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Bill

Bill

AB 2116

Commercial financing.

2025-2026 Regular Session Introduced by Pilar Schiavo

Creates a new state-regulated regime under CFL/CCFPL requiring licensing, disclosures, and protections for commercial financing providers and brokers servicing small businesses sta

Read second time and amended. Re-referred to Com. on JUD.
#commercialfinancing
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WeVote Research Nonpartisan
Bill Summary · AB 2116

Overview

AB 2116, introduced for the 2025-2026 California legislative session, would create a new regulatory framework under the California Financing Law (CFL) and the California Consumer Financial Protection Law (CCFPL) to govern commercial financing for small businesses. The bill takes effect January 1, 2028, and establishes licensing, registration, consumer protections, reporting, and enforcement specific to commercial financing providers and brokers.

Main purpose and intent

  • Expand CFL and CCFPL coverage to regulate commercial financing activities, with a focus on protecting small businesses from abusive financial practices.
  • Create a distinct, state-regulated regime for commercial financing (including accounts receivable purchase, factoring, asset-based lending, commercial loans, open-end credit plans, and lease financing) used by small businesses.
  • Promote transparent pricing, fair dealing, and accountability in the commercial financing market.

Key provisions and changes

  • Regulation and licensing

    • Beginning January 1, 2028, commercial financing providers and commercial financing brokers must be licensed by the California Department of Financial Protection and Innovation (DFPI) under the CFL (Chapter 3.1: Commercial Financing for Small Businesses).
    • The bill adds new registration requirements for entities offering commercial financing products and prohibits engaging in these activities without a license.
    • Creates a new joint licensing framework for related activities, including a “master” license structure and location-specific licensing.

  • Definitions and scope

    • Defines “commercial financing” to include accounts receivable purchase, factoring, asset-based lending, commercial loans, open-end plans, and lease financing intended for business purposes (not personal use).
    • Defines “commercial financing provider” and “commercial financing broker,” and clarifies who may be considered a recipient (small business or small business owner).

  • Prohibitions and consumer protections

    • Prohibits taking a confession of judgment or a power of attorney before default.
    • Prohibits garnishment provisions that attach funds in a borrower’s bank accounts before default.
    • Requires disclosures and prohibits unconscionable terms; aligns with principles in the Civil Code and Business and Professions Code.
    • Requires brokers to display, on their websites, the average and maximum annual percentage rates for the commercial financing transactions they facilitate.

  • Registration, examinations, and enforcement

    • DFPI to prescribe registration requirements for covered persons offering commercial financing products.
    • DFPI to conduct criminal history checks for license applicants (fingerprints through DOJ and FBI, with possible NMLS registry involvement).
    • Provisions for branch office licensing, changes of location, and ongoing examinations.
    • Requires surety bonds for licensees (minimum $25,000, with higher bonds possible for certain licensees employing mortgage originators).
    • Establishes grounds for license denial, suspension, or revocation, including misrepresentation, lack of qualifications, or violations of the CFL/CCFPL.

  • Reporting and data

    • Beginning in 2029, commercial financing providers must electronically file annual reports with the DFPI detailing volume, types of financing, dollar amounts, and rates by financing type, including rate disclosures per type/interval.
    • Requires annual and potentially other special reports as determined by the DFPI.

  • Small business focus and exemptions

    • Defines “small business” as entities with up to $16 million in annual gross receipts (with biennial adjustments as applicable).
    • The chapter 3.1 regime includes exemptions for certain regulated entities, specific transactions secured by real property, and very small numbers of transactions.

Who would be affected

  • Commercial financing providers (including lenders that offer accounts receivable purchase, factoring, asset-based lending, commercial loans, open-end plans, and lease financing).
  • Commercial financing brokers who facilitate such transactions.
  • Program administrators and entities involved in administering assessment contracts or PACE-like programs (subject to related CFL provisions).
  • Small businesses and small business owners seeking commercial financing, who would gain clearer protections and disclosures, but may also experience new licensing and reporting requirements on providers.

Procedural and timeline aspects

  • Operative date for new CFL/CCFPL regulatory regime: January 1, 2028 (with provisions becoming effective for licensing, registration, and related duties).
  • Annual reporting by providers to commence for activity in the prior year, with filings due by March 15 each year beginning in 2029.
  • DFPI authority to issue regulations and set fees, timelines, and reporting formats.
  • Various transition provisions (e.g., branch office licensing, electronic records and signatures) align with broader modernizations in financial regulation.

Potential impacts and considerations

  • Increases regulatory oversight and compliance obligations for commercial financing providers and brokers.
  • Aims to curb abusive practices (such as pre-default coercive tactics, problematic contract terms, and opaque rate disclosures) and improve transparency for small businesses.
  • Could affect market dynamics by raising the regulatory burden, which may influence licensing costs, product structuring, and provider participation.
  • Local government and school districts generally face no mandated reimbursements associated with this act.

If you’d like, I can extract a concise, line-by-line compliance checklist for providers or a side-by-side comparison with existing CFL provisions.

Compiled from official sources — confirm details with the bill’s official record.

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