Responsible Business Lending Coalition Applauds California’s Proposed Commercial Finance Disclosure Regulations

The State of California acted in the best interests of small businesses by releasing proposed regulations that reinforce small business borrowers’ right to transparency in financial products. The proposed regulations released by the Department of Business Oversight (DBO) would protect California’s four million small businesses from predatory lending by mandating they be given the opportunity to understand the financing they are being offered in a clear, concise manner that enables informed comparisons across different options—including disclosure of annual percentage rate (APR) and estimated monthly payments. 

We especially commend the DBO’s decision to propose that APR or Estimated APR be disclosed for all small business financing products. APR is the only established metric that enables informed comparisons of the cost of capital over time and between products of different dollar amounts and term lengths. This is why APR is the long-standing, familiar price metric, vetted over 50 years of the Truth in Lending Act. 

The proposed regulations recognize that small business financing has changed. Many small businesses now commonly pay effective APRs of higher than 50%—sometimes as high as 350%—without these rates ever being disclosed to them. While the federal Truth in Lending Act requires consumer creditors to disclose key information about transactions in a clear and comparable way, no such national standard exists to protect the millions of small business owners seeking financing to grow their businesses. 

Last year, California created a path toward establishing the nation’s most extensive set of truth in lending protections for small business borrowers, requiring lenders and other commercial financing companies to provide clear and consistent disclosures. The legislation, authored by Sen. Steve Glazer and passed with support from the RBLC, was signed into law by then-Gov. Jerry Brown. It directed the DBO to adopt regulations implementing the disclosure requirements. 

We look forward to continuing our work with the DBO to further strengthen and implement their proposed regulations. We also encourage other states and the federal government to follow California's lead and protect small businesses from predatory lending. California’s truth in business lending law, which was passed with broad bipartisan support, offers a common-sense solution to the lack of price transparency in financing that small business owners face. 

The proposed regulations codify a business owner’s right to transparent pricing and terms, as outlined in the Small Business Borrowers’ Bill of Rights. The Responsible Business Lending Coalition developed the Small Business Borrowers’ Bill of Rights in 2015 representing a cross-sector consensus on the six fundamental rights that all small business owners seeking financing deserve (including transparent pricing and terms, nonabusive products, responsible underwriting, fair treatment from financing providers, brokers, and lead generators, inclusive credit access, and fair collection practices), along with the specific practices that financing providers, brokers and lead generators must abide by to uphold and protect these rights.