October 6, 2021

Delaney Sexton
Contributing Editor

C-Suite Wednesday – California Department of Financial Protection and Innovation Proposed Rulemaking for Lending Pilot Program

The California Department of Financial Protection and Innovation (DFPI) released a notice of proposed rulemaking on August 6th, 2021 for their Pilot Program for Increased Access to Responsible Small Dollar Loans. These updates would better serve the small business borrowers in California.

Some of the proposed regulations include:

• Loans previously were required to be $300 to less than $2,500. This regulatory action would increase the cap to $7,500.
• Requires lenders participating in the program to report additional information about the “finders” (an entity that brings together a licensed lender and prospective borrower to negotiate a contract) they use with the Department.
• Allows the finders, if licensed as a financial service provider under certain federal/state laws, to disburse loan proceeds to the borrower, receive loan payments, and provide notices or disclosures to the borrower.
• Delete an existing provision that prohibits the finders from discussing marketing materials or loan documents with the borrower or prospective borrower.
• Restate the statutory requirement for finders to maintain records for at least two years or until one month following the Department’s examination of licensee.
• Restate the requirement for participating lender to maintain for three years a record of notices and disclosures provided by finders to borrowers.

The DFPI allowed a comment period where any interested person or representative could send comments about the proposed regulatory action. This comment period ended on September 20, 2021.

In addition, the DFPI released draft regulations under the Consumer Financial Protection Law (CCPL) on August 18, 2021. These regulations would require small business lenders to report the cost of financing to the DFPI annually.

Their regulation proposal would require lenders to report the following information annually:

  1. “The person’s contact and organization identification information. 3 PRO 02/21 – Commercial Financing Draft Text – Invitation for Comments
  2. By type of commercial financing or other financial products or services, the person’s total number and total dollar amount of transactions in this state for the prior calendar year with small businesses, nonprofits, and family farms.
  3. By type of commercial financing or other financial products or services, the person’s total number transactions in this state for the prior calendar year with small businesses, nonprofits, and family farms for financing over $100,000, over $50,000 but under $100,000, over $25,000 but under $50,000, over $10,000 but under $25,000, and at or less than $10,000.
  4. On or after the operative date for the regulations under Financial Code section 22804, for the commercial financing data reported under paragraph (3) of this subdivision, the minimum, maximum, average, and median total dollar cost of the financing at each interval set forth in paragraph (3).”

The comment period for this proposal ended on September 17, 2021.

Sources:
Notice of Proposed Rulemaking, August 6
Commercial Financing Draft Regulations, August 18