On October 13, California Governor Gavin Newsom signed into law Senate Bill 666, which amends the California Financing Law to prohibit a covered entity from charging certain fees in connection with a commercial financing transaction with a small business. Under the law, a small business is defined as an independently owned and operated business, with its principal office located in California, its officers domiciled in California, and, together with affiliates, 100 or fewer employees and average annual gross receipts of $15 million or less over the previous three years. “Covered entities” do not include depository institutions.
Fees prohibited by Senate Bill 666 include:
- A fee for accepting or processing a payment required by the terms of the commercial financing contract as an automated clearinghouse transfer debit, except for nonsufficient funds fees.
- A fee for account statements.
- A fee in addition to an origination fee that does not have a clear corresponding service, including risk assessment, due diligence, or platform fees.
- A fee for monitoring the small business’s collateral, unless the underlying commercial financing transaction is delinquent for more than 60 days.
- A fee for filing or terminating a lien filed in accordance with the provisions of the Uniform Commercial Code against the business’s assets that exceeds 150% of the cost of the filing or termination.
The law makes waiver of these provisions contrary to public policy and void and unenforceable. If a covered entity is found in violation of this law, damages include actual damages, including the amount of fees paid by the recipient; statutory damages of between $500 and $2,500; and attorneys’ fees and costs.
This new law follows additional actions that California has taken to regulate commercial financing transactions, including finalizing regulations that implement California’s expanded UDAAP authority related to commercial financing transactions and impose an annual reporting requirement.
The law takes effect on January 1, 2024.