial financing documents, including, but not limited to, commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents; however, transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
- Communicating to a prospective recipient a commercial financing provider’s commercial financing approval decisions.
- Charging a fee to a prospective recipient for services related to a prospective recipient’s application for a commercial financing transaction from a commercial financing provider.
- “Commercial financing provider” means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution; the fact that a commercial financing provider extended a specific offer of commercial financing on behalf of a depository institution shall not be construed to mean that the commercial financing provider engaged in, or originated, that finding.
- “Recipient” means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than $500,000.
- “Referral” means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipient’s contact information to a commercial financing provider, for the purposes of making an introduction.
- “Sensitive data” means any of the following:
- A bank account number.
- A bank statement.
- A credit or debit card account number.
- A credit score.
- All of, or a portion of, a social security number.
- Personal or business income, including information self-reported by the person.
- A taxpayer or employer identification number.
- “Small business” means a business entity organized for profit with annual gross receipts of no more than $16 million, or the annual gross receipt level as biennially adjusted by the Department of General Services, whichever is greater; a licensee may rely on any relevant written representation by the business entity for purposes of determining the entity’s annual gross receipts.
- Exempts, from 1), certain commercial financing providers and transactions, including providers regulated under other laws, certain secured transactions, and certain vehicle transactions.
- Provides that a commercial financing agreement is not enforceable unless one of the following applies:
- The person providing the commercial financing transaction is a licensed commercial financing provider.
- The person providing the commercial financing transaction has submitted a complete application on or before January 1, 2026, and is awaiting approval.
- The commercial financing transaction was entered into prior to January 1, 2028.
- Prohibits a commercial financing provider or a commercial financing broker from doing any of the following:
- Take a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
- Include a provision in a commercial financing transaction agreement or contract that authorizes a commercial financing provider or a commercial financing broker to attach or garnish any of a recipient’s money held in an account in a depository institution.
- Include a provision in a contract or agreement with the recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipient’s business activities with the commercial financing provider, including, but not limited to, terms and conditions of a product or service offered by the commercial financing provider.
- Provides that a commercial financing transaction found to be unconscionable under the Civil Code shall be deemed to be a violation of, and subject to the remedies specified in, the CFL.
- Requires a commercial financing broker to clearly and conspicuously display on their website the average and maximum annual percentage rates (APRs) for the commercial financing transactions facilitated by them in the most recent calendar year.
- Requires a commercial financing provider to file annually a report with the DFPI with information related to the type, size, and price of commercial financing transactions provided to recipients in the preceding calendar year.
- Codifies into the CFL the DFPI’s existing regulation related to unfair, deceptive, and abusive acts and practices committed by a licensee in connection with a commercial financing transaction.
- Makes conforming changes to various general administrative and enforcement provisions within the CFL to reflect the addition of commercial financing transactions to the scope of the licensing law.
COMMENTS
- Author’s comment
According to the author:
Small businesses are the backbone of our economy, and they deserve a fair and transparent marketplace when seeking capital. Right now, traditional lenders operate under clear rules, but certain high-cost non-loan products — like merchant cash advances — function outside that framework. AB 2116 simply ensures consistent oversight so that all financing providers play by the same rules. This bill doesn’t limit access to capital, rather it promotes transparency, strengthens accountability, and protects hardworking entrepreneurs from deceptive practices, helping our small businesses continue to grow and thrive.
2. Background on California’s commercial financing laws and regulations
Consumer protection in the banking and finance sector is a priority for this state. The CFL sets forth a comprehensive regulatory framework for consumer and commercial loans issued by specified financial institutions.[1] The CFL’s goals include permitting and encouraging the development of economically sound lending practices and protecting borrowers against unfair practices by some lenders, and its provisions should be liberally construed to promote its purposes and policies.[2]
With the advent of different types of commercial financing, however, not all commercial financing entities are covered by the CFL. These alternative financing products include sales-based financing, like merchant advances, lease financing, and factoring – all of which are structured in ways that do not make them “loans” from a legal perspective, though each product serves the same basic function of providing a small business with funds that are paid back over time to the financing provider.
Some commercial financing providers offering non-loan products are otherwise subject to regulatory regimes; for example, federal law regulates depository institutions (banks and savings associations), and credit unions are regulated under federal or state law. Many “financial technology,” or “fintech” firms, however, do not cleanly fall within existing regulations for financial institutions, [3] and their financing products, when offered to businesses, do not fall within existing regulatory regimes specific to consumer financing.[4]
The sponsors of this bill argue that these regulatory regimes leave a gap in coverage for non-loan financial products offered to small businesses. They assert that many small business owners have a similar level of financial literacy, legal knowledge, and bargaining power as typical consumers, warranting additional protections for small businesses seeking financing.
3. This bill extends the CFL to cover small business financing
To provide additional protections for small businesses seeking financing, this bill extends state oversight of commercial financing activities under the CFL to include certain small business financing transactions. Specifically, this bill expands the CFL to cover commercial financing transactions that meet all of the following criteria:
- Amount of financing: $500,000 or less.
- Borrower characteristics: must be a small business located in California with less than $19 million of annual revenue.[5]
- Non-exempt provider: certain entities and transactions are exempted by the bill, mostly in line with exemptions provided by the CFL for commercial loan transactions.
Given the relatively low financing and income caps, the new regulations proposed by this bill should affect few transactions between relatively sophisticated parties. The maximum transaction amount of $500,000 also recognizes that, even if a borrower is considered a small business, they are more likely to retain counsel or otherwise obtain professional help for larger loan amounts, reducing the need for regulatory oversight. Additionally, the requirement that a borrower must be considered a “small business” in order for the regulations to apply means that small transactions between financing providers and larger business borrowers will not be subject to the new regulations. These proposed amounts appear reasonably tailored to protect small business borrowers without adding unnecessary burdens to transactions between relatively sophisticated parties.
As defined by this bill, a commercial financing transaction involving a small business includes both loan and non-loan credit products. Providers and brokers of commercial loans are already required to be licensed under the CFL based on existing law, so this bill introduces several new obligations and prohibitions that apply to commercial loans of $500,000 or less that are offered to small businesses. These new regulations appear reasonably tailored to protect small businesses from predatory practices, such as when a financing provider takes a confession of judgment from a business before a default, or contract clauses that permit the finance provider to garnish the small business’s bank accounts absent an entry of judgment in a court case. Additionally, the proposed disclosure and reporting requirements make these financing markets more transparent, which has benefits for borrowers, fair competition, and focused supervision by the DFPI.
4. Prior legislative attempts to regulate non-loan commercial financing transactions
This bill is the fourth attempt in three years to extend state oversight into the non-loan commercial financing markets that serve small businesses in California. Although the authors have changed, most of this bill’s sponsors were also sponsors of the prior measures.[6] These prior measures are, in reverse chronological order:
- SB 728 (Padilla, 2025) would have expanded the CCFPL, which governs all consumer financing transactions, to include financing offered to small businesses, defined as businesses with annual gross receipts of up to $16 million.
- SB 1482 (Glazer, 2024), as passed by this Committee, would have required commercial financing lenders and brokers who provide financing to small businesses or connect small businesses to financing offers to be licensed under the CFL. Like SB 728, SB 1482’s threshold for “small business” was a business with annual gross receipts of up to $16 million, and the bill extended to commercial financing offers of up to $500,000. The bill was subsequently substantially narrowed to merely prohibit certain business practices in connection with small business financing.
- SB 869 (Glazer, 2023) was substantially similar to SB 1482, with some differences relating to APR-related disclosures and notice requirements.
This Committee passed all three bills, but each eventually stalled in the Appropriations Committee of either the Senate or Assembly.
Unlike the prior three attempts, the commercial financing industry is generally in favor of the CFL expansion proposed by this bill, though there are still some remaining disputes. Prior bills elicited arguments that were more fundamental to the structure of those bills, such as that the effort to license commercial financing entities was premature, that many of the proposed industry-specific conduct requirements should not apply, or that a proposed registration scheme under a different law was not appropriate. With this bill, there is broad agreement among small business advocates and commercial financing providers related to the core structure of the bill (i.e., licensing providers and brokers under the CFL framework). The author agreed to amendments in the Senate Banking and Financial Institutions Committee which responded to many of the industry’s concerns, and has agreed to two additional amendments in response to one of the two remaining opposition groups, set forth below.
5. Amendments
As noted above, the author has agreed to amendments that address concerns raised by the Revenue Based Finance Coalition. The amendments are set forth below, subject to any nonsubstantive changes the Office of Legislative Counsel may make.
Amendment 1
Delete Section 26 of the bill.
Amendment 2
Recodify the existing Section 22807 of the Financial Code as Section 22808 of the Financial Code, and add the below as the new Section 22807:
The commissioner may require that rates of change be stated fully and clearly in the manner that the commissioner deems necessary to prevent misunderstanding by prospective borrowers or recipients.
6. Arguments in support
According to the bill’s sponsors:
AB 2116 solves two problems:
1) The “wild west” of small business financing and brokering – Today, brokers routinely “steer” small business owners into financing that pays the broker the highest fee while charging the small business owner an unnecessarily high rate, echoing one of the causes of the subprime mortgage crisis. In fact, investigative reports have shown that many subprime mortgage brokers who lost their mortgage licenses simply moved over to the unregulated “wild west” of small business financing.
AB 2116 empowers that State to ensure that small business owners can make informed decisions and report bad actors, by establishing an oversight framework and transparency about the products and costs associated with the product that a commercial broker offers the small business owner on behalf of a high-cost commercial lender.
2) Unfair practices in the financing shadows - While small business lenders are subject to oversight by DFPI, similar products that purport not to be loans evade these requirements and operate in the shadows. Additionally, California’s 2022 ban on “confessions of judgement” (SB 688) is easily circumvented by legal devices used to take money straight from a small business owner's bank account without legal recourse. And “confidentiality clauses” are used to bully a small business owner into keeping silent about their experience and unexpected costs.
AB 2116 will catalyze fair lending to small businesses by preventing bad-actor financing companies from taking unfair advantage of their competition and of small business customers.
7. Arguments in opposition
According to the Innovative Lending Platform Association:
For over three years, ILPA has advocated for updating the definitions of Division 9 to include providers and brokers of non-loan commercial financing products, creating a single, uniform, and clearly understood regulatory framework for all commercial financing products. Specifically, we believe the legislature should strike the bill’s definition of “commercial financing provider” and instead replace the existing definition of “commercial loan” with “commercial finance,” and expand that definition to include asset-backed transitions, such as merchant cash advances and factoring transactions, as defined in the Commercial Financing Disclosure Law (Division 9.5). This approach would allow the California Financing Law to comprehensively regulate all commercial financing products and the brokers who facilitate them under a single, well-established licensing framework. Such an approach would avoid regulatory duplication, reduce compliance uncertainty, and better achieve the bill sponsor’s stated goal of creating a level playing field through a consistent, uniform regulatory framework for commercial financing providers.
SUPPORT
CAMEO Network (co-sponsor)
California Low-Income Consumer Coalition (co-sponsor)
Responsible Business Lending Coalition (co-sponsor)
Small Business Majority (co-sponsor)
Access Plus Capital
Accessity
Asian Pacific Islander Small Business Collaborative
ASIAN, Inc.
Asociation de Emprendedor@s
California Coalition for Community Investment
Capitol Business Alliance
Community Development Services
Consumer Coalition of California
Economic Development & Financing Corporation
El Pajaro Community Development Corporation
Friends of the Public Bank East Bay
ICA
ICON CDC
Jefferson Economic Development Institute
Kapitus
MicroCare Community Development Solutions
Microenterprise Collaborative of Inland Southern California
Narratur Studio
Pacific Community Ventures
Public Counsel
Rapid Finance
Rise Economy
Santa Clarita Valley Chamber of Commerce
The Greenlining Institute
Uptima Entrepreneur Cooperative
Valley Industry Association of Santa Clarita
West Business Development Center
Women’s Economic Ventures
Responsible Business Lending Coalition
OPPOSITION
Innovative Lending Platform Association
Revenue Based Finance Coalition
RELATED LEGISLATION
Pending legislation: None known.
Prior legislation:
SB 728 (Padilla, 2025) is discussed in Comment 4 of this analysis. SB 728 bill died in the Senate Appropriations Committee.
SB 1482 (Glazer, 2024) is discussed in Comment 4 of this analysis. SB 1482 bill died on the Assembly inactive file.
SB 869 (Glazer, 2024) is discussed in Comment 4 of this analysis. SB 869 died in the Senate Appropriations Committee.
PRIOR VOTES
Senate Banking and Financial Institutions Committee (Ayes 6, Noes 0)
Assembly Floor (Ayes 73, Noes 0)
Assembly Appropriations Committee (Ayes 15, Noes 0)
Assembly Banking and Finance Committee (Ayes 9, Noes 0)
**************
Fin. Code, div. 9, §§ 22000 et seq. ↑
Id., § 22001. ↑
“As Riley Quinn says, ‘when you hear “fintech,” think: “unlicensed bank.” ’ ” (Doctorow, When you hear “fintech,” think “unlicensed bank” (May 1, 2023) Medium, https://doctorow.medium.com/when-you-hear-fintech-think-unlicensed-bank-de5c47016f58. All links in this analysis are link current as of June 17, 2026. ↑
See Fin. Code, div. 24, §§ 90000 et seq. ↑
The bill establishes a cap of either $16 million or the small business limit as established by DGS, whichever is greater; DGS’s current cap is $19 million. (See Department of General Services, Procurement Division, Apply for Re-Apply for Certification as a Small Business and/or Disabled Veteran Business Enterprise, https://www.dgs.ca.gov/PD/Services/Page-Content/Procurement-Division-Services-List-Folder/Apply-for-or-Re-apply-as-Small-Business-Disabled-Veteran-Business-Enterprise ↑
The California Low-income Consumer Coalition is a sponsor of this bill but did not sponsor the previous measures. ↑
SENATE COMMITTEE ON
BANKING AND FINANCIAL INSTITUTIONS
Senator Timothy Grayson, Chair
2025 - 2026 Regular
Bill No: AB 2116 Hearing Date: June 17, 2026
Author: | Schiavo | ||
Version: | June 4, 2026 Amended | ||
Urgency: | No | Fiscal: | Yes |
Consultant: | Michael Burdick | ||
Subject: Commercial financing
SUMMARY
This bill expands the scope of the California Financing Law to cover specified commercial financing transactions offered to small businesses and establishes requirements and prohibitions on commercial financing providers and brokers engaged in such transactions.
EXISTING LAW
- Pursuant to the California Financing Law (CFL):
- Requires the licensure and oversight by the Department of Financial Protection and Innovation (DFPI) of businesses that provide commercial loans in the state. (Division 9 of the Financial Code, Section 22000 et seq.)
- Defines “commercial loan” as a loan of a principal amount of $5,000 or more, or any loan under an open-end credit program, the proceeds of which are intended by the borrower for use primarily for other than personal, family, or household purposes. (Financial Code Section 22502)
- Pursuant to Division 9.5 of the Financial Code, commencing with Section 22800:
- Requires specified disclosures related to commercial financing, which includes, among other things, a requirement to disclose the annualized rate for a commercial financing offer presented to a recipient. (Financial Code Section 22802 and 22803)
- Defines “commercial financing” to mean an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes. (Financial Code Section 22800(d))
- Defines “provider” as a person who extends a specific offer of commercial financing to a recipient. Clarifies that “provider” also includes a nondepository institution, which enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution. (Financial Code Section 22800(m))
- Defines “recipient” as a person who is presented a specific commercial financing offer by a provider that is equal to or less than $500,000. (Financial Code Section 22800(n))
- Exempts the following persons or categories of transactions from the division:
- A depository institution.
- A commercial financing transaction secured by real property.
- Any person who makes no more than one commercial financing transaction in California in a 12-month period or any person who makes five or fewer commercial financing transactions in California in a 12-month period that are incidental to the business of the person relying upon the exemption. (Financial Code Section 22801)
- Pursuant to the California Consumer Financial Protection Law (CCFPL) and its implementing regulations:
- Authorizes DFPI to promulgate regulations that define unfair, deceptive, and abusive acts and practices in connection with the offering or provision of commercial financing to small business recipients, nonprofits, and family farms. (Financial Code Section 90009(e))
- Pursuant to (a), provides rules governing commercial financing products and services, including the following:
- Defines “covered entity” to mean a small business, nonprofit, or family farm whose activities are principally directed or managed from California. (Title 10 California Code of Regulations, Section 1060(d))
- Defines “covered provider” to mean any person engaged in the business of offering or providing commercial financing or another financial product or service to a covered entity, unless that person is exempt from the CCFPL pursuant to Financial Code Section 90002. (Title 10 California Code of Regulations, Section 1060(e))
- Defines “small business” to mean a business entity organized for profit with annual gross receipts of no more than $16,000,000 or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Government Code section 14837, subdivision (d)(3), whichever is greater. (Title 10 California Code of Regulations, Section 1060 (i))
- Provides that is unlawful for a covered provider to engage or have engaged in any unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or another financial product or service to a covered entity. (Title 10 California Code of Regulations, Section 1061(a))
THIS BILL
The provisions of this bill are operative on January 1, 2028.
- Prohibits a person from engaging in the business of a commercial financing provider or commercial financing broker without obtaining a license from DFPI pursuant to the California Financing Law (CFL).
- Subjects commercial financing providers and commercial financing brokers to the administrative and enforcement authorities provided by the CFL to DFPI.
- Defines the following terms, among others:
- “Commercial financing” means an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing, intended by the recipient for use primarily for a purpose other than a personal, family, or household purpose.
- “Commercial financing broker” means a person who is engaged in the business of performing any of the following acts in connection with commercial financing made by a commercial financing provider:
- Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
- Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
- Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
- Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipient’s sensitive data.
- Participating in the preparation of commercial financing documents, including commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents. Provides that transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents.
- Communicating to a prospective recipient a commercial financing provider’s commercial financing approval decisions.
- Charging a fee to a prospective recipient for services related to a prospective recipient’s application for a commercial financing transaction from a commercial financing provider.
- “Commercial financing provider” means a person who extends a specific offer of commercial financing to a recipient, including, but not limited to, a nondepository institution that enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.
- “Recipient” means a small business or small business owner who is presented a specific commercial financing offer by a commercial financing provider that is equal to or less than $500,000.
- “Referral” means the introduction of a prospective recipient to a commercial financing provider, or the delivery of a prospective recipient’s contact information to a commercial financing provider, for the purpose of making an introduction.
- “Small business” means a business entity organized for profit with annual gross receipts of the greater of no more than $16 million or the level as biennially adjusted by the Department of General Services, as specified. Provides specified exemptions to the proposed regulations of commercial financing transactions, including but not limited to, transactions secured by real property.
- Provides that a commercial financing agreement entered into on or after January 1, 2028, is not enforceable if the commercial financing provider is not licensed under the CFL.
- Prohibits a commercial financing provider or broker from the following acts:
- Taking a confession of judgment or any power of attorney at any time before a default by a recipient under the terms of a commercial financing transaction agreement or contract.
- Including a provision in a commercial financing transaction agreement or contract that authorizes a commercial financing provider or broker to attach or garnish any of a recipient’s money held in an account in a depository institution.
- Including a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipient’s business activities with the registrant, including, but not limited to, terms or conditions of a product or service offered by the registrant.
- Provides that a commercial financing transaction found to be unconscionable pursuant to Section 1670.5 of the Civil Code shall be deemed to be in violation of the CFL.
- Requires a commercial financing broker to clearly and conspicuously display on their website the average and maximum annual percentage rates for the commercial financing transactions facilitated by the broker in the most recent calendar year.
- Requires a commercial financing provider to file annually a report with DFPI with information related to the type, size, and price of commercial financing transactions provided to recipients in the preceding calendar year.
- Exempts specified transactions or persons from the proposed licensing framework.
- Codifies the existing regulation related to unfair, deceptive, and abusive acts and practices into the CFL.
- Makes conforming changes to various general administrative and enforcement provisions within the CFL to reflect the addition of commercial financing transactions to the scope of the licensing law.
COMMENTS
- Purpose
According to the author:
Small businesses across California are struggling to access affordable, responsible capital—particularly during the ongoing post-COVID recovery. In the absence of meaningful oversight, many small business owners are aggressively marketed high-cost, non-loan financing products that can destabilize otherwise viable businesses.
While traditional small business loans are subject to regulatory oversight, a growing share of small business financing occurs through alternative, non-loan products such as merchant cash advances (MCAs) and factoring arrangements. MCAs typically provide an upfront lump sum in exchange for a fixed percentage of a business’s future credit card sales or daily bank deposits. Federal Reserve research has identified these products as “potentially higher-cost and less-transparent credit products” because they often carry repayment structures that are difficult to understand and can rapidly drain a business’s cash flow, pushing owners into cycles of repeat borrowing.
Without oversight, MCAs and similar practices threaten small business survival, household financial stability, and community economic health.
This measure establishes a licensing requirement and accompanying oversight that will give small businesses the assurances that they can find reputable lenders that follow a set of common financing practices.
- Background
The markets for commercial financing offer a variety of products that have different structures and terms, and the regulatory treatment of such products varies significantly under existing California law. Generally, there are financing products that fit neatly under legal definitions and interpretations as “commercial loans,” and there are financing products that may not be considered “loans” but that serve a similar basic function – providing a business with funds (or some other asset) that is expected to be repaid in the future, along with interest or other finance charges. In most cases, providers of commercial loans are required to be licensed by the Department of Financial Protection and Innovation (DFPI) and subject to oversight by the department pursuant to the California Financing Law (CFL), unless the provider is exempt from the CFL, such as is the case for banks that are subject to different licensing or chartering laws. Non-loan commercial financing products, however, may be provided without a license and with significantly less oversight from DFPI.
Commercial financing providers are less regulated than financing providers that serve consumers, likely based on the assumption that commercial transactions occur between parties that have higher levels of sophistication and knowledge than those involved in consumer transactions. But in the case of small business owners, is this assumption valid? It seems likely that many small business owners have a similar level of financial literacy, legal knowledge, and bargaining power as a typical consumer, which would support a similar policy approach that establishes baseline rules and oversight of providers of commercial financing to small businesses.
- Scope of transactions covered by this bill
This bill extends state oversight of commercial financing activities beyond that which is currently provided by the CFL. Within the category of “commercial financing transactions,” there are two general categories: those transactions deemed “commercial loans” for the purposes of the CFL and those not deemed “commercial loans.” Examples in this latter category include products described as merchant cash advances, accounts receivable financing, invoice factoring, and other revenue-based financing products. Providers of commercial financing may offer both commercial loans covered by the CFL and non-loan financing products not covered by the CFL.
This bill expands the CFL to cover a subset of commercial financing transactions that meet all of the following criteria:
- Amount of financing: $500,000 or less.
- Borrower characteristics: Must be a small business located in California with less than $19 million of annual revenue.[1]
- Non-exempt provider: Certain entities and transactions are exempted by the bill, mostly in line with exemptions provided by the CFL for commercial loan transactions.
Given this scope, the new regulations proposed by this bill should affect few transactions between relatively sophisticated parties. The maximum transaction amount of $500,000 acknowledges that even if a borrower is considered a small business, that borrower is more likely to retain financial and legal advice, if necessary, to navigate larger and more complex transactions than the small business may be able to handle in-house. Additionally, the requirement that a borrower must be considered a “small business” in order for the regulations to apply means that small transactions between financing providers and larger business borrowers will not be subject to the new regulations. While the transaction amount and revenue threshold to be deemed a “small business” are arbitrary, the proposed amounts appear reasonably tailored to protect small business borrowers without adding unnecessary burdens to transactions between relatively sophisticated parties.
As defined by this bill, a commercial financing transaction includes both loan and non-loan credit products. A provider or broker of a commercial loan is already required to be licensed under the CFL based on existing law, but this bill introduces several new conduct requirements that apply to commercial loans of $500,000 or less that are offered to small businesses. The requirements are reasonably tailored to protect small businesses from predatory practices, such as taking confessions of judgment or contract clauses that allow for non-judgment bank account garnishment. The proposed disclosure and reporting requirements make these financing markets more transparent, which has benefits for borrowers, fair competition, and focused supervision by DFPI.
- How is this attempt different from all other attempts?
This bill represents the fourth attempt in three years to extend state oversight into the non-loan commercial financing markets that serves small businesses in California. This Committee passed the three prior bills, but each eventually stalled in the Appropriations Committee of either the Senate or Assembly. While the authors have changed, the same sponsors have been the motivating force behind the four bills – Responsible Business Lending Coalition, CAMEO, and Small Business Majority.[2]
Unlike the prior three attempts, the commercial financing industry is generally in favor of the expansion of the CFL proposed by this bill, though there are remaining disputes over whether and how specific provisions of the CFL should apply. Prior bills elicited arguments that were more fundamental to the structure of those bills, such as the effort to license commercial financing entities was premature, that many of the proposed industry-specific conduct requirements should not apply, or that a proposed registration scheme under a different law was wholly not appropriate. With this bill, there is broad agreement among small business advocates and commercial financing providers related to the core structure of the bill (i.e., licensing providers and brokers under the CFL framework). Remaining areas of disagreement are relatively minor, and several of those disagreements are addressed by proposed amendments in Comment #7.
- Arguments in Support
CAMEO Network, California Low-Income Consumer Coalition, Responsible Business Lending Coalition, and Small Business Majority write in support:
Small business owners need access to capital – be it a loan or other ‘non-loan’ product. Currently, non-loan products are not subject to the same oversight as regulated loans. This bill requires companies that offer non-loan products and their brokers to be licensed by the Department of Financial Protection and Innovation to receive the same oversight as traditional small business products…
AB 2116 empowers the State to ensure that small business owners can make informed decisions and report bad actors, by establishing an oversight framework and transparency about the products and costs associated with the product that a commercial broker offers the small business owner on behalf of a high-cost commercial lender…
AB 2116 will catalyze fair lending to small businesses by preventing bad-actor financing companies from taking unfair advantage of their competition and of small business customers.
- Arguments in Opposition
The Revenue Based Finance Coalition writes in opposition:
The RBFC supports AB 2116’s goal of reasonable guardrails on commercial financing…The RBFC sincerely appreciates the bill author’s efforts to craft legislation that protects small businesses while maintaining critical access to capital. We also appreciate that AB 2116 was amended to require licensing providers and brokers of sales-based financing under the California Financing Law (“CFL”). However, we respectfully oppose AB 2116 as currently drafted for the following reasons…
The letter goes on to summarize concerns related to lack of regulatory parity with commercial lending activities, lack of a provision allowing continuity of business operations while waiting for a license application to be reviewed, and definitional conflicts with other laws that relate to small business financing activities.
- Amendments
The following amendments address several concerns raised in opposition letters without undermining the author’s intent.
- Clarity around usury exemption
The State Constitution contains a usury provision that limits allowable interest for certain loans but provides an extensive list of exempt persons to which the limits do not apply. Examples of exempt persons include banks and other type of creditors, and the provision allows the Legislature to exempt other classes of persons by statute. The CFL contains language stating that the division creates a class of exempt persons. For clarity, this bill can be amended to ensure that any CFL licensee is considered among the class of exempt persons created by the CFL.
Amend Section 22002 of the Financial Code to read:
22002. To accomplish its underlying purposes and policies, this division creates a class of exempt persons pursuant to Section 1 of Article XV of the California Constitution. The class of exempt persons includes any person licensed under this division.
- Provide that commercial financing activities are permitted while a CFL application is being reviewed
Under existing law, commercial financing activity is taking place legally in California outside of any licensure requirements. Industry participants seek clarity that they can continue business activities while DFPI reviews their applications, should this bill be enacted.
Amend proposed Section 22100.6 of the Financial Code to read:
22100.6 (a) A person shall not engage in the business of a commercial financing provider or a commercial financing broker without obtaining a license from the commissioner.
(b) Notwithstanding subdivision (a), a person may engage in the business of a commercial financing provider or a commercial financing broker if the person submits a complete application on or before January 1, 2028, and is awaiting approval or denial of the application.
(cb) This section shall become operative on January 1, 2028.
- Exempt specified CFL sections from applying to commercial financing transactions.
The CFL exempts commercial loans from several provisions that are otherwise applicable to all CFL licensees. The author has agreed to exempt commercial financing transactions from some of these sections, specifically, those sections related to licensing each location at which a licensee conducts business, prohibition on other business activities conducted at a licensed location, and conducting business under a name that is not approved by DFPI.
Add a proposed Section 22656.5 to the Financial Code, which reads:
22656.5. Sections 22152, 22154, and 22155 do not apply to a commercial financing transaction or to a duly licensed commercial financing provider or commercial financing broker in connection with any such commercial financing transaction.
- Clarify when a commercial financing transaction is not enforceable due to licensure status of provider
This bill makes a commercial financing transaction unenforceable if the provider of the transaction is not licensed under the CFL, as required by this bill. This provision should be clarified to accommodate transactions entered into before the operative date of this bill.
Amend proposed Section 22657 of the Financial Code to read:
22657. A commercial financing agreement is not enforceable if unless one of the following applies:
(a) The person providing the commercial financing transaction is a licensed commercial financing provider.
(b) The person providing the commercial financing transaction has submitted a complete application and is awaiting approval or denial pursuant to subdivision (b) of Section 22100.6.
(c) The commercial financing transaction was entered into prior to January 1, 2028.
- Double Referral
This bill is double referred to the Committee on Judiciary.
- Prior and Related Legislation
SB 728 (Padilla, 2025) would have provided a registration program under the California Consumer Financial Protection Law for persons offering commercial financing or commercial financing brokerage services to California residents. The bill was held by the Senate Appropriations Committee.
SB 1482 (Glazer, 2024) would have provided a registration program under the CCFPL for persons providing commercial financing or commercial financing brokerage services to California residents. The bill died on the Assembly inactive file.
SB 869 (Glazer, 2023) would have expanded the scope of the California Financing Law to cover specified commercial financing transactions offered to small businesses and would have established requirements and prohibitions on commercial financing providers and brokers engaged in such transactions. The bill was held by the Senate Appropriations Committee.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Low-income Consumer Coalition
CAMEO - California Association for Micro Enterprise Opportunity
Small Business Majority
The Responsible Business Lending Coalition
Opposition
Capitol Business Alliance
Innovative Lending Platform Association
Revenue Based Finance Coalition
-- END --
ASSEMBLY THIRD READING
ATR Bill Id:AB 2116
Author:(Schiavo)
As Amended Ver:April 16, 2026
Majority vote
SUMMARY
- This bill would expand the purposes of the California Consumer Financial Lending (CCFPL) to include the protection of small businesses from abusive financial practices, as specified.
- The bill would, commencing January 1, 2028, prohibit a person from engaging in the business of offering to provide or providing commercial financing products without first registering with the commissioner, as specified. It requires the Department of Financial Protection and Innovation (DFPI) to prescribe rules regarding registration requirements applicable to covered persons.
- The bill would impose various duties on commercial financing providers and brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified.
Major Provisions
See Banking and Finance Committee analysis for a detailed list of major provisions.
Amends the CCFPL, which requires covered persons to register with and be regulated by the DFPI by:
- Defining ″Commercial financing brokerage services″ to mean the following acts in connection with a commercial financing transaction:
- Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
- Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
- Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
- Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipient′s sensitive data.
- i)Participating in the preparation of commercial financing documents, including commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.
- Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents within the meaning of this subparagraph.
- Communicating to a prospective recipient a commercial financing provider′s commercial financing approval decisions.
- Charging a fee to a prospective recipient for services related to a prospective recipient′s application for a commercial financing transaction from a commercial financing provider.
- Defining ″Commercial financing transaction″ to mean a consummated commercial financing transaction that is equal to or less than five hundred thousand dollars ($500,000) and for which a disclosure is provided in accordance with subsection (a) of Section 920 of Title 10 of the California Code of Regulations.
- Defining ″recipient″ to mean a small business whose activities are principally directed or managed from California.
- For purposes of determining whether activities are ″principally directed or managed from California,″ a registrant may rely on any relevant written representation by the small business, nonprofit, or family farm, including a business address provided in any application or agreement for commercial financing or other financial product or service.
- Defining ″Small business″ to mean a business entity organized for profit with annual gross receipts of no more than sixteen million dollars ($16,000,000) or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Section 14837 of the Government Code, whichever is greater.
- For purposes of determining a business entity′s annual gross receipts, a covered provider may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing.
- Specifies ″Commercial financing transaction″ does not include a commercial financing transaction in which the recipient is a dealer, as defined in Section 285 of the Vehicle Code, or an affiliate of the dealer, or a vehicle rental company, or an affiliate of the company, pursuant to a specific commercial financing offer or commercial open-end credit plan of at least fifty thousand dollars ($50,000), including any commercial loan made pursuant to the commercial financing transaction.
- Requires registration by a person to engage in offering or providing commercial financing products to California residents.
- Prohibits a consumer finance provider (CFP) or a commercial finance broker (CFB) from taking a confession of judgement or power of attorney under the terms of a commercial financing transaction agreement or contract.
- Prohibits a CFP or a CFB from including a provision in a commercial financing transaction agreement or contract that authorizes the CFP or CFP to attach or garnish any of a recipient′s money held in an account in a depository institution.
- Deems a commercial financing transaction found to be unconscionable under specified divisions of the Civil Code shall be deemed to be a violation of this division and subject to remedies in this division.
- Prohibits a CFP or a CFB from including a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipient′s business activities with the registrant, including, but not limited to, terms or conditions of a product or service offered by the registrant.
- Requires a CFB to clearly and conspicuously display on their internet website the average and maximum annual percentage rates for the commercial financing transactions facilitated by them in the most recent calendar year.
- Requires the DFPI to prescribe rules regarding registration requirements applicable to covered persons seeking to offer or provide commercial financing products.
COMMENTS
- Background
The commercial financing landscape presents a diverse array of products with varying structures and terms, resulting in significantly disparate regulatory treatment under existing California law. Typically, financing products either align closely with legal definitions of ″commercial loans″ or exist as alternative products that, while not formally classified as loans, fulfill a functionally equivalent purpose—advancing capital or assets to a business for future repayment alongside interest or finance charges. In California, non-bank commercial loan providers are typically required to secure licensure from the Department of Financial Protection and Innovation (DFPI) and adhere to the California Financing Law (CFL). However, a regulatory gap exists for commercial financing products that fall outside the formal definition of a loan; these can currently be provided without a license and under significantly less DFPI oversight.
Baseline legal protections for small businesses within these markets are established by the California Consumer Financial Protection Law (CCFPL). Through the enactment of AB 1864 (Limón, Chapter 157, Statutes of 2020), the Legislature authorized the DFPI to promulgate regulations defining unfair, deceptive, and abusive acts and practices (UDAAPs) regarding commercial financing provided to small businesses, nonprofits, and family farms. The DFPI finalized these regulations in August 2023, thereby empowering the department to initiate enforcement actions against UDAAPs in small business financing sectors. This enforcement authority definitively carried over to the CFL in 2025 with the enactment of AB 825 (Limón) Chapter 355, Statutes of 2025.
Beyond these UDAAP provisions, the CCFPL further grants the DFPI authority to mandate the registration of covered persons offering consumer financial products or services within the state.
- Current oversight of commercial financing.
Current law does not impose the same degree of regulation of, or oversight for, transactions relating to non-loan financing products offered to businesses. As it stands, entities offering financing products of $500,000 or less have to make specified disclosures regarding the terms of the financial products.[1] This bill would broaden the scope of state oversight regarding commercial financing activities, extending regulatory authority beyond the current parameters established by the California Financing Law (CFL). The landscape of ″commercial financing transactions″ generally bifurcates into two distinct classifications: those formally designated as ″commercial loans″ under the CFL and those alternative products that fall outside this definition. Notable examples within the latter category include merchant cash advances, accounts receivable financing, invoice factoring, and various revenue-based financing products. While commercial financing providers may offer a portfolio that includes both CFL-compliant loans and non-loan products, current law limits the Department of Financial Protection and Innovation′s (DFPI) oversight primarily to activities governed by the CFL, leaving non-loan financing transactions largely outside the department′s existing regulatory reach.
- What this bill does.
This bill proposes to expand DFPI oversight over a subcategory of commercial financing transactions that fall just out of reach of the CFL and meet certain requirements. First, the borrower must be a small business, which is defined as an entity organized for profit with no more than $16 million in annual gross revenue. Second, the commercial financing transaction is limited to $500,000. These parameters help tailor the bill in scope to the intended target of small business owners who may have less bargaining power or negotiations sophistication. For example, in seeking a $750,000 (three quarters million dollar) loan, it is far more likely that even if a business were smaller in size, it would not be unreasonable to assume that the small business owner has resources to secure legal advice to navigate the transaction.
The author has recently made amendments to exempt auto floorplan lenders because their business model happens to fall within the scope of this bill, but the parties are not in the same intended risk category.
One note is that the bill construction is unorthodox. Instead of prohibiting certain acts, certain acts are prohibited from inclusion in the commercial financing transaction agreement. The author may wish to consider defining the inclusion of these prohibited acts in a contract for commercial financing as unconscionable, as well as specifically prohibiting the acts.
According to the Author
″Small businesses are the backbone of our economy, and they deserve a fair and transparent marketplace when seeking capital. Right now, traditional lenders operate under clear rules, but certain high-cost non-loan products — like merchant cash advances — function outside that framework. AB 2116 simply ensures consistent oversight so that all financing providers play by the same rules. This bill doesn′t limit access to capital, rather it promotes transparency, strengthens accountability, and protects hardworking entrepreneurs from deceptive practices, helping our small businesses continue to grow and thrive.″
Arguments in Support
″AB 2116 solves two problems:
- The ″wild west″ of small business brokering – Today, brokers routinely ″steer″ small business owners into financing that pays the broker the highest fee while charging the small business owner an unnecessarily high rate, echoing one of the causes of the subprime mortgage crisis. In fact, investigative reports have shown that many subprime mortgage brokers who lost their mortgage licenses simply moved over to the unregulated ″wild west″ of small business financing.
AB 2116 empowers small business owners to make informed decisions and report bad actors, by establishing an oversight framework and transparency about the products and costs associated with the product that a commercial broker offers the small business owner on behalf of a high-cost commercial lender.
- Unfair practices in the financing shadows - While small business lenders are subject to oversight by DFPI, similar products that purport not to be loans evade these requirements and operate in the shadows. Additionally, California′s 2022 ban on ″confessions of judgement″ (SB 688) is easily circumvented by legal devices used to take money straight from a small business owner′s bank account without legal recourse. And ″confidentiality clauses″ are used to bully a small business owner into keeping silent about their experience and unexpected costs.
AB 2116 will catalyze fair lending to small businesses by preventing bad-actor financing companies from taking unfair advantage of their competition and of small business customers.
As for-profit financing companies ourselves, as well as nonprofit advocates and small business owners, we commend your efforts to pass this bill to create a fair financial marketplace where good actors compete fairly and small businesses thrive.″ Jointly submitted by Responsible Business Lending Coalition, Small Business Majority, and CAMEO Network (co-sponsors)
Arguments in Opposition
″We understand and support the bill sponsor and proponents′ goals of creating a level playing field with a consistent, uniform regulatory framework for all commercial financing providers, regardless of the product offered. However, commercial financing loans and lines of credit are already regulated under Division 9 of the California Financial Code, also known as the California Financing Law (CFL). Instead of adding non-loan products to the current licensing scheme created by the CFL, AB 2116 attempts to shoehorn these commercial products under the California Consumer Financial Protection Law (CCFPL).
Consumer and commercial financing products are vastly different products in vastly different markets. Consumer loans are intended for financing personal consumption-driven activities (like purchasing a home, car, or television). In contrast, business loans are designed to provide a return on invested capital. Moreover, evaluating a small business′s credit risk is more complex than assessing a consumer′s credit risk. Metrics like credit score, income, and other traditional underwriting metrics are not valuable for the commercial market, and it has been widely reported that about 50% of small businesses will fail within 5 years. (Citation omitted) The CFL recognizes the difference in these markets and has specific regulations in Division 9 for consumer loans (Chapter 2) and commercial loans (Chapter 3).″ Innovative Lending Platform Association
FISCAL COMMENTS
Comments from the analysis of the Assembly Appropriations Committee.
Annual costs in the low millions of dollars to DFPI for additional attorney, examiner, and support staff and information technology resources to implement the registration program (Financial Protection Fund).
Although fees and assessments from registrants may help offset ongoing administration and enforcement costs, revenues will depend on the number of entities registering to engage in covered activities. A General Fund (GF) loan may be necessary, especially in the initial years, to the extent revenues are unlikely to fully cover costs.
The Legislative Analyst′s Office recently warned of GF structural deficits of around $35 billion per year in the 2027-28 fiscal year and ongoing.
VOTES
ASM BANKING AND FINANCE: 9-0-0
YES: Valencia, Chen, Dixon, Fong, Krell, Michelle Rodriguez, Blanca Rubio, Schiavo, Harabedian
ASM APPROPRIATIONS: 15-0-0
YES: Wicks, Hoover, Aguiar-Curry, Calderon, Caloza, Dixon, Fong, Mark González, Krell, Pacheco, Pellerin, Sharp-Collins, Solache, Ta, Tangipa
UPDATED
VERSION: April 16, 2026
CONSULTANT: Desiree NguyenOrth / B. & F. / (916) 319-3081 FN: 0002780
Fin.Code section 22802 and 22803. ↑
Date of Hearing: May 6, 2026
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Buffy Wicks, Chair
ABPCA Bill Id:AB 2116
Author:(Schiavo) – As Amended Ver:April 16, 2026
Policy Committee: | Banking and Finance | Vote: | 9 - 0 |
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Urgency: No State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill requires a person offering certain commercial financing products to register with the Department of Financial Protection and Innovation (DFPI).
Specifically, this bill:
- Expands the purpose of the California Consumer Financial Protection Law (CCFPL) to include the protection of small businesses from abusive financial practices.
- Prohibits, beginning January 1, 2028, a person from offering or providing certain commercial financing products to California recipients without first registering with DFPI, and requires DFPI to prescribe rules by that date regarding registration requirements for a person seeking to offer commercial financing products.
- Prohibits certain actions by a commercial financing provider or broker, such as taking a confession of judgment before a recipient’s default, and requires a broker to clearly display on the broker’s website the average and maximum annual percentage rates for the broker’s recent commercial financing transactions.
- Defines a “commercial financing product” to include a commercial financing transaction that is equal to or less than $500,000 and for which certain disclosures are required.
FISCAL EFFECT:
Annual costs in the low millions of dollars to DFPI for additional attorney, examiner, and support staff and information technology resources to implement the registration program (Financial Protection Fund).
Although fees and assessments from registrants may help offset ongoing administration and enforcement costs, revenues will depend on the number of entities registering to engage in covered activities. A General Fund (GF) loan may be necessary, especially in the initial years, to the extent revenues are unlikely to fully cover costs.
The Legislative Analyst’s Office recently warned of GF structural deficits of around $35 billion per year in the 2027-28 fiscal year and ongoing.
COMMENTS:
- Purpose. According to the author:
Small businesses are the backbone of our economy, and they deserve a fair and transparent marketplace when seeking capital. Right now, traditional lenders operate under clear rules, but certain high-cost non-loan products – like merchant cash advances – function outside that framework. AB 2116 simply ensures consistent oversight so that all financing providers play by the same rules.
- Background. Commercial Financing Providers and Brokers. Because state oversight of the financial industry generally relies on licensing programs built around strict definitions of products or services, new or emerging financial products may not fit into one of DFPI’s many existing programs. For example, the California Financing Law (CFL) requires licensure of companies offering consumer or commercial loans, but does not generally apply to commercial financing providers offering non-loan products, such as sales-based financing or factoring, many of which are utilized by small businesses unable to obtain traditional loans. Brokers, which help connect businesses in need of funds to financiers in exchange for a commission, also operate outside the CFL.
CCFPL. AB 1864 (Limon), Chapter 157, Statutes of 2020, established the CCFPL to fill these consumer gaps and empower DFPI to oversee unlicensed providers of consumer financial products or services. For example, the CCFPL allows DFPI to promulgate regulations to establish a registration requirement for the providers of identified consumer financial products or services. The registration requirement may last four years, after which the Legislature may extend the requirement, let the requirement lapse, or use registration data collected by DFPI to modify the requirement. DFPI’s first proposals under the CCFPL, which took effect February 15, 2025, require the registration of earned wage access, private postsecondary education financing, debt settlement, and student debt relief providers. This bill requires DFPI to create a registration program for commercial financing product providers under the CCFPL. This bill also enacts standalone obligations on providers and brokers outside the regulation program.
- Support and Opposition. This bill is sponsored by Small Business Majority, CAMEO Network, and the Responsible Business Lending Coalition, which argue this bill “will catalyze fair lending to small businesses by preventing bad-actor financing companies from taking unfair advantage of their competition and of small business customers.” This bill is also supported by other economic development and consumer groups.
This bill is opposed by finance provider associations, with the Revenue Based Finance Coalition urging amendments for “the registration requirements for providers of commercial financing be similar in scope to the CFL’s requirements for commercial lenders” as “DFPI does not have the bandwidth to implement a broad new registration requirement.”
- Prior Legislation. SB 869 (Glazer), of the 2023-24 Legislative Session, would have required, under the CFL, entities offering certain commercial financing services to obtain licensure from DFPI. SB 869 was held on the Senate Appropriations Committee’s suspense file.
SB 1482 (Glazer), of the 2023-24 Legislative Session, when heard by this committee, was similar to this bill, except SB 1482 would have prescribed registration program rules in statute. SB 1482 was amended by this committee to remove the registration provisions and the bill was subsequently ordered to the Assembly Inactive File.
Analysis Prepared by: Irene Ho / APPR. / (916) 319-2081
Date of Hearing: April 23, 2026
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Avelino Valencia, Chair
ABPCA Bill Id:AB 2116 (
Author:Schiavo) – As Amended Ver:April 16, 2026
SUBJECT: California Consumer Financial Protection Law: commercial financing
SUMMARY:
- This bill would expand the purposes of the California Consumer Financial Lending (CCFPL) to include the protection of small businesses from abusive financial practices, as specified.
- The bill would, commencing January 1, 2028, prohibit a person from engaging in the business of offering to provide or providing commercial financing products without first registering with the commissioner, as specified. It requires the Department of Financial Protection and Innovation (DFPI) to prescribe rules regarding registration requirements applicable to covered persons.
- The bill would impose various duties on commercial financing providers and brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified.
Specifically, this bill:
Amends the CCFPL, which requires covered persons to register with and be regulated by the DFPI by:
- Finds and declares small business owners are often similarly situated as consumers with regards to their sophistication and bargaining power relative to providers of financial services and products. Many of the rationales supporting legal protections for consumers apply also to small business owners. Small businesses have a better chance to survive and grow if they are able to access safe and effective financial products and are protected from unfair, deceptive, or abusive practices when accessing financial products and services.
- Adds small business to the intent of the Legislature to enact the CCFPL to strengthen consumer protections by expanding the ability of the Department of Financial Protection and Innovation (DFPI) to improve accountability and transparency in the California financial system, provide consumer financial education, and protect consumers from abusive financial practices, while prioritizing the prevention of unethical businesses from harming the most vulnerable populations including military service members, seniors, students, low- and moderate-income individuals, and new Californians.
- Defines “Commercial financing brokerage services” to mean the following acts in connection with a commercial financing transaction:
- Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral.
- Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data.
- Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient.
- Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipient’s sensitive data.
- i)Participating in the preparation of commercial financing documents, including commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents.
- Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents within the meaning of this subparagraph.
- Communicating to a prospective recipient a commercial financing provider’s commercial financing approval decisions.
- Charging a fee to a prospective recipient for services related to a prospective recipient’s application for a commercial financing transaction from a commercial financing provider.
- Defines “Commercial financing transaction” to mean a consummated commercial financing transaction that is equal to or less than five hundred thousand dollars ($500,000) and for which a disclosure is provided in accordance with subsection (a) of Section 920 of Title 10 of the California Code of Regulations.
- Defines “recipient” to mean a small business whose activities are principally directed or managed from California.
- For purposes of determining whether activities are “principally directed or managed from California,” a registrant may rely on any relevant written representation by the small business, nonprofit, or family farm, including a business address provided in any application or agreement for commercial financing or other financial product or service.
- Defines “Small business” to mean a business entity organized for profit with annual gross receipts of no more than sixteen million dollars ($16,000,000) or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Section 14837 of the Government Code, whichever is greater.
- For purposes of determining a business entity’s annual gross receipts, a covered provider may rely on any relevant written representation by the business entity, including information provided in any application or agreement for commercial financing.
- Specifies “Commercial financing transaction” does not include a commercial financing transaction in which the recipient is a dealer, as defined in Section 285 of the Vehicle Code, or an affiliate of the dealer, or a vehicle rental company, or an affiliate of the company, pursuant to a specific commercial financing offer or commercial open-end credit plan of at least fifty thousand dollars ($50,000), including any commercial loan made pursuant to the commercial financing transaction.
- Requires registration by a person to engage in offering or providing commercial financing products to California residents.
- Prohibits a consumer finance provider (CFP) or a commercial finance broker (CFB) from taking a confession of judgement or power of attorney under the terms of a commercial financing transaction agreement or contract.
- Prohibits a CFP or a CFB from including a provision in a commercial financing transaction agreement or contract that authorizes the CFP or CFP to attach or garnish any of a recipient’s money held in an account in a depository institution.
- Deems a commercial financing transaction found to be unconscionable under specified divisions of the Civil Code shall be deemed to be a violation of this division and subject to remedies in this division.
- Prohibits a CFP or a CFB from including a provision in a contract or agreement with a recipient that limits or restricts the recipient from disclosing information that the recipient gains from the recipient’s business activities with the registrant, including, but not limited to, terms or conditions of a product or service offered by the registrant.
- Requires a CFB to clearly and conspicuously display on their internet website the average and maximum annual percentage rates for the commercial financing transactions facilitated by them in the most recent calendar year.
- Requires the DFPI to prescribe rules regarding registration requirements applicable to covered persons seeking to offer or provide commercial financing products.
EXISTING LAW:
- Prohibits the enforcement of a judgment obtained by confession in any superior court if obtained after January 1, 2023. (Civil Code of Procedure (C.C.P.) section 1132.)
Under the California Financing Law (CFL)
- Defines “commercial financing” to mean an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes. Fin.Code section 22800(d)(1).
- Gives the DFPI broad oversight and enforcement authority over financial service providers under the CCFPL and the CFL. Fin.Code section 90002.
- Requires a business that provides commercial loans to obtain licensure and be subjected to oversight by the DFPI. Fin.Code section 22000 et seq.
- Requires specified disclosures related to commercial financing, which includes, among other things, a requirement to disclose the annualized rate for a commercial financing offer presented to a recipient. Fin.Code section 22802 and 22803
- Defines “commercial financing” to mean an accounts receivable purchase transaction, including factoring, asset-based lending transaction, commercial loan, commercial open-end credit plan, or lease financing transaction intended by the recipient for use primarily for other than personal, family, or household purposes. Fin.Code section 22800(d)
- Defines “provider” as a person who extends a specific offer of commercial financing to a recipient. Clarifies that “provider” also includes a nondepository institution, which enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution. Fin.Code section 22800(m)
- Defines “recipient” as a person who is presented a specific commercial financing offer by a provider that is equal to or less than $500,000. Fin.Code section 22800(n)
- Exempts the following persons or categories of transactions from the division:
- A depository institution.
- A commercial financing transaction secured by real property.
- Any person who makes no more than one commercial financing transaction in California in a 12-month period or any person who makes five or fewer commercial financing transactions in California in a 12-month period that are incidental to the business of the person relying upon the exemption. Fin.Code section 22801.
Under the California Consumer Financial Protection Law (CCFPL)
- Authorizes DFPI to prescribe rules regarding registration requirements applicable to a covered person engaged in the business of offering or providing a consumer financial product or service, as specified. Fin.Code section 90009(a).
- Authorizes DFPI to promulgate regulations that define unfair, deceptive, and abusive acts and practices in connection with the offering or provision of commercial financing to small business recipients, nonprofits, and family farms. Fin.Code section 90009(e).
- Pursuant to (b), provides rules governing commercial financing products and services, including the following:
- Defines “covered entity” to mean a small business, nonprofit, or family farm whose activities are principally directed or managed from California. 10 California Code of Regulations (CCR), Section 1060(d).
- Defines “covered provider” to mean any person engaged in the business of offering or providing commercial financing or another financial product or service to a covered entity, unless that person is exempt from the CCFPL pursuant to Financial Code Section 90002. 10 CCR section 1060(e).
- Defines “small business” to mean a business entity organized for profit with annual gross receipts of no more than $16,000,000 or the annual gross receipt level as biennially adjusted by the Department of General Services in accordance with Government Code section 14837, subdivision (d)(3), whichever is greater. 10 CCR section 1060 (i).
- Provides that it is unlawful for a covered provider to engage or have engaged in any unfair, deceptive, or abusive act or practice in connection with the offering or provision of commercial financing or another financial product or service to a covered entity. 10 CCR section 1061(a).
- Authorizes DFPI to conduct examinations on a periodic basis of a registrant for the purposes of assessing compliance with consumer financial laws, obtaining information about the activities and compliance systems or procedures of the registrant, and detecting and assessing risks to consumers, small business, and to markets for consumer financial products and services. Fin.Code section 90010.
- Exempts from the CCFPL a variety of persons, including a person acting under the authority of a CFL license as a finance lender or broker. Fin.Code section 90002.
FISCAL EFFECT: Unknown. This bill is keyed Fiscal by Legislative Counsel.
COMMENTS:
- Purpose
Statement from the Author
“Small businesses are the backbone of our economy, and they deserve a fair and transparent marketplace when seeking capital. Right now, traditional lenders operate under clear rules, but certain high-cost non-loan products — like merchant cash advances — function outside that framework. AB 2116 simply ensures consistent oversight so that all financing providers play by the same rules. This bill doesn’t limit access to capital, rather it promotes transparency, strengthens accountability, and protects hardworking entrepreneurs from deceptive practices, helping our small businesses continue to grow and thrive.”
Arguments in Support
“AB 2116 solves two problems:
1) The “wild west” of small business brokering – Today, brokers routinely “steer” small business owners into financing that pays the broker the highest fee while charging the small business owner an unnecessarily high rate, echoing one of the causes of the subprime mortgage crisis. In fact, investigative reports have shown that many subprime mortgage brokers who lost their mortgage licenses simply moved over to the unregulated “wild west” of small business financing.
AB 2116 empowers small business owners to make informed decisions and report bad actors, by establishing an oversight framework and transparency about the products and costs associated with the product that a commercial broker offers the small business owner on behalf of a high-cost commercial lender.
2) Unfair practices in the financing shadows - While small business lenders are subject to oversight by DFPI, similar products that purport not to be loans evade these requirements and operate in the shadows. Additionally, California’s 2022 ban on “confessions of judgement” (SB 688) is easily circumvented by legal devices used to take money straight from a small business owner's bank account without legal recourse. And “confidentiality clauses” are used to bully a small business owner into keeping silent about their experience and unexpected costs.
AB 2116 will catalyze fair lending to small businesses by preventing bad-actor financing companies from taking unfair advantage of their competition and of small business customers.
As for-profit financing companies ourselves, as well as nonprofit advocates and small business owners, we commend your efforts to pass this bill to create a fair financial marketplace where good actors compete fairly and small businesses thrive.”-- Jointly submitted by Responsible Business Lending Coalition, Small Business Majority, and CAMEO Network (co-sponsors)
Arguments in Opposition (Oppose unless amended)
The RBFC respectfully suggests deleting the underlined language from the proposed amendment to Section 9000 of the Financial Code: Promoting the interests of small businesses and protecting them from harm in connection with financial practices and services, in manners similar to those undertaken for consumers. We respectfully submit that deleting the above underlined language will not impact the goal of protecting small businesses. California law recognizes that businesses have different financing needs than consumers. For example, the California Financing Law (“CFL”) regulates consumer loans differently than commercial loans. Conflating consumer financial products and services with commercial transactions is unnecessary to protect small businesses.
AB 2116 requires providers and brokers of small business financing to register with the Department of Financial Protection and Innovation under the California Consumer Financial Protection Law (“CCFPL”).
AB 2116 instructs the DFPI to adopt regulations implementing the registration requirement. We note that the DFPI’s recently adopted registration requirements under the CCFPL (for consumer products including Debt Settlement, Student Debt Relief, Education Financing and providers of Income-Based Advances) are more burdensome than commercial lender licensing requirements under the CFL. We respectfully request that registration requirements for providers of commercial financing be similar in scope to the CFL’s requirements for commercial lenders.”--Revenue Based Finance Coalition.
- Background
The commercial financing landscape presents a diverse array of products with varying structures and terms, resulting in significantly disparate regulatory treatment under existing California law. Typically, financing products either align closely with legal definitions of “commercial loans” or exist as alternative products that, while not formally classified as loans, fulfill a functionally equivalent purpose—advancing capital or assets to a business for future repayment alongside interest or finance charges. In California, non-bank commercial loan providers are typically required to secure licensure from the Department of Financial Protection and Innovation (DFPI) and adhere to the California Financing Law (CFL). However, a regulatory gap exists for commercial financing products that fall outside the formal definition of a loan; these can currently be provided without a license and under significantly less DFPI oversight.
Baseline legal protections for small businesses within these markets are established by the California Consumer Financial Protection Law (CCFPL). Through the enactment of AB 1864 (Limón, Chapter 157, Statutes of 2020), the Legislature authorized the DFPI to promulgate regulations defining unfair, deceptive, and abusive acts and practices (UDAAPs) regarding commercial financing provided to small businesses, nonprofits, and family farms. The DFPI finalized these regulations in August 2023, thereby empowering the department to initiate enforcement actions against UDAAPs in small business financing sectors. This enforcement authority definitively carried over to the CFL in 2025 with the enactment of AB 825 (Limón, Chapter 355, Statutes of 2025).
Beyond these UDAAP provisions, the CCFPL further grants the DFPI authority to mandate the registration of covered persons offering consumer financial products or services within the state.
3) Current oversight of commercial financing
Current law does not impose the same degree of regulation of, or oversight for, transactions relating to non-loan financing products offered to businesses. As it stands, entities offering financing products of $500,000 or less have to make specified disclosures regarding the terms of the financial products.[1] This bill would broaden the scope of state oversight regarding commercial financing activities, extending regulatory authority beyond the current parameters established by the California Financing Law (CFL). The landscape of "commercial financing transactions" generally bifurcates into two distinct classifications: those formally designated as "commercial loans" under the CFL and those alternative products that fall outside this definition. Notable examples within the latter category include merchant cash advances, accounts receivable financing, invoice factoring, and various revenue-based financing products. While commercial financing providers may offer a portfolio that includes both CFL-compliant loans and non-loan products, current law limits the Department of Financial Protection and Innovation's (DFPI) oversight primarily to activities governed by the CFL, leaving non-loan financing transactions largely outside the department's existing regulatory reach.
4) What this bill does
This bill proposes to expand DFPI oversight over a subcategory of commercial financing transactions that fall just out of reach of the CFL and meet certain requirements. First, the borrower must be a small business, which is defined as an entity organized for profit with no more than $16 million in annual gross revenue. Second, the commercial financing transaction is limited to $500,000. These parameters help tailor the bill in scope to the intended target of small business owners who may have less bargaining power or negotiations sophistication. For example, in seeking a $750,000 (three quarters million dollar) loan, it is far more likely that even if a business were smaller in size, it would not be unreasonable to assume that the small business owner has resources to secure legal advice to navigate the transaction.
The author has recently made amendments to exempt auto floorplan lenders because their business model happens to fall within the scope of this bill, but the parties are not in the same intended risk category.
One note is that the bill construction is unorthodox. Instead of prohibiting certain acts, certain acts are prohibited from inclusion in the commercial financing transaction agreement. The author may wish to consider defining the inclusion of these prohibited acts in a contract for commercial financing as unconscionable, as well as specifically prohibiting the acts.
REGISTERED SUPPORT / OPPOSITION:
Support
Last verified 4/19/26
Cameo - California Association for Micro Enterprise Opportunity
Santa Clarita Valley Chamber of Commerce
Small Business Majority
The Responsible Business Lending Coalition
Valley Industry Association of Santa Clarita
Opposition
Last verified 4/19/26
None received.
Analysis Prepared by: Desiree NguyenOrth / B. & F. / (916) 319-3081
Fin.Code section 22802 and 22803. ↑
Discussed in Hearing
1MIN
Assembly Floor
1MIN
Senate Floor
59SEC
Senate Standing Committee on Appropriations
10MIN
Senate Standing Committee on Judiciary
16MIN
Senate Standing Committee on Banking and Financial Institutions
36SEC
Assembly Floor
10MIN
Assembly Standing Committee on Banking and Finance
Bill Author
Bill Co-Author(s):