Manatt Consumer Financial Services Leader Scott Pearson was quoted in an American Banker article about a new California regulation allowing financial services regulators to challenge small business finance practices as unfair, deceptive, or abusive.
The California Department of Financial Protection and Innovation’s new rule, which was finalized on August 2, also created an annual reporting requirement that applies to any financer that originates at least one commercial financing transaction of $500,000 or less to a small business, nonprofit, or family farm whose activities are principally directed or managed from California.
This approach mirrors the state’s ability to assert UDAAP claims against certain consumer lenders, and Pearson said it represents a "sea change in the potential liability of small business finance companies in California.” He added that enforcement is dependent on what officials determine to be abusive and deceptive, and may push lenders out of the state.
"It's really in the hands of the regulators to decide what sort of environment they want to create in the state," Pearson said.
American Banker subscribers can read the full article here.