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Recently, the California Department of Financial Protection and Innovation (DFPI) approved the final rule implementing and interpreting certain sections of the California Consumer Financial Protection Law (CCFPL) that prohibit persons from engaging in unfair, deceptive, or abusive acts or practices (UDAAP) related to commercial financial products and services and establishes data collection and reporting requirements.

The final rule, will, among other things, (i) establish UDAAP authority for the DFPI and thereby bring protections to small businesses seeking loans, by defining and prohibiting UDAAPs in the offering or provision of commercial financing to small businesses, nonprofits, and family farms; (ii) authorize the DFPI to impose enhanced penalties for “each act or omission,” including increased penalties for reckless and knowing violations; (iii) create exemptions from DFPI’s UDAAP authority for banks, credit unions, federal savings and loan associations, and similar entities; and (iv) create a registration requirement.

The rule also includes a new annual reporting requirement applicable to entities that engage in more than five commercial financing transactions to covered entities in 12 months. Beginning in March 2025, these entities must file a verified report to the DFPI that includes detailed information on the type and amount of commercial financing transactions, contact information, annual percentage rates, and more.

This regulation becomes effective October 1, 2023

Putting It Into Practice: Covered entities or providers should act to comply with these new requirements, which may include reviewing marketing, disclosures, and existing products for potential UDAAP issues, and then proactively remedying any identified issues. While the final rule significantly reshapes the commercial financing sector in California, business should be aware that the FTC and other states, such as New York, may follow this growing trend to extend consumer-like protections to small business financing.