California Code of Regulations
Title 10 - Investment
Chapter 3 - Commissioner of Financial Protection and Innovation
Subchapter 3 - Commercial Financing Disclosures
Section 900 - Definitions

Universal Citation: 10 CA Code of Regs 900

Current through Register 2024 Notice Reg. No. 38, September 20, 2024

(a) The following terms used in this subchapter shall have the following meanings:

(1) "Amount financed" means:
(A) With respect to sales-based financing, the amount of funds to be provided by the financer to the recipient or on the recipient's behalf, minus any prepaid finance charge.

(B) With respect to a closed-end transaction, the principal amount, plus any other amounts that are financed by the financer and are not part of the finance charge, minus any prepaid finance charge.

(C) With respect to a commercial open-end credit plan, the approved credit limit, minus any prepaid finance charge.

(D) With respect to a factoring transaction disclosure made pursuant to section 22802 of the code, the original advance amount, minus any prepaid finance charge.

(E) With respect to a factoring transaction disclosure made pursuant to section 22803 of the code, the approved advance limit, minus any prepaid finance charge.

(F) With respect to asset-based lending disclosures made pursuant to section 22803 of the code and section 950, the amount described in section 950, subdivision (a)(2)(A) or (a)(3)(A), minus any prepaid finance charge.

(G) With respect to a lease transaction:
(i) If the financer does not select, manufacture, or supply the goods to be leased, the net cost to the financer to acquire the property to be leased, including any related costs and charges financed as a part of such transaction, which may include, without limitation, installation charges, delivery costs, software license fees, sales and use taxes, and similar charges, minus any prepaid finance charge.

(ii) If the financer selects, manufactures or supplies the goods to be leased, the price that the financer would sell the goods in a cash transaction, including any related costs and charges financed as a part of such transaction, which may include, without limitation, installation charges, delivery costs, software license fees, sales and use taxes, and similar charges, minus any prepaid finance charge and any down payment or other deposit to be paid by the recipient.

(2) "Approved advance limit" means the maximum advance that a financer may provide to a recipient or on the recipient's behalf in exchange for assignment of outstanding, unpaid legally enforceable claims under the factoring agreement, not including any previous distributions advanced to a recipient or on the recipient's behalf under the factoring agreement, to the extent those distributions have been repaid. The approved advance limit does not include reserve amounts or any other amount not advanced to the recipient at the time of assignment. If the factoring agreement provides for the financer to pay different maximum advances for different types of legally enforceable claims, "approved advance limit" means the total maximum advance that a financer may provide to a recipient or on a recipient's behalf in exchange for assignment of the different types of legally enforceable claims, not including any previous distributions advanced to a recipient or on the recipient's behalf under the agreement, to the extent those distributions have been repaid.

(3) "Approved credit limit" means the maximum advance that a financer may provide to a recipient or on the recipient's behalf under the commercial open-ended credit plan agreement or asset-based lending transaction agreement, not including any previous distributions advanced to a recipient or on a recipient's behalf under the agreement, to the extent those distributions have been repaid. Where the commercial open-ended credit plan agreement or asset-based lending transaction agreement requires the financer to pay different maximum advances for different categories of advance (such as advances secured by inventory, accounts receivable, or others), "approved credit limit" means the total maximum advance that a financer may provide to a recipient or on a recipient's behalf for all categories of advance, not including any previous distributions advanced to a recipient or on the recipient's behalf under the agreement, to the extent those distributions have been repaid.

(4) "Asset-based lending transaction" as set forth in section 22800, subdivision (c) of the code only includes transactions that are loans under California law.
(A) "Forwarding payments," as it pertains to the definition of "Asset-based lending transaction" set forth in section 22800, subdivision (c) of the code, includes:
(i) Arrangements in which a recipient and the financer create an account in which third party obligors deposit payments;

(ii) Arrangements in which a recipient repays advances with the proceeds the recipient collects from the sale or disposition of goods or services financed with such advances; or

(iii) Arrangements in which the recipient directs third party obligors to make payments directly to the financer.

(5) "At the time of extending a specific commercial financing offer" under section 22802 of the code means:
(A) Any time a specific commercial financing offer is quoted to a recipient. However, if a provider simultaneously presents multiple, distinct specific commercial financing offers to the recipient and allows the recipient to select from among those options, then "at time of extending a specific commercial financing offer" occurs at the time that the recipient selects an option.

(B) Any time when the terms of a consummated commercial financing contract are amended, supplemented, or changed, prior to the recipient agreeing to the changes, if the resulting changes to the contract would result in an increase to the annual percentage rate, regardless of whether those terms were previously disclosed to the recipient. This subparagraph does not apply to changes made to resolve a recipient's default on a financing contract.

(C) Notwithstanding subdivisions (a)(5)(A) and (a)(5)(B), any time a specific commercial financing offer is quoted to a recipient in connection with each draw on an open-end credit plan if:
(i) draws occur at the time that a recipient purchases products or services from a retailer or supplier;

(ii) the rate or price varies based upon the retailer or supplier the recipient selects, or the products or services the recipient purchases; and

(iii) the provider chooses to provide disclosures under section 910 in connection with each draw pursuant to this subparagraph rather than a disclosure under section 911.

(6) "Average monthly cost" means the average total amount paid by the recipient (periodic and irregular payments) over the term of the contract, divided by the number of months in the term of the contract. To calculate the number of months in the contract term, a provider may divide the number of days in the contract term by 30.4.

(7) "Benchmark rate" means a rate index (such as, but not limited to, the Secured Overnight Financing Rate (SOFR), Prime Rate, Wall Street Journal (WSJ) Prime Rate, or 1-, 3-, or 5-year Treasury Constant Maturity), based upon general market conditions, that is commonly used to calculate the interest rate in adjustable-rate transactions in the credit industry.

(8) "Broker" means any person other than a financer, recipient, or recipient's agent, who, for compensation, does any of the following: participates in any financing negotiation; counsels or advises the recipient about financing options; participates in the preparation of any financing documents, including financing applications; contacts the financer on behalf of the recipient other than to refer the recipient; gathers financing application documentation or delivers the documentation to the financer; communicates financing decisions or inquiries from the financer to the recipient; or obtains the recipient's signature on financing documents.

(9) "Closed-end transaction" means a transaction in which credit is extended only once over a specific term (including contracts that include an option in which the recipient may extend the term), and is repaid:
(A) in regular predetermined payments of a specified amount over a fixed period of time; or

(B) in the case of sales-based financing, in payments calculated as a percentage of sales or income, but with a minimum required payment or payments such that the recipient is eventually required to repay the amount advanced regardless of the sales or income the recipient collects.

(10) "Code" means the California Financial Code.

(11) "Draw period" means the length of time during which a recipient may make draws under an open-ended credit plan or general factoring or asset-based lending agreement.

(12) "Estimated monthly cost" means the estimated average total amount paid by the recipient (periodic and irregular payments) over the estimated term of the contract, divided by the number of months in the estimated term of the contract. To calculate the number of months in the estimated term, a provider may divide the number of days in the estimated contract term by 30.4.

(13) "Finance charge" means the amount of any and all costs of the financing, represented as a dollar amount, as more specifically described in section 943.

(14) "Financer" means the person who provides or will provide the commercial financing to the recipient or any nondepository institution which enters into a written agreement with a depository institution to arrange for the extension of commercial financing by the depository institution to a recipient via an online lending platform administered by the nondepository institution.

(15) "Initial interest rate" means, in a credit transaction with an interest rate that changes over time and that cannot be calculated in advance for the entire term of the transaction, the rate that would be in effect at the time a disclosure is made, assuming the recipient accepted the financing offer.

(16) "Interest rate" means the periodic rate at which interest accrues on the outstanding principal balance and (if interest is compounded) on accrued but unpaid interest in a commercial financing.

(17) "Irregular payment" means any payment made to the financer that is not a periodic payment.

(18) "Margin" means, in a commercial financing with an adjustable interest rate, the adjustment amount added to or subtracted from the benchmark rate used to calculate the interest rate.

(19) "Maximum non-interest finance charge" means:
(A) For all commercial financing except factoring, the maximum amount of the finance charge other than interest accrued that a recipient may be required to pay if the recipient chooses to prepay the outstanding balance due under a commercial financing agreement.

(B) For factoring, the maximum amount of the finance charge, other than interest accrued since the time the financer purchased the legally enforceable claim, that the recipient may be required to pay if the recipient repurchases the account receivable before the account receivable is due for payment by the account debtor.

(20) "Particular payment channel or mechanism" means, with respect to sales-based financing, the payment channel(s) or mechanism(s) that will be used to determine the amount of a recipient's payment or a true-up. This may include, for example, income flowing through a deposit account or accounts, or payments received through a recipient's payment processor.

(21) "Periodic payment" means any payment made to the financer at regular intervals.

(22) The phrase "person who is presented [with] a specific commercial financing offer" in the definition of "recipient" set forth under section 22800, subdivision (n), of the code means the expected primary borrower on a commercial loan, open-ended credit plan, or asset-based lending transaction, seller in accounts receivable purchase transactions (including factoring), and lessee in lease financing transactions.

(23) "Prepaid finance charge" means any finance charge paid separately to the financer in cash, check or electronic funds transfer before or at consummation of a transaction, or withheld from the proceeds of the financing at any time.

(24) "Provider" means the definition set forth in section 22800, subdivision (m), of the code with the following clarifications:
(A) A provider includes a financer when the financer communicates a specific commercial financing offer either directly to a recipient, or a recipient's agent or broker with the expectation that the information will be shared with a recipient.

(B) The phrase "administered by" excludes arrangements where a nondepository institution provides technology or support services for a depository institution's commercial financing program, provided that the nondepository institution has no interest, or arrangement or agreement to purchase any interest in the commercial financing extended by the depository institution in connection with such program, and the commercial financing program is not branded with a trademark owned by the nondepository institution.

(25) "Reasonably anticipated true-up" means any true-up that the financing provider has a reasonable basis to expect will be made during the term of the contract, accounting for past performance of similar contracts (both those made to the recipient and other similar recipients) and the policies and procedures of the financer.

(26) "Recipient funds" means the net amount to be given directly to the recipient in the form of cash, check, or electronic funds transfer to an account the recipient controls. Recipient funds excludes, without limitation, funds paid to third parties (including brokers). Recipient funds also excludes any part of the amount financed used to pay off or pay down other amounts owed by the recipient, if known by the provider at the time the disclosure is provided. For the purposes of calculating recipient funds, where part of the amount financed will be used to pay off other amounts owed by the recipient that may change over time, a provider may assume that the amounts due under the recipient's other obligations are the amounts due at the time the disclosure is provided.

(27) "Retrospective annual percentage rate" is the actual annual percentage rate, determined after the specific financing contract has been fully repaid to the financer, when the dates and amounts of all payments and fees are known.

(28) "Sales-based financing" means a commercial financing transaction that is repaid by a recipient to the financer as a percentage of sales or income, in which the payment amount increases and decreases according to the volume of sales made or income received by the recipient. Sales-based financing also includes commercial financing transactions with a true-up mechanism.

(29) "Specific commercial financing offer" means a written communication to a recipient, based upon information from, or about, the recipient, of (i) a periodic payment amount, irregular payment amount, or financing amount, and (ii) any rate, price, or cost of financing (including, without limitation, any total repayment amount), in connection with a commercial financing. Information "about the recipient" includes information about the recipient that informs the provider's quote to the recipient, such as the recipient's financial or credit information, but not the recipient's name, address, or general interest in financing.

(30) "Specified payment amount" means the periodic pre-set amount stated in the contract described in subdivision (a)(34)(A) of this section.

(31) "Split rate" means, with respect to sales-based financing, the percentage used by the financer to calculate the payment amounts to be paid to the financer or to calculate true-ups.

(32) Subject to the rules with respect to term specified in sections 922 through 931, 940, and 942, as applicable, "term" means:
(A) With respect to factoring disclosures made pursuant to section 22802, subdivision (b)(3) of the code, the length of time between when the recipient receives payment from the financer for the legally enforceable claim and the date the legally enforceable claim becomes due and payable.

(B) With respect to factoring disclosures made pursuant to section 22803, subdivision (a)(3) of the code, a sample term reasonably expected to be within the range of the terms expected to be used during the life of the master agreement.

(C) With respect to closed-end transactions and commercial open-end credit plans, the contracted length of time necessary for the recipient to fulfill its obligations under the financing agreement with respect to a particular loan advance.

(D) With respect to asset-based lending disclosures made in accordance with section 22803 of the code and section 950, the length of time necessary for the recipient to fulfill its obligations under the financing contract given the assumptions specified by section 950, subdivisions (a)(2) and (a)(3).

(E) With respect to all other commercial financing, the length of time that it is anticipated will be necessary for the recipient to fulfill its obligations under a financing agreement.

(33) "True-up" means any payment made to a recipient, any charge assessed to a recipient, and any adjustment to recipient's periodic payments pursuant to a true-up mechanism.

(34) "True-up mechanism" means, with respect to sales-based financing, a contractual arrangement with all the following elements:
(A) The financer receives periodic payments based upon a pre-set amount (or amounts) stated in the contract.

(B) The contract allows the recipient to request, or the financer to initiate, adjustments to the payment amount, credits to the recipient, or charges to the recipient after execution of the contract, so that the total amount paid by the recipient more closely reflects a split rate listed in the contract.

(35) With respect to factoring transactions:
(A) "Account debtor" means the debtor with the primary obligation to pay the legally enforceable claim assigned by the recipient.

(B) "Purchase price" means the amount that the financer agrees to pay the recipient for assignment of a legally enforceable claim.

(C) "Factoring fee" means any fee charged by the financer to process the transaction plus the difference between the face value of a legally enforceable claim and the purchase price that the financer agrees to pay the recipient for assignment of that legally enforceable claim.

(D) "Original advance amount" means the amount that a financer issues to a recipient or on the recipient's behalf upon receipt of a legally enforceable claim for payment.

(E) "Reserve amount" means, in a reserve factoring transaction, the difference between the purchase price for a legally enforceable claim and the original advance amount, that is held in reserve to secure the financer in the event of non-payment of the legally enforceable claim, or to secure the financer in the event of nonpayment of other legally enforceable claims assigned or to be assigned by the recipient to the financer.

(F) "Reserve factoring transaction" means a factoring transaction where, upon receipt of a legally enforceable claim for payment, a financer pays an original advance amount to the recipient that is less than the purchase price and holds the difference between the original advance amount and the purchase price to secure the financer against deficiencies on amounts paid by the account debtor on the legally enforceable claim or other legally enforceable claims assigned or to be assigned by the recipient to the financer.

(b) Unless otherwise stated, all references to "average" within these regulations refer to the arithmetic mean.

(c) All terms used in this subchapter that are defined in section 22800 of the code shall have the meanings ascribed to them in that section.

1. New subchapter 3 (sections 900-956) and section filed 6-9-2022; operative 12-9-2022 pursuant to Government Code section 11343.4(b)(2) (Register 2022, No. 23). Transmission deadline specified in Government Code section 11346.4(b) extended 60 calendar days pursuant to Executive Order N-40-20 and an additional 60 calendar days pursuant to Executive Order N-71-20. Filing deadline specified in Government Code section 11349.3(a) extended 60 calendar days pursuant to Executive Order N-40-20 and an additional 60 calendar days pursuant to Executive Order N-71-20. For prior history of subchapter 3, see Register 97, No. 34.

Note: Authority cited: Sections 321 and 22804, Financial Code. Reference: Sections 22800, 22801, 22802, 22803 and 22804, Financial Code.

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