California Law Will Require Certain Lenders and Factors to File an Annual Report Starting in 2025

Beginning March 15, 2025, and each year thereafter, all “Covered Providers” who offer commercial financing to California borrowers and who are already required to provide certain statutory financial disclosures in compliance with the California Financing Disclosure Law shall be required to file an Annual Report electronically through the California Department of Financial Protection and Innovation (“DFPI”) website.

This Annual Report will require factors and asset-based lenders, who are defined among other financial providers as “Covered Providers” and who have, in the past year, issued commercial disclosure information to their borrowers or factored clients to compile this information and report to DFPI in a format that is required by the new legislation.

There is an exception from the filing of this Annual Report by Covered Providers who consummate less than  5 commercial financing transaction to California borrowers in any 12-month period. This exception is identical to the exception provided under the existing California Code of Regulations governing commercial financial disclosures.

The statute clarifies that the “amount financed” for purposes of the Annual Report means, in the case of a factor, the original advance amount minus any prepaid charges or the approved advance limit minus any pre-paid charges and, in the case of an asset-based lender, either the amount of the example transaction or the approved line of credit.

The information to be reported to the State of California is as follows

1.         The name of the Covered Provider and contact information.

2.         By type of commercial financing product (ex: factoring or ABL)  the number of commercial financing transactions with covered entities for the following amounts financed:  $10,000 or less; over $10,000 but not over $25,000; over $25,000 but not over $50,000; over $50,000 but not over $100,000; over $100,000 but not over $250,000; and over $25,000 but not over $500,000.

3.         The other deliverable for the Annual Report deals with the APR calculation. Again, by type of commercial financing product (ex: factoring or ABL) and for the exact same transactions reported upon above the minimum, maximum, average and median APR, again, based solely upon the provider’s prior disclosures made during the prior year.

This Annual Report obviously requires the Covered Provider to make the DFPI aware of certain of its pricing with regard to the APR disclosures referred to above. Once filed with the DFPI, any party, including another lender or factor, can request a copy of  any provider’s Annual Report as there is no requirement of confidentiality. Therefore, the Covered Provider’s volume and APR disclosures (albeit by brackets) is potentially available to competitors. SFNet has objected to allowing such disclosures by DFPI and has met with DFPI in this regard, as well as employed the services of a lobbyist to try to effect a better outcome, but at present the DFPI has not changed its position.