Committee advances SB 728 to register merchant cash advance and factoring firms with DFPI

The California State Senate Committee on Banking and Financial Institutions advanced SB 728, a bill by Senator Padilla, that would require non-loan commercial financing companies to register with the Department of Financial Protection and Innovation (DFPI). The committee voted to pass the measure and re-refer it to the Judiciary Committee by a 5-0 vote with one not voting.

SB 728’s sponsor says the bill would close a regulatory gap that leaves small businesses exposed to opaque, high-cost commercial financing products. "SB 728 ... would require non loan commercial financing companies to register with the DFPI under California consumer financial Protection Law," Senator Padilla said when he presented the bill. He said registration would allow the DFPI to oversee non-loan financing products that are currently outside its scope.

Supporters told committee members that merchant cash advances (MCAs), factoring and similar products can impose extremely costly repayment obligations and often lack the transparency, disclosures and consumer protections that apply to traditional small-business loans. "Study of California businesses found average small business using these unregulated loan products is being…