Two weeks after the DFPI set December 9 as the effective date for its long-threatened trade finance disclosure requirement (we discussed these regulations in a previous bog, here), the DFPI has published draft regulations on commercial UDAAP and annual reports that may affect many of the same companies. More specifically, the proposed settlement would apply to providers of commercial finance or other financial products and services to small businesses, non-profit organizations, and family farms, and (i) extend the DFPI’s UDAAP authority, and (2) impose annual reporting requirements to covered suppliers (we briefly discussed this proposed regulation in a previous blog post here).
The proposed UDAAP and annual reporting regulations follow the DFPI’s nearly four-year effort to promulgate commercial finance disclosure rules, which have generated widespread industry concern and comment, as explained in details page 200+ of the DFPI. final statement of reasons. In light of the lengthy process of finalizing the disclosure regime and proposed regulations stemming from a separate consumer protection law, some weary industry participants appear to have been caught off guard.
Notably, the definition of “small business” refers to a definition set forth in the California Code of Civil Procedure, which includes an independently owned and operated business, not dominant in its field, and below specified maximum revenue thresholds. annual gross. The proposed settlement will require commercial lenders to file reports annually, showing (i) the total number and dollar amount of transactions with small businesses, family farms and non-profit organizations, (ii) the number of transactions by amount financed and type of trade finance or other financial product or service, and (iii) the minimum, maximum, average and median total cost of financing by type of transaction, calculated in accordance with trade finance disclosure regulations .
Written comments on the proposed settlements must be filed by August 8.
Put into practice : Some commercial lenders may consider DFPI promulgation of proposals commercial regulations under a consumer protection law somewhat troubling, notwithstanding that the law grants this power to the DFPI. Political debates aside, which are undoubtedly prolific if the back and forth between industry and the DFPI regarding commercial finance disclosures is to be believed, the settlement calls into question some potential operational challenges that commercial financiers may face, including:
- The proposed regulations will require affected businesses to report information they do not currently collect from business customers, such as gross annual revenues, which is key to determining what transactions should be reported and how. The proposed regulations do not set out a preferred protocol or exemption method as to how trade finance companies should collect and verify the information necessary to determine whether a company meets, for example, the definition of a ” small business “.
- Unlike the trade finance disclosure requirements, the reporting requirements apply more broadly to companies that are not involved in the provision of trade credit. Specifically, companies that service commercial credit accounts will be required to report the loan amount and APR information, even if those service companies have not extended that credit or performed the calculations that must be reported. Accordingly, loan servicers may need to certify the accuracy of the information and data provided by the originators of these products. It is unclear whether the DFPI expects companies to prepare reports based on derived information, and how such information should be identified if it is not based on a manager’s independent analysis or verification. of loans. In addition, it remains to be seen whether reporting of this information by providers can be exempted if it duplicates information already provided by shippers.
Trade finance companies wishing to participate in the rule-making process should submit their comments to the DFPI.