SB728 - California Consumer Financial Protection Law: commercial financing.

Amended IN Senate April 24, 2025 Amended IN Senate March 25, 2025 CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION Senate Bill No. 728 Introduced by Senator Padilla February 21, 2025 An act to amend Section 94918.5 of the Education Code, and to amend Sections 90000, 90002, 90003, and 90005 of, and to add Sections 90004.1 and 90009.1 to, the Financial Code, relating to financial institutions. LEGISLATIVE COUNSEL'S DIGEST SB 728, as amended, Padilla. California Consumer Financial Protection Law: commercial financing. Existing law, the California Consumer Financial Protection Law (CCFPL), establishes certain consumer protections relating to consumer financial products, practices, and services, including, among others, making it unlawful for covered persons or service providers, as defined, to, among other acts, engage in unlawful, unfair, deceptive, or abusive acts or practices with respect to consumer financial products or services. Existing law establishes that the purpose of the CCFPL is to promote consumer welfare, fair competition, and wealth creation in this state by promoting, among other things, nondiscriminatory access to consumer financial products and services that are understandable and not unfair, deceptive, or abusive. Existing law authorizes the Department of Financial Protection and Innovation, under the direction of the Commissioner of Financial Protection and Innovation, to prescribe rules regarding registration requirements applicable to a covered person in the business of offering or providing a consumer financial product or service, as defined, and rules requiring the payment of registration fees. This bill would expand the purposes of the CCFPL to include the protection of small businesses from abusive financial practices, as specified. The bill would require the department to prescribe rules regarding registration requirements applicable to covered persons seeking to offer or provide commercial financing products, as defined and specified. The bill would, commencing January 1, 2027, prohibit a person from engaging in the business of offering to provide or providing commercial financing products without first registering with the commissioner, as specified. The bill would impose various duties on commercial financing providers and brokers, including, among other things, prohibiting the taking of a confession of judgment or power of attorney at any time before a default, as specified. The bill would make various conforming changes. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO Bill Text The people of the State of California do enact as follows: SECTION 1. Section 94918.5 of the Education Code is amended to read: 94918.5. (a) The bureau’s administration of this article or Article 13 (commencing with Section 94919) shall not preclude the authority of the Department of Financial Protection and Innovation over, and application of the California Consumer Financial Protection Law to, any “covered persons” as defined by Section 90005 of the Financial Code, including, but not limited to, private postsecondary educational institutions. (b) Nothing in this chapter shall constitute regulation of an institution’s financial product or service pursuant to subparagraph (B) of paragraph (2) of subdivision (a) of Section 90009 of the Financial Code, or shall otherwise be construed to limit the Department of Financial Protection and Innovation’s jurisdiction with respect to an institution’s financial product or service. (c) An institution subject to this chapter shall not be considered “acting under the authority” of its status with the bureau pursuant to subdivision (a) of Section 90002 of the Financial Code when offering financial products or services. SEC. 2. Section 90000 of the Financial Code is amended to read: 90000. (a) The Legislature finds and declares all of the following: (1) California consumers are vulnerable to abuse if the state lacks a dedicated financial services regulator with broad authority over providers of financial products and services. The lack of such a regulator has left consumers vulnerable to abuse and forced California businesses to compete with unscrupulous providers. The financial victimization of economically vulnerable consumers, including individuals who lack a safety net, not only harms the individual but also has a broader social and economic cost on all of California, and could lead to increased caseloads for social safety net programs. These problems become even more acute in times of crisis, including the global COVID-19 pandemic and economic fallout. Consequently, where feasible, the Legislature should enact statutory measures to protect California residents from financial abuses in the marketplace for financial products and services. (2) Robust consumer protections enable wealth building and promote a vibrant economy. They are especially important among various populations, including, but not limited to, military service members, seniors, students, and new Californians. Unfair, deceptive, or abusive practices in the provision of financial products and services undermine the public confidence that is essential to the continued functioning of the financial system and sound extensions of credit to consumers. (3) Technological innovation offers great promise to the more effective and efficient provision of consumer financial products and services to the population of California and also poses risks to consumers and challenges to law enforcement in addressing those risks. (4) Small business owners are often similarly situated as consumers with regards to their sophistication and bargaining power relative to providers of financial services and products. Many of the rationales supporting legal protections for consumers apply also to small business owners. Small businesses have a better chance to survive and grow if they are able to access safe and effective financial products and are protected from unfair, deceptive, or abusive practices when accessing financial products and services. (5) It is the intent of the Legislature to enact the California Consumer Financial Protection Law to strengthen consumer protections by expanding the ability of the Department of Financial Protection and Innovation to improve accountability and transparency in the California financial system, provide consumer financial education, and protect consumers and small businesses from abusive financial practices, while prioritizing the prevention of unethical businesses from harming the most vulnerable populations including military service members, seniors, students, low- and moderate-income individuals, and new Californians. (b) The purpose of the California Consumer Financial Protection Law shall be to promote consumer welfare, fair competition, and wealth creation in this state by doing all of the following: (1) Promoting nondiscriminatory access to responsible, affordable credit on terms that reasonably reflect consumers’ ability to repay. (2) Promoting nondiscriminatory access to consumer financial products and services that are understandable and not unfair, deceptive, or abusive. (3) Protecting consumers from discrimination and unfair, deceptive, and abusive acts and practices in connection with financial practices and services. (4) Promoting nondiscriminatory consumer-protective innovation in consumer financial products and services. (5) Promoting the interests of small businesses and protecting them from harm in connection with financial practices and services, in manners similar to those undertaken for consumers. SEC. 3. Section 90002 of the Financial Code is amended to read: 90002. (a) This division shall not apply to a licensee, or an employee of a licensee, of any state agency other than the Department of Financial Protection and Innovation to the extent that licensee or employee is acting under the authority of the other state agency’s license. (b) This division shall not apply to a person or employee of that person to the extent that person or employee is acting under the authority of one of the following licenses, certificates, or charters issued by the Department of Financial Protection and Innovation: (1) Any person licensed as an escrow agent under Division 6 (commencing with Section 17000) of the Financial Code. (2) Any person licensed as a finance lender, broker, program administrator, or mortgage loan originator under Division 9 (commencing with Section 22000) of the Financial Code. (3) Any person licensed as a broker-dealer or investment adviser under Division 1 (commencing with Section 25000) of Title 4 the Corporations Code. (4) Any person licensed as a residential mortgage lender, a mortgage servicer, or a mortgage loan originator under Division 20 (commencing with Section 50000) of the Financial Code. (5) Any person licensed as a check seller, bill payer, or prorater under Division 3 (commencing with Section 12000) of the Financial Code. (6) Any person licensed as a capital access company under Division 3 (commencing with Section 28000) of Title 4 of the Corporations Code. (7) Any person doing business under a license, charter, or certificate issued under the Financial Institutions Law, including Division 1 (commencing with Section 99), Division 1.1 (commencing with Section 1000), Division 1.2 (commencing with Section 2000), Division 1.6 (commencing with Section 4800), Division 2 (commencing with Section 5000), Division 5 (commencing with Section 14000), Division 7 (commencing with Section 18000), and Division 15 (commencing with Section 31000) of the Financial Code. (c) This division shall not apply to a bank, bank holding company, trust company, savings and loan association, savings and loan holding company, credit union, or an organization subject to oversight of the Farm Credit Administration, when acting under the authority of a license, certificate, or charter under federal law or the laws of another state. (d) This division applies to all other covered persons, as defined in Section 90005. SEC. 4. Section 90003 of the Financial Code is amended to read: 90003. (a) It is unlawful for a covered person or service provider, as defined in Section 90005, to do any of the following: (1) Engage, have engaged, or propose to engage in any unlawful, unfair, deceptive, or abusive act or practice with respect to consumer financial products or services. (2) Offer or provide to a consumer any financial product or service not in conformity with any consumer financial law or otherwise commit any act or omission in violation of a consumer financial law. (3) Fail or refuse, as required by a consumer financial law or any rule or order issued by the department thereunder, to do any of the following: (A) Permit the department access to or copying of records. (B) Establish or maintain records. (C) Make reports or provide information to the department. (b) For any person who knowingly or recklessly provides substantial assistance to a covered person or service provider in violation of subdivision (a) or any rule or order issued thereunder, the provider of that substantial assistance shall be deemed to be in violation of that section to the same extent as the person to whom that assistance is provided. (c) Notwithstanding subdivision (b), a person shall not be held to have violated paragraph (1) of subdivision (a) solely by virtue of providing or selling time or space to a covered person or service provider placing an advertisement. SEC. 5. Section 90005 of the Financial Code is amended to read: 90005. The definitions in this section apply throughout this division, except as otherwise provided in this division or if the context clearly indicates otherwise: (a) “Affiliate” means any person that controls, is controlled by, or is under common control with another person. For purposes of this definition, “control” means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person. (b) “California resident” has the same meaning as “resident” as that term is defined in Section 17014 of the Revenue and Taxation Code. (c) “Commercial financing” has the same meaning as that term is defined in Section 22800. (d) (1) “Commercial financing brokerage services” means the following acts in connection with a commercial financing transaction: (A) Transmitting sensitive data about a prospective recipient to a commercial financing provider with the expectation of compensation in connection with making a referral. (B) Making a referral to a commercial financing provider under an agreement with the commercial financing provider that a prospective recipient referred by the person to the commercial financing provider meets certain criteria involving sensitive data. (C) Participating in a commercial financing negotiation between a commercial financing provider and prospective recipient. (D) Counseling, advising, or making recommendations to a prospective recipient about a commercial financing transaction based on the prospective recipient’s sensitive data. (E) (i) Participating in the preparation of commercial financing documents, including commercial financing applications, other than providing a prospective recipient blank copies of commercial financing documents. (ii) Transmitting information that is not sensitive data to a commercial financing provider at the request of a prospective recipient shall not, by itself, constitute participation in the preparation of commercial financing documents within the meaning of this subparagraph. (F) Communicating to a prospective recipient a commercial financing provider’s commercial financing approval decisions. (G) Charging a fee to a prospective recipient for services related to a prospective recipient’s application for a commercial financing transaction from a commercial financing provider. (2) Notwithstanding paragraph (1), the following acts in connection with a commercial financing transaction do not constitute “commercial financing brokerage services:” (A) Performing support tasks, including, but not limited to, typing, word processing, data entry, filing, billing, answering telephone calls, taking and receiving messages, and scheduling, in support of the performance by a broker of any of the activities described in subparagraphs (E) to (G), inclusive, of paragraph (1). (B) Furnishing a consumer report to a covered person by a consumer reporting agency in accordance with subsection (a) or (c) of Section 1681b of Title 15 of the United States Code. (C) Furnishing a consumer credit report, as defined in Section 1785.3 of the Civil Code, to a covered person by a consumer credit reporting agency in accordance with subdivision (a) or paragraph (1) of subdivision (b) of Section 1785.11 of the Civil Code. (D) Furnishing a prequalifying report, as defined in Section 1785.3 of the Civil Code, to a covered person by a consumer credit reporting agency in accordance with paragraph [Text truncated for display. Full text available on Congress.gov.]